Spectrum Metals Limited (ASX: SPX) announced that it has entered into a Bid Implementation Agreement (BIA) with Ramelius Resources Limited (ASX: RMS) for an off-market takeover offer.
The company reported that Ramelius would acquire Spectrum Metals, owner of the high-grade Penny West Gold Project.
The terms of the Offer include cash and scrip offer of $0.152 per Spectrum share, a 52% premium to Spectrum’s last closing price.
Spectrum Metals said that its Directors unanimously recommend that Spectrum shareholders accept the Offer, and that the Spectrum Directors intend to accept the Offer for all their shares.
SPX said that the shareholders of both companies to benefit from significant synergies between Penny West and Ramelius’ Mt Magnet operation.
Ramelius reported that it has financial capacity and operational expertise to continue to explore and to develop the Penny West Gold Project.
Penny West Gold Project
One of the key assets of Spectrum Metals is the 100% owned Penny West Gold Project, one of the highest-grade undeveloped gold assets in Western Australia.
Penny West is located approximately 150km south-east of Ramelius’ Mt Magnet mining and processing operations and approximately 550km north-east of Perth in Western Australia.
Penny West is one of the highest-grade undeveloped gold assets in Australia with a gold resource currently of 799 kt @ 13.8 g/t for 355,500 oz, including 569 kt @ 16.8 g/t Au for 306,800 oz at Penny North.
BIA between Ramelius and Spectrum
SPX reported that a Bid Implementation Agreement dated 9 February 2020 (BIA) was inked between Ramelius and Spectrum.
According to it, Ramelius will offer to acquire all of the issued and outstanding ordinary shares in Spectrum that it does not already own under the terms of an off-market takeover offer.
Terms of offer
SPX said that under the terms of the Offer, Spectrum Shareholders will receive one (1) Ramelius share for every ten (10) Spectrum shares held and cash consideration of A$0.017 per Spectrum share held, valuing Spectrum shares at A$0.15 each, based on the Volume Weighted Average Price (VWAP) of Ramelius shares traded on 7 February 2020.
This represents a premium of 52% to Spectrum’s last closing price of A$0.0990 on 7 February 2020; 61% to Spectrum’s 10-Day VWAP of A$0.0931, up to and including 7 February 2020; and 70% to Spectrum’s 30-Day VWAP of A$0.0882, up to and including 7 February 2020.
It may be noted that Ramelius has a relevant interest of 4.9% of the issued and outstanding ordinary shares in Spectrum as of now.
Ramelius said that the cash component of the acquisition will be funded from Ramelius’ existing working capital position or the recently established $35 million Syndicated Finance Agreement.
SPX said that Ramelius has also agreed to make an unsecured interest free loan to Spectrum in the amount of $3 million for use as working capital.
Benefits for Spectrum shareholders
SPX reported that there are several key benefits for Spectrum shareholders.
The company said that the Offer represents an attractive and significant premium to recent trading levels of Spectrum shares.
With this agreement, Spectrum Shareholders will become shareholders in a profitable, financially secure Australian gold producer with a stable diversified platform of established Western Australian gold mines managed by a proven high-quality team.
For instance, in FY19 Ramelius produced 196,679 ounces of gold at an All in Sustaining Cost (AISC) of A$1,192/oz and recorded a Net Profit after Tax for the Financial Year of $21.8 million; as at 31 December 2019, Ramelius held A$87.7 million in cash and gold bullion with no debt; and FY2020 is forecast to be another very strong year with gold production of 205,000-225,000 ounces at an AISC of A$1,225-A$1,325/oz (please see RMS ASX announcement dated 30 July 2019).
SPX noted that the Offer significantly reduces the development risk associated with the Penny West project as it removes financing uncertainty and potential shareholder dilution.
In addition to remaining exposed to all of the upside from exploration and development of Penny West, shareholders of Spectrum will also benefit from having access to cash flow generating assets at Edna May, Mt Magnet and Vivien, while gaining exposure to the Marda and Tampia Hill projects through being a shareholder of the enlarged combined group.
Spectrum Board approves
SPX said that the Spectrum Board of Directors unanimously recommend that Spectrum shareholders accept the Offer and have agreed to accept the Offer in respect of all Spectrum shares they own or control, in both instances in the absence of a superior proposal.
Ramelius said that, following successful completion of the Offer, its Board intends to quickly undertake a comprehensive review to determine the optimal pathway to first cash flow from the Penny West Gold Project, whilst continuing with aggressive exploration programmes at Penny West.
Ramelius Managing Director, Mark Zeptner, said: “There is clear logic in the combination of Spectrum’s assets with Ramelius’ WA operations. After the successful acquisition of the Marda and Tampia Hill gold projects in 2019, Ramelius is focussed on building on its growth strategy to extend mine life and maximise the value of existing infrastructure in its portfolio.
This compelling offer is the next step in that growth strategy and is expected to provide significant benefits to both Spectrum and Ramelius Shareholders.”
Spectrum Chairman, Alex Hewlett, commented: “The last year has been one of exceptional growth for Spectrum which we are particularly proud of. The Penny West gold system is developing into one of significant value, I am firmly of the view that this transaction with Ramelius will unlock the full value of Penny West for the benefit of all of our shareholders.
The combination of Penny West with the existing assets of Ramelius will build a gold business capable of delivering exceptional future returns for our shareholders.”