Regis Resources Limited (ASX: RRL) shares are in a trading halt after the gold miner revealed a major acquisition from IGO Ltd (ASX: IGO).
What’s the Regis acquisition?
Regis Resources has announced it has signed a conditional binding agreement with IGO to buy its 30% interest in the Tropicana Gold Project, effective 31 March 2021 for A$903 million cash.
What’s Tropicana?
It’s a low-cost, high margin gold mine. Tropicana is a top-5 producing Australian open-pit and underground mine located in the Albany-Fraser Orogeny in Western Australia.
Tropicana is one of the largest gold mines in Australia, with gold production of 463,000 ounces in FY20 and guidance of 380,000 ounces to 430,000 ounces in FY21 on a 100% basis.
Why is Regis making this acquisition?
Regis said it will diversify its existing production base with a exposure to a high quality gold mine.
The mine comes with a world class joint venture partner in AngloGold Ashanti, which Regis said is a proven gold miner with a successful track record of developing and operating Tropicana and other underground assets.
Tropicana has an expected mine life of over 10 years. It has attributable reserves of 0.8 million ounces and resources of 2.3 million ounces.
There are also multiple near-mine growth opportunities with attractive regional targets for longer term upside, according to Regis.
How is the acquisition going to be funded?
Regis said it intends to fund the acquisition through the combination of a fully written equity raising of up to $650 million through an institutional placement and an accelerated pro rata non-renounceable entitlement offer and a new $300 million loan facility.
The new shares will be offered at a price of $2.70 per share, a discount of 14.8% compared to the last closing price of $3.17.
Management comments
Regis Managing Director and CEO Jim Beyer said the acquisition of a 30% interest in Tropicana would create substantial value and provide Regis with multiple additional opportunities to deliver growth for shareholders over the short, medium and long term, saying it will: “Deliver significant improvements in the company’s resources, reserves and annual production, along with providing additional immediate cashflows, all of which adds to the strength of our platform for undertaking further organic and inorganic growth activities.”
Summary thoughts
This seems like a really good acquisition by Regis, though only time will tell if it’s a well-priced buy.
With potential inflation on the cards, gold could go even higher than it already has done in recent years.
Gold miners like Regis and Evolution Mining Ltd (ASX: EVN) could be considered as interesting ASX dividend shares considering they already have high yields and gold prices remain high.
