Lending Association

Hoover House Genesis proving problematic

It’s back to the drawing board for the would-be nascent gold miner Hoover House as its birth proves to be a much tougher delivery for its parents – the Kerry Stokes-backed Genesis Minerals and long-time miner St Barbara.

Genesis and St Barbara have admitted the proposed engagement has developed the wobbles with problems at a key mine in the St Barbara stable.

That has seen both companies forced back to the negotiating table to reshape the original deal to consolidate gold assets in the Leonora area of Western Australia and create Hoover House.

Genesis had earlier bid for small rival, Dacian Gold and closed its offer at the end of February with a stake of 80.8%. On Monday of this week, Dacian announced the suspension of operations at its Mt Morgans mine in WA.

Shares in Genesis and St Barbara companies have been placed in trading halts to allow the talks to find a way forward with a new-look deal, without any stockmarket distractions.

The halt though prevents the shares from following the surge in world and Australian gold prices higher – the Aussie dollar price touched a record $A3,006 an ounce overnight Tuesday as the Comex futures price hit $US2,038 an ounce.

A surprise production cut forecast from St Barbara on Tuesday seems to have turned what was a lengthy, but understandable merger and new company birth, into a major headache.

The St Barbara statement to the ASX revealed the lowering of 2022-23 production guidance to between 130,000 ounces and 135,000 ounces, from 145,000-160,000 ounces, and the retraction of its cost guidance.

The statement (confirmed by Genesis in a separate announcement) said St Barbara and Genesis “are in discussions regarding potential alternative transaction structures and capital requirements.”

Genesis said the lowered 120-130,000-ounce production outlook for St Barbara’s Gwalia mine was “anticipated by Hoover House is in-line with St Barbara’s financial year to date production of 97,195 ounces.”

Genesis said that the Hoover House base case remains intact despite the cut by St Barbara.

Genesis reminded investors the base case “has a long life, +300,000 ounces per annum “margin over ounces” production plan”

This was based on the transition of the Gwalia mine to high grade, selective mining targeting 120-130,000 ounces a year; and adding Genesis’ new Ulysses mine to “fill the Leonora mill” (200,000 ounces a year combined Gwalia and Ulysses)

As well there will cost cuts to “right size the combined business” while the new company will advance the new Tower Hill high grade open pit towards production; grow to 300,000 ounces plus a year

Genesis made it clear it and St Barbara “are committed to advancing a transaction given the clear industrial logic of consolidating the Leonora province.”

But that “in light of recent operational and financial performance and the ongoing evolution of the mine plan at Gwalia, Genesis confirms it is in discussions with St Barbara regarding potential alternative transaction structures and capital requirements.”

“Given the status of these discussions, the Boards of both Genesis and St Barbara consider it appropriate to place the respective company shares into trading halt until an outcome of these discussions is known.”

The statements did not canvass any options.

The deal, as announced on December 12, 2022, called for St Barbara to acquire 100% of the shares in Genesis, via a scheme of arrangement to form “Hoover House”, and then the proposed demerger of St Barbara’s non-Leonora assets to St Barbara shareholders to form “Phoenician Metals”.

The Scheme remains subject to the satisfaction of a number of conditions precedent. The conditions precedent must be satisfied (or, where applicable, waived) prior to the end date of 11 July 2023 and at the date of this announcement (April 4) all conditions remain outstanding.

One of the condition’s precedents requires St Barbara’s net debt to be no more than $163.2 million at the end of the calendar month prior to the date upon which the second Court hearing for the Scheme will occur.

“St Barbara’s net debt position marginally improved at the end of the March quarter at $112 million, compared to $117 million at the end of December 2022, with lower gold production at Leonora being offset by favourable gold prices.

“St Barbara’s cash position increased by $22 million in the March quarter to $60 million ($7 million attributable to Australia and $53 million attributable to the offshore assets), as a result of the $20 million debt drawdown in January.”

That doesn’t sound good for a company which seems to be the problem for the Hoover House birth.