Silver Lake and Red 5's $2.2BN Gold Rollup

Author

Future Money
February 09, 2024

⚡ Five Second Summary:

ASX listed gold producers Silver Lake Resources and Red 5 announced a potential merger of the two companies. 

The merger values the two producers at a combined $2.2BN and is one of many deals in a wave of consolidation amongst the ASX listed gold producers. 

Red 5 is also not ruling out further consolidation with neighbour Genesis Minerals.

📊 The Chart:

🤔 What's Happening:

  • Red 5 and Silver Lake Resources are both some of the biggest gold producers in Australia. Combined the two companies produce ~445,000 ounces of gold per year. 

  • The two companies together have a resource base of ~12.4M ounces of gold and ore reserves of ~4M ounces of gold. 

  • Once the merger is completed, the combined entity will become the 5th biggest gold producer on the ASX. 

  • Red 5 also said it isn't ruling out a potential deal with its regional peer Genesis Minerals, leaving the door open for more consolidation in this part of WA.

🔢 Numbers + Facts:

  • The merger values the combined entity at $2.2BN.

  • Red 5 shareholders will own 51.7% of the merged entity and Silver Lake shareholders will own the remaining 48.3%.

🔮 Looking Ahead:

  • The deal between Red 5 and Silver Lake Resources comes after a wave of consolidation has hit the large cap gold space. 

  • The merger between Newcrest and Newmont created the world’s biggest gold producer.

  • In WA, Red 5 and Silver Lake’s neighbour Genesis Minerals has done two deals in three years to set itself up as a major player in the region. 

  • This latest deal looks unlikely to be the last in consolidation deals across the mid-large cap gold sector.

📈 The Company: BPM Minerals (ASX: BPM)

Market Cap: $8.4M | Share Price: $0.12 | Industry: Mining

BPM Minerals (ASX: BPM) is a micro-cap exploration company looking to make a gold discovery in WA. 

How does BPM fit into the story?

BPM is currently drilling its Claw Gold project in WA. 

BPM’s project sits ~500m away from $1.6BN Capricorn Metals Mount Gibson gold project. 

The Mount Gibson project has a 3.24M ounce gold resource and Capricorn Metals is looking to bring the project into production. 

We see the ongoing consolidation amongst mid-large cap gold producers as a sign that the industry prefers to acquire existing gold discoveries rather than go out and explore to try and increase project resources.

We think BPM could become a takeover target for a major like Capricorn Metals IF the company were to make a discovery with its current round of drilling.

📰 Mainstream Media Coverage

Australian Financial Review

“Gold remains one of the most fragmented mining industries, with 185 producers and explorers on the ASX. Low barriers to entry, and technological advancements in how gold is processed enabled smaller companies to thrive, research firm CRU found last year.

But soaring operational costs and see-sawing commodity prices has encouraged gold producers, particularly those under financial duress such as Red 5, to consolidate.”

Mining.

“The increased scale, diversification and financial strength of the new company that will be formed via this transaction will be primed for continued strong cash flow generation and further growth,” said Luke Tonkin, current Managing Director of Silver Lake Resources.