Westgold Resources Limited (ASX: WGX)is strategizing well on its long-life Murchison gold assets, and accordingly has agreed to sell its South Kalgoorlie Operations (SKO) to Northern Star Resources Limited (ASX: NST). Westgold now sells its wholly owned subsidiaries that collectively make up the SKO and include Dioro Exploration Pty Ltd, HBJ Minerals Pty Ltd and Hampton Gold Mining Areas Ltd for a consideration of $80 million (with working capital adjustments). This includes $20 million in cash and $60 million in unrestricted fully paid ordinary shares in Northern Star calculated at a backward-looking 10-day VWAP (volume weighted average price) of $6.30 per share. On the other hand, Westgold will retain its lithium royalties over the Mt Marion Lithium Mine and the rights to lithium exploration and mining over Location 53 and 59.

SKO had produced 24,000 ounces in the first half of this financial year; and as at June 30, 2017, SKO had Ore Reserves containing 252,000 ounces which was 7.45% of the group’s total Ore Reserves. SKO operates Jubilee Processing Plant as its mining hub and in recent years, the HBJ Underground Mine has operated as the core feed with additional smaller open pit and low-grade stockpile sources providing approximately 60% of plant capacity while remaining plant capacity has been filled by toll processing third party ores from the region. The acquisition by NST thus includes the project’s operating processing facility having an annual throughput capacity of 1.2mt, a JORC Resource of 4Moz, including 250,000oz in Reserves, and 800 sqkm of prospective gold tenure.

While the deal provides Northern Star with additional and instant plant capacity in the Kalgoorlie region for its expanding gold operations, Westgold will be able to divest its shortest life asset to boost up its cash position and upgrade the overall quality of the gold portfolio.

With the above announcement, WGX stock rose up by 2.24% while NST that trades at a higher level surged by 1.4% on March 08, 2018. We have a “Buy” position on WGX given the potential this merging gold miner with zero debt has while it tracks well to expand over 400,000oz per annum.

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