Northern Star Resources Announces Takeover Offer For Echo Resources As Unconditional  

  • Sep 24, 2019 AEST
  • Team Kalkine
Northern Star Resources Announces Takeover Offer For Echo Resources As Unconditional  

Australia has large quantities of minerals and resources, with mining activities in all the states and territories. The S&P/ASX 300 Metals & Mining (Industry) has generated a stunning return of 18.56% over the last one year, while Northern Star Resources Ltd, a major player in the Australian metals & mining industry, has delivered a 22.29% year-to-date return, as on 24 September 2019.

The company recently updated the market regarding its takeover offer to Echo Resources Limited. Let us have a quick glance at the same.

Takeover Offer for Echo Resources

On 23 September 2019, Northern Star Resources Ltd (ASX: NST) declared its cash takeover offer as unconditional for all the issued shares of gold explorer, Echo Resources Limited, after all the remaining outstanding defeating conditions of the offer were waived. The deal to be made at a consideration of $0.33 per share was announced to the market on 27 August 2019. On 17 September 2019, the independent directors of Echo made a recommendation (unanimous), asking shareholders to accept the proposal in the absence of a better offer. NST already holds a stake of 21.99% in Echo.

Key Highlights of Deal:

  • Shareholders of Echo would be paid in cash as well as receive certain immediate value for their shares.
  • Shareholders want a smooth flow of funds and looking at the deal, it seems a decent offer for Echo, as it represents a significant premium to Echo’s trading levels before the offer announcement, including
    • 4% to Echo’s VWAP of A$0.237 on 19 August 2019
    • 1% to the 10-day VWAP of A$0.232 up to and including 19 August 2019
    • 7% to the 20-day VWAP of A$0.220 up to and including 19 August 2019
    • 3% to the 60-day VWAP of A$0.183 up to and including 19 August 2019
  • If Echo shareholders reject the offer, the company might face several funding issues that could hinder its operations.
  • Northern Star is offering an accelerated payment terms to Echo’s shareholders. The terms include payment within seven business days (or by 1 October 2019) of accepting the offer.

About Northern Star Resources/Echo Resources Limited

Northern Star Resources is engaged in the exploration of gold deposits from mines located in Western Australia, Northern Territory and Alaska. The company also markets and distributes refined gold that is explored from the mines of Jundee and Kalgoorlie in Western Australia and Pogo in Alaska.

As an exploration and development company, Echo Resources Limited is focused on the Yandal Gold Project, which covers contiguous tenements of more than 1,600km² in the Yandal greenstone gold belt in Western Australia. The tenements include the Bronzewing processing plant and associated infrastructure, with an annual capacity of approx. 1.8 million tonnes.

Strategic Rationale of Northern Star

Through this acquisition, Northern Star would be able to consolidate the mineralisation at the Yandal Gold Project for additional evaluation on an exploration basis as well as on a development basis. Additionally, the deal would enable Northern Star to carry out gold processing activities. However, processing gold at the Bronzewing processing plant would depend on the successful evaluation of a restart.

The offer is scheduled to close on 14 October 2019.

Other recent announcements made by the company are:

Expansion of Pogo Plant

Northern Star Resources, on 16 September 2019, unveiled plans to boost the capacity of its processing plant by 30% at its Pogo gold mine in Alaska with a capital infusion of US$30 million. NST intends to boost the plant’s annual throughput capacity from 1 million tonnes to 1.3 million tonnes. The expansion work would start in the current financial year and is likely to get completed in FY21.

Northern Star Resources acquired the Pogo Gold mine located in Alaska during September 2018 and its contribution is expected to increase significantly during FY20.

FY19 Performance Highlights

The company released its FY19 results for the year ended 30 June 2019 in August 2019, unveiling statutory profit after tax of A$154.7 million, 20% higher than FY18, while profit after tax on an underlying basis stood at A$179.2 million as compared to A$211.5 million in FY18.

EBITDA during the year was reported at A$479.7 million, up by 8% on FY18, while EBITDA operating margin driven by Australian operations stood at 46%. NST posted net mine cash flow at A$358.8 million in FY19 against A$319.2 million in the previous financial year.

During FY19, NST posted a significant improvement in reducing the LTIFR rate by 45% to 0.5 as compared to the industry’s LTIFR of 1.6, while the TRIFR rate was maintained at 3.3 against the industry’s TRIFR rate of 9.1.

The company increased its net mine cashflows and witnessed higher capex into its operating assets with an investment of A$66 million into exploration and A$95 million into growth capital during FY19.

During FY19, the company distributed total dividends of A$0.135 per share. NST also announced a fully franked dividend of A$0.075 per fully paid ordinary security for the during the second half of FY19, payable on 20 November 2019. Annualised dividend yield of the stock stands at 1.19x (as on 24 September 2019).

FY19 Financial Results (Source: Company Reports)

FY20 Outlook

As per the management guidance, the company would focus on the following during FY20:

  1. Investing A$76 million in exploration and drilling
  2. In-mine and regional targets for Jundee would be A$19 million while in-mine and regional targets for Pogo would be around A$20 million and in-mine & regional targets for Kanowna Belle is set at A$11 million

As per the management, during FY20, the company would primarily focus on opportunities related to outstanding in-mine and near-mine opportunities. The company is also likely to manage its funds efficiently with an estimated 77% in-ground expenditure. The company expects growth capital non-sustaining of A$116 million from Pogo, Jundee and Moonbeam.

Stock Update

The stock of NST closed the day’s trading at A$11.670 on 24 September 2019, up 3.274% from its previous closing price, with a market capitalisation of A$7.23 billion. The total outstanding shares of the stock stood at 639.59 million, while its 52-week high and low is A$7.63 and A$14.055, respectively. The stock is available at a price to earnings multiple of 46.31x. The stock has generated a return of 28.12% in the last six-months and 22.29% in the year-to-date basis.


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