Investors have been selling ASX gold shares Silver Lake Resources Ltd (ASX: SLR) and Red 5 Ltd (ASX: RED) on Monday.
At the time of writing, the Silver Lake share price is down 9% and the Red 5 share price is down 3%.
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Why are these ASX gold shares falling?
Investors have been selling these ASX gold shares today after responding negatively to the announcement of an agreement to merge and create a ~$2.3 billion, ~445,000 ounces per annum, diversified, leading mid-tier gold company with a strong balance sheet to pursue growth.
According to the release, under the terms of the transaction, Red 5 will acquire 100% of the shares in Silver Lake and each Silver Lake shareholder will receive 3.434 Red 5 shares for every share held.
Upon implementation of the transaction, Red 5 shareholders will own 51.7% of the merged entity and Silver Lake shareholders will own the remaining 48.3%.
The combined entity will be led by Russell Clark (from Red 5) as Chairman and Luke Tonkin (from Silver Lake) as Managing Director and CEO. The board will comprise four directors from each of the current Red 5 and Silver Lake boards.
The Silver Lake board of directors unanimously recommends that its shareholders vote in favour of the transaction. This is subject to the independent expert's report.
Why are they merging?
Although the market may not be keen on the merger, the two companies believe that it will bring together a highly complementary combination of assets and balance sheets, creating value for shareholders. CEO-elect, Luke Tonkin, said:
This transaction represents a highly complementary combination of assets and balance sheets for the mutual benefit of both Silver Lake and Red 5 shareholders. Mergers work when each company brings attributes that the other company does not possess, which is undoubtedly the case here. The increased scale, diversification and financial strength of the new company that will be formed via this transaction will be primed for continued strong cash flow generation and further growth.
This sentiment was echoed by Red 5's CEO, Mark Williams. He said:
This transaction represents a logical merger of two leading mid-tier gold companies and represents an exciting inflection point for Red 5 shareholders following the successful development, ramp-up and achieving steady state production at King of the Hills. The merger creates a ~445,000 oz pa diversified gold producer with assets in tier one jurisdictions. With a sector leading balance sheet, the merged entity provides a strong foundation for future growth.
