Vault Minerals has long been seen as a possible takeover target, but Regis was not the expected buyer. In any case, today's 'merger of equals' creates a A$10.7 billion business with annual production of 700,000 ounces and a massive pile of cash.
Gold miners Regis Resources and Vault Minerals have announced a "merger of equals" to create a A$10.7 billion business — with an enormous cash pile.
Under the terms of the deal, Vault shareholders will get 0.6947 Regis shares for every Vault share held, with current Regis owners to hold 51% of the combined company and Vault owners the balance. Regis, currently capitalised $5.4 billion, and Vault, capitalised at $4.7 billion, will have an annual production profile of circa 700,000 ounces of gold from five mines, as well as two internal growth opportunities: Vault's Sugar Zone project in Ontario, Canada, and Regis' stalled McPhillamys project in New South Wales.
Combined, the company will have resources of 20.5Moz and reserves of 6Moz. Regis ended March with $1.13 billion in cash and bullion and Vault with $730 million. Provided all goes to plan and Vault shareholders agree to the deal, the combined business will hold in excess of $2.3 billion when the deal completes in the September quarter. The combined business will have annualised free cashflow of circa $1.7 billion.
Credits: Regis Resources, Vault MineralsSpeaking to analysts on a conference call about the mergers, Regis boss Jim Beyer insisted that the immediate focus for the two companies was on completing the merger and integrating operations, with no pressing need to create a new capital management policy. "Our current capital management policy will remain as is," Beyer said. Regis' policy is to pay back to shareholders between 25% and 50% of its cash build each half-year.
Beyer will act as managing director of the combined business, which will trade under Regis' name, with Vault chair Russell Clark to head the new board of eight — four from Regis and four from Vault. Current Regis chair James Mactier will retire. More consolidation on the horizon? While cagey about whether the big cash pile will be put towards further acquisitions, Beyer certainly did not rule it out.
"Every business is always looking at all the options out there, and I'd prefer not to put the cart too far ahead of the horse at the moment, but there's no doubt that that's where we'll be thinking. But right now, the focus is on the near term," he said.
As for internal growth, Beyer spoke highly of Sugar Zone and said it looked like an "excellent" asset, while Tonkin said Vault was comfortable with McPhillamys as a longer-dated growth option. Where is Genesis? On the other side of the consolidation spectrum, the terms of the merger do not restrict Vault from entertaining any unsolicited counterproposals from potential interlopers. It's long been speculated that the Rayleigh Finlayson-led Genesis Minerals and Vault would eventually combine, given their complementary Leonora assets.
With a current production of circa 275,000ozpa, $600 million in cash, and highly valued paper, the $6.6-billion-capitalised Genesis could still throw its hat in the ring. Genesis has had several opportunities to make a play for Vault over the years, but perhaps a lack of an acceptable offer from Vault's perspective has been the sticking point. Or perhaps Genesis has simply not been as interested as the market speculated.
In any case, Genesis is in the midst of a $639 million acquisition of fellow ASX-listed Leonora gold stock Magnetic Resources. Beyer noted that a 1% break fee, equating to circa $50 million, applied to the Regis-Vault merger. The big tax benefit A somewhat unusual talking point for the big merger was the tax benefits that the deal would bring.
Beyer gave little detail about the cost synergies of a Regis-Vault merger, but he stressed to analysts that the "single biggest" benefit was a $500 million tax uplift from the deal. He clarified on the analyst call that the tax break came from a step-up asset value for Vault of $1.6–1.7 billion. Beyond this, the main operational cost synergies were unspecified "procurement savings" and reduced corporate costs.
A positive move: Argonaut While Jardens analysts Ben Lyons said he took a bit of an issue with the "scale just for the sake of scale" angle of the merger, capital markets firm Argonaut liked the look of the Regis-Vault combination despite the lack of obvious synergies. "We see the proposed merger as a key positive for both companies, with the tax benefits alone expected to be significant," the firm said in a note.
"Importantly, the combination removes the reliance on McPhillamys as a key growth project over the next five years, with our forecast combined production expected to trend towards ~800kozpa.
" It held a "buy" recommendation to the miners, with a Vault valuation of $7 per share and a Regis valuation of $10.50 per share. Vault shares were up 5% to $4.72 on Tuesday, while Regis was off 4% to $6.86. Genesis was down 1.5%, with the broader ASX gold sector generally soft.
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