Australian gold producer Red 5 and international mining company Silver Lake Resources have entered into a binding Scheme Implementation Deed.

The two companies will merge via a Silver Lake Scheme of Arrangement, which will create an approximately 445koz per annum, diversified, leading mid-tier gold company with a strong balance sheet to pursue growth.

Under the terms of the transaction, Red 5 will acquire 100 per cent of the shares in Silver Lake and each Silver Lake shareholder will receive 3.434 Red 5 shares for every Silver Lake share held. 

Upon implementation of the transaction, Red 5 shareholders will own 51.7 per cent of the merged entity and Silver Lake shareholders will own the remaining 48.3 per cent.

The combined entity will be led by Russell Clark as Chairman and Luke Tonkin as Managing Director and CEO. The new board of directors of the combined entity will comprise four directors from each of the current Red 5 and Silver Lake boards.

Red 5 and Silver Lake have identified a number of highlights of the transaction.

The merger will create a leading mid-tier gold company with diversified operations and growth opportunities in tier-one jurisdictions:

  • Combined gold production profile of approximately 445koz per annum for FY24 with a significant ore reserve and mineral resource inventory of four million ounces and 12.4 million ounces, respectively
  • De-risks shareholder returns through asset diversification and provides opportunities to each shareholder group that are not available on a standalone basis
  • Provides Red 5 and Silver Lake shareholders with the opportunity to participate in a stronger combined group which is well positioned for a valuation re-rate

It will also bring together a highly complementary combination of assets and balance sheets, presenting a compelling investment proposition amongst the global mid-tier gold sector:

  • The merged group will have a sector leading net cash and listed investments position of AU$378 million (inclusive of the value of Silver Lake’s shareholding in Red 5), with strong near-term cash flow generation and a long mine life asset to drive sustainable production through the cycle
  • Enhanced balance sheet position provides financial flexibility to invest in a larger pool of low capital intensity asset optimisation opportunities
  • Cost benefits to be realised through the elimination of duplicate corporate functions and listing costs and economies of scale

The experienced leadership team have a proven track record, including:

  • Merged group management team to be led by Luke Tonkin as Managing Director and CEO, supported by Richard Hay as COO and Struan Richards as CFO, to deliver ongoing operational focus and optimisation, and drive future growth
  • Merged group to leverage the complementary skill sets of the respective companies to deliver increased capacity and capability

The merger will create a strong platform poised for growth:

  • Four established mining hubs of scale in tier one gold jurisdictions of Western Australia and Ontario
  • All mining hubs benefit from extensive infrastructure supporting low capital intensity life-of-mine extensions and growth opportunities
  • Excellent track record of resource conversion, discovery and project execution

It will also result in enhanced market significance:

  • Enhanced trading liquidity to drive increased market presence and value proposition to a broader investor base
  • Potential re-rating of the merged group increases access to capital markets to deliver a lower cost of capital

Managing Director of Silver Lake, Luke Tonkin, said that the transaction represents a highly complementary combination of assets and balance sheets for the mutual benefit of both Silver Lake and Red 5 shareholders. 

“Mergers work when each company brings attributes that the other company does not possess, which is undoubtedly the case here. 

“The increased scale, diversification and financial strength of the new company that will be formed via this transaction will be primed for continued strong cash flow generation and further growth.”

Managing Director of Red 5, Mark Williams, said the transaction represents a logical merger of two leading mid-tier gold companies and represents an exciting inflection point for Red 5 shareholders following the successful development, ramp-up and achieving steady state production at King of the Hills. 

“The merger creates an approximately 445,000oz per annum diversified gold producer with assets in tier one jurisdictions. With a sector leading balance sheet, the merged entity provides a strong foundation for future growth.” 

The scheme of arrangement is subject to a number of conditions, including approval of Silver Lake shareholders at a scheme meeting expected to be held in May 2024.

Implementation of the merger is expected to take place in June 2024.


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