Australia's Ramelius Resources (RMS.AX) will take over smaller peer Spartan Resources (SPR.AX), valuing the miner at A$2.4 billion ($1.5 billion) on a debt-free basis, as rising bullion prices drive a wave of consolidation in the sector.
Under the terms of the agreement, Ramelius, which already owns a 19.9% stake in Spartan, will acquire the remaining shares which would result in a A$4.2 billion gold-producing entity, the companies said on Monday.
Ramelius is offering A$0.25 in cash and 0.6957 of its own shares for each Spartan share it does not already hold.
Shares in Ramelius dropped 3.4% after open while those in Spartan rose over 9%.
The deal follows a sharp rise in gold prices, with Australian-dollar gold hitting a record high above A$4,240 per troy ounce in late October.
Prices have rallied by around a third over the past year, supporting increased merger and acquisition activity across the industry.
Ramelius announced a trading update last week, where the miner flagged lower-than-expected production, higher costs and capital expenditure at its Mount Magnet gold mine.
Ramelius Managing Director Mark Zeptner said the merger would "supercharge" production at the company’s Mount Magnet operations by incorporating Spartan’s Dalgaranga mineral resource.
"The combination will see Mount Magnet deliver higher ounces, at higher grade, with higher margins," Zeptner said.
He added that Ramelius has a vision for the combined group to produce over 500,000 ounces of gold annually by fiscal 2030.
Analyst Arun George of Smartkarma noted the merger is expected to generate synergies through greater production scale and reduced costs.
"By adding ore to Mount Magnet, Spartan could fix Ramelius’ near-term production gap," he said.
Shareholders of Spartan will own 39.5% of the newly merged company while Ramelius will have the rest of the stake.
Spartan's executive chair, Simon Lawson, will join the combined firm's board as a non-executive deputy chair.
Spartan's board has already backed the merger deal, asking investors to vote in its favour.
Ramelius has been actively pursuing acquisitions to bolster its portfolio, following challenges at its ageing Edna May mine.
Previous takeover attempts included a failed bid for Karora Resources, which was ultimately acquired by Westgold Resources (WGX.AX), and a separate unsuccessful A$3 billion approach to merge with Westgold.
($1 = 1.5805 Australian dollars)
