ASX gold stock Genesis Minerals Ltd (ASX: GMD) is making headlines after it proposed a merger with Vault Minerals Ltd (ASX: VAU)
The merger would create a dominant gold producer valued at $12.6 billion.
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What is the proposal?
Genesis has made a binding proposal to acquire all Vault shares via a scheme of arrangement.
The offer includes 0.7629 new Genesis shares plus A$0.475 in cash per Vault share, implying total consideration of A$5.274 per Vault share.
Vault shareholders would own 40.2% of the enlarged Genesis Group; Genesis shareholders would own 59.8%.
Estimated post-tax synergies of approximately A$2.0 billion, with A$1.5 billion unique to this transaction over 10 years.
The combined group would have 33.6 million ounces in mineral resources and 9.4 million ounces in ore reserves.
The proposed deal values Vault at A$5.6 billion and would create an Australian gold major with pro-forma annual production of 600–700,000 ounces and a market capitalisation of A$12.6 billion.
It is important to note the deal is not yet confirmed. Ramelius Resources Ltd (ASX: RMS) has matching rights that could affect whether the deal proceeds.
Bell Potter weighs in on ASX gold stock's future
Following the proposal, the team at Bell Potter provided updated guidance on this ASX gold stock.
It appears the broker sees the deal as a positive.
The biggest benefit according to the broker is that Genesis could avoid spending about A$715 million building a new processing plant at Tower Hill.
Instead, it could process Tower Hill ore at Vault's existing King of the Hills mill.
Bell Potter believes this is a much smarter use of capital because Genesis' main limitation is processing capacity, not finding more gold.
Buy recommendation intact
Bell Potter has retained its buy recommendation on this ASX gold stock.
It slightly lowered its price target to $9.75 (previously $9.90).
From yesterday's closing price of $6.03, Bell Potter's updated price target indicates 61% upside from current levels.
The price target was reduced only because of Genesis' recent Magnetic Resources acquisition, not because Bell Potter is less positive on the merger.
In short, Bell Potter sees the merger as a major positive because it would create a larger, cash-rich gold producer while saving roughly A$715 million by using existing infrastructure instead of building a new mill.
The Proposed Scheme is not subject to due diligence or financing conditions and offers a materially better strategic and financial outcome than the status quo, in our view.
