Evolution Mining (ASX: EVN) agreed to acquire Carnaby Resources (ASX: CNB) in an all-stock deal valued at about A$213 million ($149 million) that would give the Australian gold producer a pipeline of high-grade copper-gold ore for its Ernest Henry mine while adding what analysts say is a large, underexplored land package.
Shareholders of Carnaby will receive 0.0682 new Evolution share for each Carnaby share held, according to separate press releases dated Monday. This implies an offer price of 77.2¢ for each Carnaby share, representing a 61% premium to Friday’s closing price.
Acquiring Carnaby would give Evolution control over the Greater Duchess copper-gold project, which would become a second ore source for the acquirer’s processing infrastructure. This could boost Evolution’s annual copper production by about 10,000 tonnes by utilizing spare mill capacity and existing infrastructure at nearby Ernest Henry, reducing development risk and capital intensity compared with a standalone operation.
The deal “is expected to provide additional growth opportunities at Ernest Henry,” BMO Capital Markets mining analyst Brian Quast said in a note.
Greater Duchess’s proximity to Ernest Henry “provides an opportunity to increase copper production at Ernest Henry, utilising latent mill capacity and existing infrastructure,” Evolution CEO Lawrie Conway said in a release. “Combining Carnaby’s Greater Duchess and prospective tenement package, together with Evolution’s established operating presence in North West Queensland, provides regional consolidation and has the potential to unlock value for both Carnaby and Evolution shareholders.”
Glencore arrangement
The acquisition also eliminates a key element of uncertainty surrounding Greater Duchess, which is located about 70 km south of Ernest Henry near Cloncurry in northwest Queensland.
A prefeasibility study released earlier this year assumed the project would pay processing tolls to Glencore at Ernest Henry. Under Evolution’s ownership, that arrangement will end because the mine and processing plant will be under common ownership, potentially improving project economics.
RBC Capital Markets analyst James Redfern said the deal gives Evolution “an additional source of high-quality copper-gold ore” and expects the economics of Greater Duchess “can be enhanced under Evolution’s ownership and processing at Ernest Henry.” The broker maintained its sector perform rating and A$11.50 price target on Evolution.
The acquisition represents a modest investment for Evolution, which has a market value of about A$23 billion, while providing access not only to additional copper feed but “perhaps more importantly in our view access to significant underexplored acreage,” MA Moelis Australia said.
Competing bid?
“For Carnaby, this deal represents value recognition by another corporate that the market was unwilling to pay,” MA Moelis also said, while maintaining a buy recommendation and A$1.10 target price. Shareholders should continue holding the stock because further corporate interest, while unlikely, could not be ruled out, the broker added.
A competing bid remained possible given strong demand for copper assets around the Mt. Isa district, Euroz Hartleys also said. The broker lowered its target price to A$0.77 to match Evolution’s implied offer while reaffirming a speculative buy recommendation.
Greater Duchess is one of Australia’s emerging copper-gold projects. It hosts multiple deposits, including Lady Fanny, Mount Hope, Nil Desperandum and Trekelano. Carnaby has spent the past several years expanding resources through exploration drilling across the district while advancing engineering and development studies.
The acquisition deepens Evolution’s exposure to copper, a metal increasingly viewed as a key growth commodity because of demand from electrification, renewable energy and transmission infrastructure. Although Evolution is mostly known as a gold producer, copper has become an increasingly important contributor to earnings through Ernest Henry and the Northparkes mine.
Regional pipeline
Evolution said Greater Duchess complements its existing portfolio by providing a pipeline of regional growth opportunities around Ernest Henry. The company has continued to pursue organic and bolt-on growth opportunities while maintaining a focus on Tier 1 mining jurisdictions.
Sydney-based Evolution operates six mines in Australia and Canada. Along with Ernest Henry and Northparkes, they include Cowal, Mt. Rawdon and Mungari in Australia and Red Lake in Ontario. The company has increasingly emphasized long-life assets capable of generating strong cash flow through commodity price cycles.
The transaction remains subject to customary conditions, including Carnaby shareholder approval, court approval and regulatory clearances. A meeting of Carnaby shareholders is expected to be held by early November, which would pave the way for a mid-November closing.
Carnaby’s board has unanimously recommended that shareholders vote in favour of the deal, in the absence of a superior proposal. All directors of the Carnaby board, who collectively hold 7.3% of the company’s shares, intend to vote in favour of the transaction.
Shares of Carnaby, which soared 56% to 75¢ Monday in Sydney on news of the takeover proposal, fell 1.3% to 74¢ Tuesday, valuing the company at about A$206 million. Evolution dropped 1.8% to A$11.30.
