St Barbara unveils a massive merger deal with Genesis and a $275m capital raise to fund it

Nick Sundich Nick Sundich, December 12, 2022

St Barbara (ASX:SBM) and Genesis Minerals (ASX:GMD) have unveiled a merger deal that will create a substantial ASX gold miner. The transaction will be funded with a $275m capital raising and the new company will be renamed Hoover House. 

 

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St Barbara hopes to end years of underperformance

St Barbara is down 56% in 12 months and ~80% in five years. You could attribute the past year’s underperformance to the lagging gold price, but not the last half-decade when gold briefly hit an all time high amidst the pandemic uncertainty.

The company, which has assets in Western Australia and PNG, has been let down by poorer than expected production figures,  higher costs and lower profits. Tensions with the PNG government and skills shortages in WA haven’t helped either. 

 

St Barbara (ASX:SBM) share price chart, log scale (Source: TradingView)

 

The industry’s worst kept secret is revealed

St Barbara executives have long sought to diversify the company through M&A. But in recent months, St Barbara itself has been viewed as a target, including by Genesis. 

The cat was left out of the bag this morning. Genesis and St Barbara will combine their West Australian assets, offering a potential 350-400k ounces in production with over 4m ounces of reserves. 

The deal will see St Barbara’s overseas assets being spun-off into a new company. 

 

So what now?

In our view, there’s only one thing that’s certain. If history is any guide, spin-off companies hosting inferior assets do not perform well – so stay clear of the spin off.

What about Hoover House – should investors look at this new company? As good as it looks on paper, we think there’s little hope of share price growth until investor sentiment towards gold recovers. 

 

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