Geopacific has earned an effective 93% interest in Woodlark via its 85% stake in Kula, leaving the junior partner in the PNG gold project in a kind of netherworld, with little freedom to chart its own destiny, slaved to Geopacific's whims, and kept alive by loans from its partner.
Geopacific says owning 100% of Woodlark will simplify the ownership, deliver corporate cost reductions and make the project more attractive to the market at a time of rising gold prices.
The agreement will involve Kula sell its interest in Woodlark in return for 150 million Geopacific shares (of 2.08 billion issues today) and $700,000 cash in return for Geopacific cancelling all its shares in Kula - although the bulk of the cash will be used to repay a $680,000 loan to Geopacific.
Around 2.55 Geopacific shares per Kula share will be distributed to Kula shareholders.
The two boards contain both Ron Heeks and Mark Bojanjac as common directors, and Matthew Smith as a Kula director and Geopacific's company secretary. Heeks and Smith will step down as directors if the deal proceeds.
Kula's independent directors have recommended the deal, and Perth investor Mark Stowell, a Kula director and an indirect shareholder also intends to vote in support.
Kula says it will aim to lock in a new opportunity, ideally within six months in order to retain its ASX listing.
Given it started the year with just $8000 cash and has been kept viable with loans from Geopacific, it will restart life with around $20,000 cash - and will need a capital raising as part of re-complying with ASX listing rules.
Shareholders at both companies need to approve the deal at meetings in late April and early May.
The prize at Woodlark is substantial for Geopacific. Last year's definitive feasibility study outlined a $202 million long life development with a 2.2-year payback, high margins and enviable exploration upside.
The project would generate total revenue of $1.6 billion, resulting in cashflow of $626 million for Geopacific with some 967,000oz produced over the 13-year life with costs averaging $1033/oz for the life of the mine.
Reserves at Woodlark sit at 28.9Mt grading 1.12 grams per tonne for 1.04Moz of gold using a gold price of $1650/oz. The Aussie gold price was around $1833 today.
A final investment decision is targeted this year, with development expected to take 22 months.
Shares in Geopacific were up 8.3% to 1.3c on Friday morning, valuing it at $27 million, while the typically thinly traded Kula was last sold at 2.3c, a rise of 15%, valuing the company at $8.6 million. Kula had not traded since