Shares in this junior ASX gold company have plunged 7% after takeover bid. Is it a buy?

A deal bringing together two Western Australia-focused companies has been launched.

Key points
  • Forrestania Resources is looking to consolidate its Western Australian gold holdings.
  • The board of takeover target Kula Gold supports the bid.
  • The deal will bring together both landholdings and technical expertise.

Forrestania Resources Ltd (ASX: FRS) has launched a takeover bid for Kula Gold Ltd (ASX: KGD) in a move that will consolidate its position in the Western Australian goldfields.

The bid sent Forrestania shares more than 10% higher to 27 cents on Tuesday morning, while Kula Gold shares actually fell, trading 6.8% lower at 4.1 cents.

Forrestania, which currently owns a 12.56% stake in Kula Gold, is offering one of its shares for every 5.6 Kula shares, valuing the latter company at $58.9 million, or 5 cents per share.

Kula Gold was valued at $50.7 million at the close of trade on Monday, when its shares were changing hands for 4.4 cents apiece.

Man putting golden coins on a board, representing multiple streams of income.

Image source: Getty Images

Directors backing the bid

The board of Kula Gold is unanimously recommending that shareholders accept the offer, which it says will benefit the company's project development plans.

As the Kula directors said:

The directors believe that Forrestania's bid provides Kula Gold shareholders with the opportunity to realise benefit from the company's 80% owned Mt Palmer Gold Project sooner than if the company sought to develop the Mt Palmer Gold Project itself.

Forrestania Resources Chair David Geraghty said the two companies were a good fit.

This transaction marks a natural progression in bringing together two complementary exploration portfolios within one of Western Australia's most prolific gold belts. It expands Forrestania's regional presence and strengthens our position as a focused gold growth company with genuine scale and a clear pathway to growth.

Forrestania said Kula Gold's Mt. Palmer and Southern Cross projects were highly complementary to its existing portfolio, including the nearby Breakaway Dam and Westonia projects, as well as its own Southern Cross project.

The deal will unite neighbouring mining tenements and will also bolster the technical skills of the combined entity, they said.

Forrestania said it expected to lodge a bidder's statement with the ASX on October 27.

Kula Gold shares have risen from just 1.1 cents each a month ago, and as little as 0.4 cents earlier in the year.

The company said on Monday that it had been approached about a potential transaction, but stated at that stage that there was no certainty a deal would eventuate.

More deals in the wings

Kula Gold said last week that it was also looking to spin off its Wozi Niobium Project in Malawi into a separate company, allowing it to focus its efforts on its Mt Palmer Project.

The company acquired the historic high-grade Mt. Palmer gold mine in May 2024 and states on its website that the project, last mined in 1944, is highly prospective for further discoveries.

A Phase 2 drilling program is expected to start at Mt Palmer in November of this year.

The company has also recently sold its Westonia Project to Forrestania for $500,000, with a potential future milestone payment of $1 million.

Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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