Silver Lake Resources Ltd has acquired an 11% stake in Red 5 Ltd, signalling a potential impediment to Raleigh Finlayson's Genesis Minerals Ltd's consolidation efforts in the West Australian gold mining district near Leonora.
This acquisition places Silver Lake in direct competition with Genesis, which had recently secured the Gwalia gold mine, about 35 kilometres south of Red 5's King of the Hills mine.
The Gwalia purchase was instrumental for Finlayson's strategy to amalgamate fragmented operators around Leonora into a single, profitable hub. Finlayson had won the Gwalia asset after a strenuous bidding competition against Silver Lake.
Genesis also owns 80% of Dacian Gold, a neighbouring gold mill and mine, adding to speculation that Red 5 may be the next firm in line for acquisition.
Silver Lake's strategic stake complicates matters for Genesis. An ownership threshold of 90% is generally required for a company to be able to compulsorily acquire all remaining shares in a target firm. Silver Lake's 11% stake in Red 5 effectively blocks any such move, similar to how German investor Delphi's 10.56% stake in Dacian Gold limited Genesis' acquisition capabilities.
According to an ASX filing, Silver Lake considers the acquisition as a “strategic investment” citing its significant cash reserves and projected free cash flow, which would enable quick action on future opportunities.
Red 5 reported a loss of $8.7 million for the year ending June 2023, but with commercial production at King of the Hills operating for just half the year, better financial performance is anticipated this year. Meanwhile, Genesis has the financial backing of AustralianSuper and billionaire Kerry Stokes' private entities.
The acquisition poses potential obstacles for Genesis' grand consolidation plans and introduces another layer of complexity to future takeover scenarios.