St Barbara Ltd (ASX: SBM) has entered into a Canadian Plan of Arrangement with Atlantic Gold Corporation (TSX: AGB) and announced a $490 million entitlement offer.

About St Barbara

St Barbara is an Australian-based gold producer and explorer. Current assets include the Leonora Operations in Western Australia and the Simberi Operations in Papua New Guinea. As at 30th June 2018, St Barbara held Ore Reserves of 3.9 million ounces of contained gold. Total gold production in 2018 was 403koz.

Atlantic Gold Corporation

Atlantic Gold is a Canadian-based gold producer which owns and operates Moose River Consolidated in Nova Scotia, Canada.

Atlantic Gold’s CY18 production was 91koz and plans are in place to expand production to 200+koz as three further pits are developed. Current production levels would boost St Barbara’s production by around 22.5%.

Atlantic Gold currently has mineral reserves of 1.9Moz. St Barbara will acquire 100% of all outstanding Atlantic shares at an offer price of C$2.90 per share, or a total enterprise value of C$802 million. St Barbara says this represents an attractive acquisition cost of $428 per ounce of reserves.

Atlantic’s directors control 32% of the shares and have entered into an agreement to vote in favour of the acquisition, so it seems likely that the deal will go ahead.

Capital Raising

St Barbara intends to raise A$490 million through an “underwritten pro-rata accelerated non-renounceable entitlement offer”. For an understanding of what that actually means, check out this post on Rask Finance, but for all intents and purposes, it’s just an entitlement offer.

The offer is one new fully-paid ordinary share for every 3.1 existing shares at an offer price of $2.89, representing a 13% discount to yesterday’s closing price.

This entitlement offer will only partially fund the transaction, and the rest will be funded by existing cash reserves. St Barbara has also announced a new $200 million three-year revolving loan facility with Westpac Banking Corporation (ASX: WBC) to support ongoing costs.

Is St Barbara A Buy?

It looks like there is potential for St Barbara to significantly increase production capacity through this purchase, but it is a price-taker and not the kind of business I tend to invest in.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.