Merger Of Two Junior Gold Producers Calls For A Negative Response

Silver Lake Resources Limited (ASX:SLR) and Doray Minerals Limited (ASX:DRM) entered into a binding Scheme implementation agreement on November 14, 2018 i.e. today. Under this Doray Scheme of Arrangement, the two companies will merge. This merger agreement will bring two complementary West Australian high-grade gold producers under one entity which will form a leading ASX mid-tier gold producer.Â

Under this agreement, each shareholder of Doray, will receive 0.6772 shares of Silver Lake for every Doray Share. Silver Lake will have a holding of 62.7% and Doray will have a holding of 37.3% in the merged entity.

Each Doray Director intends to have all the shares that they hold in Doray for voting in favor of the Scheme, in both instances, i.e., in the absence of a superior proposal and subject to an Independent Expert opining that the Scheme is in the best interests of Doray Shareholders. Approximately 810 million outstanding ordinary shares will be recorded upon the completion of the scheme and the formation of the merged entity.

Sternship Advisers and RBC Capital Markets are the Silver Lake’s financial advisers and PCF Capital Group is Doray’s financial adviser.

An indicative time line for the scheme implementation along with effective and record dates have been provided. The effective date mentioned under the time table issue is March 13, 2019, and the record date is March 15, 2019. The scheme is expected to be implemented by March 20, 2019.

After the completion of the scheme, the merged entity’s board will be consisting of six members, of which four members will be from the current Silver Lake Board and other two will be from current Doray Board.

Implementation of the scheme is subjective to certain conditions: Majority Doray Shareholders’ approval (representing 75% of the total votes cast), Independent Expert opinion for the scheme to be in the best interest of Doray shareholders, and approval from the Court.

The merged entity will provide for a focused operating model with aggregated functional support that will enhance the opportunities for supply chain and optimization of site operating configuration and will contribute to a diverse cash flow base.

Mineral resource base of approximately 4.6m gold equivalent ounces will be owned by the merged entity. On September 30, 2018, the merged entity posted pro-forma net cash and cash equivalents at approximately A$119m. Strong balance sheet along with strong cashflow provides the opportunity to fund the organic growth opportunities more effectively and efficiently. Healthy operating and financial metrics will allow the merged entity to approach towards future opportunities and tap other growth opportunities.

The formation of the merger will help the merged entity to place itself into the mid-tier gold producer peer group and hence enhancing its market presence and liquidity. The combination of two miners will create a mid-tier producer of 240,000-ounces per year.

Announcement of the scheme did not attract investors and this could be seen through the price levels of both the scrips. Doray Minerals slipped by 11.11% to trade at $0.320 and SLR slipped by about 9.6% to trade at $0.470.

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