PERTH (miningweekly.com) – Gold miners Northern Star Resources and Saracen Mineral Holdings have announced a merger of equals to create a near two-million-ounce-a-year producer with a market capitalisation of A$16-billion.

Under the terms of the proposed merger, Saracen shareholders will receive 0.3763 Northern Star shares for each Saracen share held.

If approved, the merger would see Northern Star shareholders holding a 64% interest in the merged entity, while Saracen shareholders would hold the remaining 36%.

The merged entity would have a pro-forma market capitalisation of A$16-billion and a net cash position of A$188-million, with an immediate production profile of 1.6-million ounces, with a pathway to increasing production to two-million ounces a year.

The merged entity would have a 19-million-ounce reserve and resources of 49-million ounces, with the company holding three large-scale production centers in exclusively Tier 1 locations.

The merger would also result in the consolidation of the Kalgoorlie Golden Mile to be consolidated under one owner for the first time in more than 125 years.

The two companies on Tuesday told shareholders that the merger would unlock some A$1.5-billion to A$2-billion in pre-tax synergies through the consolidation of the Kalgoorlie Consolidated Gold Mines ownership, optimisation of processing throughout the broader Kalgoorlie and Yandal regions, as well as other savings over a ten-year period.

“Northern Star has only every pursued growth when it will create value for shareholders and this merger of equals will create an abundance of value for both Northern Star and Saracen shareholders,” said Northern Star executive chairperson Bill Beament.

“This is a significant value creating merger and acquisition. Our position as joint venture partners at Kalgoorlie Consolidated Gold Mines, the close proximity of the majority of the combined company’s assets and a host of other synergies makes this a unique opportunity exclusive to Saracen and Northern Star shareholders.”

Saracen MD Raleigh Finlayson noted that the benefits that would flow to Saracen shareholders from the merger would be significant.

“The pre-tax synergies alone are expected to be worth in the order of A$1.5-billion to A$2-billion over the next ten years. Saracen shareholders will own 36% of the combined group and therefore share in the significant benefits of these synergies, which is value that would not have been available to our shareholders otherwise.

“It is difficult to foresee anything like that reduction in our cost base outside of this merger,” said Finlayson.

He added that the merger with Northern Star was one of the most logical and strategic merger and acquisition transactions that the mining industry had seen to date, with the savings, synergies and growth opportunities generated making the transaction "extremely compelling".

“In short, it is a unique opportunity for Saracen shareholders unlikely to be replicated via any other avenue,” Finlayson said.

The merged entity’s management will see Beament take the chairperson position, while Finlayson will be appointed as MD. Stuart Tonkin will be CEO, while Morgan Ball will be CFO. On the completion of the merger, the board of nine will comprise five directors from Northern Star, and four from Saracen, while Saracen’s nonexecutive chairperson Tony Kiernan will be lead independent nonexecutive director.

The boards of both Saracen and Northern Star have unanimously recommended that shareholder vote in favour of the transaction, in the absence of a superior proposal for either company.

In addition to shareholder approval, the transaction will also be subject to court approval, as well as an independent expert concluding that the transaction is in the best interest of Saracen shareholders.

The first court hearing is scheduled for December, with shareholders expected to vote on the transaction in January next year.