Red 5's $2.2B merger with Silver Lake halts the consolidation of WA gold

Red 5 has announced a $2.2 billion merger with Silver Lake but claims it has not closed the door to a transaction with its acquisitive, larger rival Genesis Minerals.

The acquisition has established a powerhouse in the West Australian gold mining industry.

Red 5 was long believed to be targeted by Genesis, the operator of the large Gwalia mine, which is supported by well-known resource sector figure Raleigh Finlayson. Red 5 consolidated the state's Leonora gold area. Brokers don't think Finlayson is eager to sabotage the agreement with Silver Lake, though.

There aren't many big gold mining corporations on the ASX anymore due to Newcrest Mining's departure following its merger with Newmont. Red 5, the company that runs the King of the Hill mine, and Genesis might have partnered to save a lot of money. In addition to Finlayson, Australian Super and billionaire Kerry Stokes also support Genesis.

However, given the agreement with Silver Lake, which last year acquired 11% of Red 5, any consolidation is unlikely, leaving the district divided between the two larger players.

Though the company had negotiated a "fiduciary out" clause in the agreement with Silver Lake, according to Red 5 chairman Russell Clark, the board was still free to consider competing offers should Finlayson make one.

In reference to Red 5's ultimate 51.7% stake in the combined miner, Clark stated that they would typically not have a fiduciary outlay as the purchaser. However, the Red Board insisted on that, and it took some time to get there. He said in closing that there was a chance, and if someone wanted to bid Red 5, they could.