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Silver Lake Resources to make recommended takeover offer for EganStreet Resources

30 Jul 2019
Silver Lake Resources to make recommended takeover offer for EganStreet Resources

Silver Lake Resources Limited (“Silver Lake”) (ASX: SLR) and EganStreet Resources Limited (“EganStreet”) (ASX: EGA) are pleased to announce that they have entered into a Bid Implementation Deed (“BID”), pursuant to which Silver Lake will acquire all of the issued and outstanding ordinary shares (the “Offer”) of EganStreet (the “EganStreet Shares”). 

Under the terms of the BID, each EganStreet Shareholder will receive 0.270 Silver Lake shares for every EganStreet share held (the “Offer Consideration”). 

The Offer Consideration values EganStreet at $0.400 per share, which implies a $52 million total transaction enterprise value and represents a premium of:

  • 28.9% to the Last Close Price of $0.310, being the price of EganStreet’s shares on ASX at the close of trading on 29 July 2019;
  • 24.2% to EganStreet’s 5-day volume weighted average price (“VWAP”) of $0.322 up to and including 29 July 2019; and
  • 43.4% to EganStreet’s 30-day VWAP of $0.279 up to and including 29 July 2019.

The EganStreet Board of Directors unanimously recommends that EganStreet shareholders accept the Offer and have indicated that they will accept the Offer in respect of all EganStreet shares they own or control, in both instances in the absence of a superior proposal.

In addition, EganStreet’s largest shareholder, Lion Selection, has entered into a Pre-Bid acceptance Deed with Silver Lake under which it has agreed to accept the Offer in respect of its 16.2% holding.

Overview

EganStreet’s key asset is the 100% owned Rothsay Gold Project (“Rothsay”). Rothsay is a high-grade, underground gold project located approximately 85km south-east of Silver Lake’s Deflector mine and processing hub. Rothsay currently has JORC Resources of 454,000 ounces (1.5Mt @ 9.2 g/t) and JORC Reserves of 200,000 ounces (1.4Mt @ 4.4 g/t).  The location of Rothsay and its proximity to Silver Lake’s Deflector Mine is shown in Appendix 1.

Under EganStreet stewardship, Rothsay has progressed through the exploration and study phase, with the release of an Updated Definitive Feasibility Study confirming the technical viability of the project in February 2019.  The Rothsay Mining Proposal was approved by the Western Australian Department of Mines, Industry Regulation and Safety in June 2019. 

Silver Lake Strategic Rationale 

The acquisition of EganStreet will allow Silver Lake to consolidate an additional JORC Resource of 454,000 ounces3 and JORC Reserve of 200,000 ounces4 at the Rothsay Gold Project and provide a near term development opportunity to introduce a new high-grade ore source to an upgraded Deflector processing facility. 

The combination of Silver Lake’s established processing infrastructure at Deflector, free cash flow generation and strong balance sheet makes the acquisition of Rothsay consistent with Silver Lake’s strategy to maximise the value of its established operations. 

Luke Tonkin, Managing Director of Silver Lake, said: 

“The acquisition of EganStreet and its Rothsay Gold Project is consistent with Silver Lake’s strategy of creating new opportunities to compete for capital and maximising the value of the existing asset base. Silver Lake’s nearby infrastructure at Deflector can unlock additional value at Rothsay and this is reflected in the share price premium offered to EganStreet shareholders.”

Key benefits for EganStreet shareholders 

  • Significant reduction in execution risk The transaction will substantially reduce the execution risk of Rothsay for EganStreet shareholders as development will no longer be contingent on the execution of multiple financing transactions and will leverage Silver Lake’s established processing infrastructure at Deflector 
  • Fair premium – The Offer provides EganStreet shareholders with an attractive and appropriate premium through scrip consideration in a highly liquid ASX listed gold producer 
  • Participation in a company with multiple operationsEganStreet shareholders will benefit from having an equity position in a company with two established gold mining operations in Western Australia thereby reducing the exposure from construction, commissioning and cash flow volatility that can be experienced by single-asset companies
  • Silver Lake’s operational capabilities EganStreet shareholders will benefit from Silver Lake’s track record and demonstrable success in exploring, developing and operating narrow, high-grade underground gold mines, which will be applied at Rothsay 
  • Market capitalisation and liquiditySilver Lake is listed on the ASX and has a basic market capitalisation of A$1.22 billion. Silver Lake shares are highly liquid with trading volume of ~137 million shares on the ASX over the past one month representing a daily average of ~A$8 million
  • Continued participation in Rothsay Through their shareholding in Silver Lake, EganStreet shareholders will have the opportunity to continue to participate in any potential future value increases through exploration which can be funded from Silver Lake’s cashflow and existing cash reserves.

Marc Ducler, Managing Director of EganStreet, said: 

“Since listing on the ASX through an IPO at 20c two-and-a-half years ago, EganStreet’s strategy has been to create value for shareholders through the standalone development of the high-grade Rothsay Project. We have made excellent progress in this regard, doubling the Resource, advancing the Project rapidly from Scoping-level through PFS to a comprehensive Definitive Feasibility Study and securing most of the permits required to commence development.  

After taking into consideration a range of factors including the current challenges in securing development funding for new projects in the junior gold sector and the risk profile involved with taking an asset into production, the Board has resolved that the opportunity to combine with a substantial multi-asset gold producer with a strong operational track record in Silver Lake represents an attractive outcome. 

This transaction will reward our shareholders for the progress achieved at Rothsay to date while giving them exposure to a successful ASX-300 gold producer with a strong balance sheet, diversified production profile, mine development expertise, established systems and practices and installed infrastructure. This will significantly mitigate the development risk at Rothsay and provide exposure to a much larger and highly liquid Australian gold producer with the ability to attract an investment premium in the current strong Australian Dollar gold market.”

Support from EganStreet Board and major EganStreet shareholder

The EganStreet Board of Directors unanimously recommends that EganStreet shareholders accept the Offer and have indicated that they will accept the Offer in respect of all EganStreet shares they own, in both instances in the absence of a superior proposal. 

In addition, EganStreet’s largest shareholder, Lion Selection, has entered into a Pre-Bid acceptance Deed with Silver Lake under which it has agreed to accept the Offer in respect of its 16.2% holding. A copy of the Pre-Bid acceptance Deed has been lodged with ASX.

Bid Implementation Deed

Silver Lake and EganStreet have agreed a BID (attached in Appendix 2) pursuant to which the parties have given undertakings to each other in order to facilitate the Offer.

The Offer is subject to a limited number of conditions, including:

  • 90% minimum acceptance by EganStreet shareholders
  • No prescribed occurrences in relation to EganStreet
  • No material adverse change in relation to EganStreet or Silver Lake
  • No adverse regulatory event affecting the Offer, EganStreet or its assets
  • No breach by EganStreet of the conduct of business restrictions or EganStreet warranties in the BID

The BID contains customary deal protection mechanisms including “no shop”, “no talk” and “no due diligence” restrictions, as well as notification and matching rights in the event of a competing proposal. A break fee may also be payable in certain circumstances.

The Offer extends to all EganStreet shares including those issued as a result of the exercise of options or vested performance rights during the offer period. 

Timetable and next steps

Detailed information relating to the Offer will be set out in the Bidder’s Statement and Target’s Statement, which are expected to be dispatched to EganStreet shareholders in August.

Advisers 

Silver Lake’s financial advisers are RBC Capital Markets and Sternship Advisers and its legal adviser is HopgoodGanim Lawyers. 

EganStreet’s financial adviser is Taylor Collison and its legal adviser is GTP Legal.  

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