Australian gold miner Northern Star Resources announced on Monday its A$5-billion acquisition of De Grey Mining, a move that secures control of the highly-sought-after Hemi gold development in Pilbara, Western Australia.

The Hemi project, one of the largest undeveloped gold assets globally, is situated in a Tier 1 mining jurisdiction and boasts an impressive 11.2-million ounces of mineral resources and six-million ounces of ore reserves. Initial production forecasts project annual gold output of 530 000 oz for the first decade of operations.

Commenting on the transaction, Northern Star MD and CEO Stuart Tonkin said the group remained committed to its growth plan.

“We remain committed to our profitable growth plan to two-million ounces a year by the 2026 financial year, with the KCGM mill expansion and addition of Hemi propelling a significant further increase in Northern Star’s production to about 2.5-million ounces a year by the 2029 financial year.

“This reinforces Northern Star’s position as the leading Australian ASX-listed gold company and a top ten global gold major.”

Tonkin highlighted the strategic advantages the Hemi acquisition brought, particularly leveraging Northern Star’s in-house project management expertise. The company expected a smooth transition for the Hemi development team, who wwould bring valuable experience from the KCGM mill expansion, currently the largest gold project in Australia in over a decade.

“The 27-million-tonne-a-year KCGM mill expansion is the largest Australian gold project in over 10 years and provides Northern Star with the unique opportunity to de-risk the Hemi development pathway through our experience and relationships with contractors and suppliers,” Tonkin said.

De Grey shareholders would be entitled to receive 0.119 new Northern Star shares for each De Grey share held at the record date for the Scheme (Scheme Consideration), representing an implied offer price of A$2.08 a De Grey share and a total equity value for De Grey of about A$5-billion on a fully diluted basis.

The De Grey board unanimously recommended the transaction, noting that the offer represented a 43.9% premium to its 30-day volume-weighted average share price of A$1.45 a share.

The deal sees De Grey shareholders entitled to receive 0.119 new Northern Star shares for each De Grey share held at the record date for the scheme. This represents an implied offer price of A$2.08 a De Grey share, a substantial 43.9% premium over De Grey’s 30-day volume-weighted average share price of A$1.45. On a fully diluted basis, the acquisition values De Grey at about A$5-billion.

De Grey’s board has unanimously recommended the offer, describing the transaction as a “highly attractive opportunity” for shareholders.

“Given the high-quality nature of Hemi, De Grey is in the fortunate position to have had many avenues to progress the asset, including M&A. The transaction that we have entered with Northern Star today is a highly attractive opportunity for De Grey shareholders in terms of the upfront premium, as well as retaining ongoing exposure to Hemi and gaining exposure to the broader Northern Star portfolio,” said De Grey MD Glenn Jardine.

De Grey’s Hemi project is nearing a pivotal stage, with the completion of the definitive feasibility study (DFS) in September 2023. The DFS anticipates the commencement of construction in mid-2024, with first gold production expected in mid-2026. However, a final investment decision (FID) is still pending, subject to finalising environmental approvals and project debt financing.

In the interim, Northern Star plans to continue optimising the Hemi development plan. This will include applying insights gained from the KCGM mill expansion to enhance project efficiencies. The company intends to update the Hemi project’s metrics ahead of the FID to ensure a robust and value-driven development path.

Northern Star has signalled its intention to retain much of De Grey's existing management and operational staff, ensuring continuity in the development of the Hemi project.

Following the deal’s closure, De Grey’s shareholders will also gain substantial exposure to Hemi and become 19.9% shareholders in Northern Star, allowing them to benefit from the broader portfolio of assets within the combined company.