Karora Resources Merges with Westgold Resources - Merger of equals Delivering Scale and Synergy

• Karora Resources is merging with Westgold Resources in a deal that will make Karora shareholders 49.9% owners of the new entity
• The combined company will be the 3rd largest gold producer in Australia with 400-450koz annual production and will be 100% unhedged
• Significant synergies are expected from optimizing equipment utilization, procurement savings, and eliminating redundant costs
• The larger scale will allow for index inclusion, improved market positioning, and accelerated growth plans
• Management is very bullish on the deal and believes it will unlock substantial value for Karora shareholders

About Karora Resources

Karora Resources is a growing mid-tier gold producer that owns the Beta Hunt Mine and Higginsville Gold Operations in Western Australia. Over the past five years, Karora has transformed itself from a single-asset company with a sub-$100 million market cap to a multi-mine 200,000 ounce per year producer. The company has a strong track record of accretive M&A, operational execution and resource growth under the leadership of Chairman & CEO Paul Huet.

Interview with Chairman & CEO Paul Huet, and EVP,Corporate Development, Oliver Turner

The Merger of Equals with Westgold Resources

Karora Resources has announced a merger of equals with Westgold Resources, a combination that will create a leading mid-tier Australian gold producer with a pro-forma market capitalization of A$2.2 billion (C$1.9 billion). Under the terms of the deal, Karora will own 49.9% of the combined entity and Karora shareholders will receive 2.5241 Westgold fully paid ordinary shares, A$0.68 (C$0.60) in cash and 0.30 of a share in the new company to be spun-out from Karora (SpinCo). This equates to approximately A$6.60 (C$5.90) per Karora share based on Westgold's closing price as of April 5th 2024.

The combined company will be the third largest gold producer in Australia with annual production of 400,000 to 450,000 ounces. Importantly, the merged entity will be 100% unhedged, providing full exposure to the strong Australian dollar gold price, which recently hit a record high of A$3,500 per ounce. The increased scale is expected to command higher trading multiples as the company enters the lower end of the ASX200 index and becomes the go-to name for Australian gold exposure.

According to Executive Chairman & CEO Paul Huet: "There's a lot more to come for our shareholders as we continue to participate 50%. This is Karora unleashed."

Unlocking Synergies through Integration

In discussing the rationale for the deal, Huet emphasized the significant synergies that will be unlocked by the merger. The combined company will have a total of 5 processing mills, with nearly 7 million tonnes per annum of capacity. This provides the flexibility to optimize feed sources and drive costs lower. In addition, the 2 companies operate neighboring mines, which will enable more efficient utilization of equipment and people. Procurement synergies on key consumables like cyanide, explosives and mill liners are also expected.

"Where do you really drive synergy? There's two areas," explained Huet.

"We have about 30 pieces of equipment to run about 170,000 ounces a year. That's what Karora has today. If you go to their mine sites, what you see is 130 pieces of equipment. That's 5 times the amount of gear we have. There is about $200 million of equipment. Day one you merge this thing, you bring 20 pieces of gear over to our sites - whether it's Beta Hunt for the acceleration of the 2 million tons, whether it's Higginsville where you allow some drills, or Spargo's underground mine."

In addition to optimizing equipment utilization, the combined company expects to realize significant procurement savings. "When you look at the synergies that are with this equipment, they are textbook," continued Huet. "We used to a 5% discount, and that is extremely conservative. When Wayne [Bramwell - Westgold Resources' Managing Director] is up there running this company and he's talking to vendors, it gives the vendor some consistency, a really good flow that they can go, 'I know I'm going to get this amount because there's so much volume, in return I can offer you this kind of discount pricing.'"

Accelerating Growth through Exploration & Project Development

The merger also provides an opportunity to accelerate organic growth at both Karora and Westgold through expanded exploration programs and advancing key development projects. At Beta Hunt, Karora has grown the resource from under 200,000 ounces to nearly 3 million ounces over the past three years, but exploration investment has come at the expense of drilling at Higginsville.

"If there's been a victim of Beta Hunt's success over the last year and a half, two years, it's been the massive Higginsville tenement package," noted Karora EVP Corporate Development Oliver Turner. "Westgold has six drills on site that can be shipped down to Beta Hunt and Higginsville immediately. Three of those drills coming down to Higginsville to start drilling out the Sleuth trend, Lake Cowan, all of these targets that we've talked about for years."

In addition to exploration, the combined company will be able to advance development projects like the Spargos underground mine and the Mt Henry open pit. "At $2,300 an ounce US, the value of that rock has really increased," explained Turner.

"We don't have the milling capacity right now, but the work is still good, it's ready to go. What is always needed to justify it is another source of mill feed in terms of big tons. Mt Henry to the south has a million ounces in resource. With Westgold's new capabilities, elevated gold price, and hugely robust balance sheet, there's a lot of really interesting uses for that cash."

Strengthening the Balance Sheet and Implementing a Dividend

Importantly, the combined company will have a much stronger financial position with over A$300 million in cash and an ability to generate substantial free cash flow at current gold prices. This provides the financial flexibility to accelerate organic growth initiatives while also implementing a sustainable dividend policy more in line with other profitable producers.

Westgold has already announced its intention to implement a sustainable dividend policy with annualized payments of A$0.02 per share. For Karora shareholders, this represents a new source of returns that wouldn't be possible on a standalone basis.

"A dividend is a natural progression for this business as we get out of our capital spend, but that's not going to happen until 2025," explained Huet. "Westgold announced a dividend already, a special dividend, a first half dividend this year, and that's going to be rolled into what's called an annualized dividend. You get the same payment every year just for being a shareholder. That is really powerful, and that attracts a whole new suite of investors that require a dividend to be paid."

The Investment Thesis for Karora Resources:

• Exposure to a larger, more liquid and profitable gold producer at an attractive valuation with the Westgold merger
• Meaningful cost and operational synergies from combining mine operations, procurement and overhead
• Potential for accelerated organic growth through expanded exploration programs and advancing key projects like Spargos and Mount Henry
• Upcoming catalyst of index inclusion in the ASX200 and ASX300 which will drive greater institutional ownership and trading liquidity
• Implementing a sustainable dividend policy will attract a broader shareholder base and underscore the profitability of the business
• Proven management team with a track record of delivering on promises and a strategic vision for long-term value creation

The merger of equals between Karora Resources and Westgold Resources is a game-changing transaction for both companies. By combining their complementary operations, the merged company will become a top-tier Australian gold producer with significant scale, synergy potential and growth opportunities. For Karora shareholders, the deal provides an immediate uplift in value and exposure to a much larger and more liquid vehicle going forward.

Huet summed it up: "Throughout these 5 years, we've been able to eliminate royalties, acquire new assets and build a leading gold district in Western Australia. This merger is the next step in our journey to becoming a leading mid-tier producer. The adventure is just beginning for our shareholders and I couldn't be more excited about the future."

With a rising gold price, improved sentiment for the precious metals sector, and a major merger on the horizon, Karora Resources appears well-positioned to unlock value for shareholders in the coming years. The stock remains an attractive way to gain exposure to a growing, profitable and soon-to-be dividend-paying gold producer.