Silver Lake and Doray in $421m gold merger

Local gold producers Silver Lake Resources and Doray Minerals have announced a merger to create a mid-tier company to be led by Silver Lake managing director Luke Tonkin.

The merged entity would have an expected value of $421 million.

Silver Lake shareholders would be the majority owners of the merged entity with a 62.7 per cent share, while Doray shareholders would own the remaining 37.3 per cent.

Each Doray shareholder would receive 0.6772 Silver Lake shares for every share held, valuing Doray at around $157 million.

The proposed entity would have $119 million in cash and equivalents.

Both boards have unanimously recommended the deal.

The merged group’s board will comprise two members from the current Doray board and four members from the current Silver Lake board, with Mr Tonkin and Silver Lake chairman David Quinlivan assuming the same roles in the merged group.

Doray managing director Leigh Junk and Doray non-executive director Peter Alexander will join the new board as non-executive directors.

Mr Tonkin said the merger would create a stronger company in a low-risk jurisdiction.

“The combination of the complementary Silver Lake and Doray assets is being done for the right reasons at the right time,” Mr Tonkin said.

According to BNiQ data on gold miners, Silver Lakes is ranked 13^th for gold production in Western Australia with 158,000 ounces last financial year, Doray is ranked 16^th with 80,000oz during the same period.

The combined entity will have a production guidance of 240,000oz for the 2019 financial year, which would see it ranked 11^th, and a gold mineral resource base of 4.6 million ounces.

Silver Lake’s primary project is the Mount Monger project, located approximately 70 kilometres south-east of Kalgoorlie, which hosts a gold mineral resource base of 3.72 million ounces and consists of three underground mines and one open-pit mine.

Doray’s projects all have a gold mineral resource base under 1 million ounces, the largest of which is the Deflector project, a narrow vein underground mine which is located 160km east of Geraldton.

Mr Junk said the deal would enable the full potential of the Deflector project to be realised.   

“Both companies have recognised the challenges of being a significant producer in the gold business and this transaction puts us in a position to not only compete, but to be a sustainable and relevant player in the global gold industry,” Mr Junk said.

Silver Lake’s financial advisers are Sternship Advisers and RBC Capital Markets, with HopgoodGanim Lawyers acting as their legal adviser.

Doray’s financial adviser is PCF Capital and its legal adviser is Bellanhouse Lawyers.

An analyst note from Petra Capital stated the merger would be a sensible tie-up with a very real chance of a market re-rating based on the larger production profile and lower-risk associated with being a multi-mine producer.

“With an EV of just $306m, there is potential for this to be considered in a similar way the market values the likes of Dacian and Aurelia,” the analyst note stated.

Silver Lake’s share price was down 8.6 per cent to 47 cents per share at 1pm AEDT.