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Why this small cap ASX mining share rocketed 36% today

Phil Harpur
share price rocket

Ramelius Resources Limited (ASX: RMS) and Spectrum Metals Ltd (ASX: SPX) announced today that Ramelius has made a recommended takeover offer for Spectrum Metals.

At the time of writing, Ramelius’s share price is down by more than 5%, while Spectrum Metal’s share price has surged sharply by 36.36%.

What do Ramelius Resources and Spectrum Metals do?

Ramelius Resources is a gold mining and production company with its primary production occurring at the Mt Magnet goldmine. It also holds a portfolio of other development projects in Australia and the United States (US).

Spectrum Metals is a mineral resource exploration and development company. Spectrum Metal’s key asset is the Penny West Gold Project, one of the highest grade undeveloped gold assets in Western Australia. Penny West is located approximately 150 km south-east of Ramelius’ Mt Magnet mining and processing operations and approximately 550 km north-east of Perth in Western Australia.

What are the terms of the takeover agreement?

Under the agreement, Ramelius Resources will offer to acquire all of the issued and outstanding ordinary shares in Spectrum Metals that it does not already own under the terms of an off-market takeover offer. Spectrum shareholders will receive 1 Ramelius share for every 10 Spectrum shares held and cash consideration of A$0.017 per Spectrum share held, valuing Spectrum shares at A$0.15 each.

How will the acquisition benefit Ramelius  and Spectrum?

Shareholders of both companies are expected to benefit from significant synergies between Penny West and Ramelius’ Mt Magnet operation.

The acquisition of Spectrum is in line with Ramelius Resources’ philosophy of acquiring assets within a radius of existing production hubs that facilitate mining and ore haulage, without incurring significant on-site capital expenditure. The acquisition of Spectrum Metals will allow Ramelius Resources to add high grade JORC Resources of 355,5001 oz to its current asset base and provide an opportunity to introduce an additional ore source to its processing facility at Mt Magnet.

Penny West is said to offer significant exploration potential at depth and along strike. An October 2019 estimate for the Penny West Gold Project stated that the total resource at Penny West is currently 799 kt at 13.8 g/t Au for 355,500 oz, including 569 kt at 16.8 g/t Au for 306,800 oz at Penny North.

In FY19, Ramelius Resources produced 196,679 ounces of gold at an all in sustaining cost (AISC) of A$1,192/oz and recorded a net profit after tax for the financial year of $21.8 million. As at 31 December 2019, Ramelius held A$87.7 million in cash and gold bullion with no debt. FY20 is forecast to be another very strong year with gold production of 205,000–225,000 ounces at an AISC of A$1,225–1,325/oz.

The post Why this small cap ASX mining share rocketed 36% today appeared first on Motley Fool Australia.

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Motley Fool contributor Phil Harpur has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020