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Red 5 eyes Silver Lake merger

In the first half of 2023, Silver Lake Resources (ASX:SLR) attempted to obstruct Genesis Minerals’ consolidation efforts in the Leonora region of WA goldfields by pursuing the acquisition of St Barbara’s gold mining assets. St Barbara initially declined, leading to Genesis ultimately succeeding, but only after a thorough overhaul due to St Barbara’s underperformance.

Silver Lake then shifted its focus to several targets, including the emerging miner Red 5 (ASX:RED), with its successful King of The Hill mining operation, which had consistently exceeded production forecasts over the past year. On Monday, Silver Lake finalized an all-paper agreement to acquire 11.5% of Red 5.

Barring any attempts to outbid the deal, the merger will bring together the two companies, resulting in a miner with an annual output of approximately 445,000 ounces. The agreement entails Red 5 acquiring Silver Lake, offering 3.434 Red 5 shares for every Silver Lake share, valuing the deal at $A2.2 billion.

The initial court hearing to advance the merger is scheduled for mid-to-late April, with implementation anticipated by June. Once the merger is completed, the combined company will possess four gold projects: King of the Hills (KOTH), Deflector, Mount Monger in WA, and Sugar Zone in Ontario, Canada, the latter of which may have limited profitability.

The merger is expected to “provide Red 5 and Silver Lake shareholders with the opportunity to participate in a stronger combined group, delivering benefits not available on a standalone basis,” according to the presentation. Red 5 shareholders will own 51.7% of the merged company, with Silver Lake retaining the remaining share, including their 11.5% stake in Red 5, making Silver Lake the dominant partner, a fact supported by the senior management team.

The merged group’s management team will be led by Luke Tonkin from Silver Lake as CEO, Richard Hay from Red 5 as Chief Operating Officer, and Struan Richards from Silver Lake as Chief Financial Officer. Following the announcement, Silver Lake shares experienced a decline of more than 12%, while Red 5 shares rose by 3%, signifying Red 5’s advantageous position in the proposed merger, according to market analysts.