The Northern Star Resources Ltd (ASX: NST) share price is down more than 5% on its plan to buy De Grey Mining Limited (ASX: DEG).
Both Northern Star Resources and De Grey Mining are two of the ASX’s largest gold miners.
Golden merger
Northern Star has proposed an all-share deal to buy De Grey Mining, and the De Grey board of directors has unanimously recommended it.
The proposal is that each De Grey shareholder will receive 0.119 new Northern Star shares, which, at the time of the offer, implied a value of $2.08 for each De Grey share held. The offer represented a 37% premium to the last De Grey Mining share price, and a 44% premium based on the average share price over the past 30 days.
After the deal is implemented, Northern Star shareholders will own approximately 80.1% of the combined business, while De Grey will own 19.9%.
Northern Star said the all-share nature of the deal preserves financial flexibility for growth opportunities and capital management.
If the deal is to be implemented, it’s targeted for completion in late April or early May 2025. The transaction is still subject to court and De Grey shareholder approvals.
What does Northern Star like about De Grey?
Northern Star noted a number of positives about De Grey’s Hemi gold deposit, which is located in the Pilbara region of Western Australia.
The ASX gold share said Hemi will be a “globally significant low-cost, long-life and large-scale gold project”.
Hemi is estimated to able to deliver 530,000 ounces of gold per year and, once developed, will help Northern Star’s pathway to approximately 2.5 million ounces per year.
In terms of costs, Northern Star said Hemi would enhance its overall portfolio, with the all-in sustain cost (AISC) – mining costs – to be in the global top half of costs.
Northern Star also believes its exploration, development and operational expertise will be a benefit for Hemi.
Final thoughts on the Northern Star share price
Clearly, investors don’t like this move by Northern Star at this price. It’s paying a sizeable premium to get this deal across the line. The gold price has been strong recently, I’d normally want to make acquisitions like this near the bottom of a commodity cycle, rather than the top, unless Northern Star believes gold prices are going to climb even further.
For me, I wouldn’t call Northern Star a buy right now, there are other ASX shares, including ASX dividend shares, I’d rather buy.