Australian gold miner Northern Star Resources has agreed to acquire gold mining company De Grey Mining in an all-share deal valuing the latter at around A$5bn ($3.25bn).

The transaction will be executed through a court-approved scheme of arrangement.

As per the terms of the binding scheme implementation deed (SID), shareholders of De Grey will receive 0.119 new Northern Star shares for each share held, equating to an offer price of A$2.08 per De Grey share.

The merger of the gold producers will create a combined entity with pro forma mineral resources of 74.9 million ounces (moz) and ore reserves of 26.9moz.

The enlarged company will operate across two Tier-1 jurisdictions and four production centres.

The De Grey Board has unanimously recommended the scheme, with directors pledging to vote in favour, barring a superior proposal and positive expert endorsement.

Upon deal completion, Northern Star and De Grey shareholders will own roughly 80.1% and 19.9% of the merged entity, respectively.

The deal will enable Northern Star Resources to gain full ownership of De Grey Mining’s Hemi gold project in the Pilbara region of Western Australia.

Northern Star Resources managing director and CEO Stuart Tonkin said: “The acquisition of De Grey is strongly aligned with Northern Star’s strategy and contributes to our purpose of generating superior returns for shareholders.

“De Grey’s Hemi development project will deliver a low-cost, long-life and large-scale gold mine in the Tier-1 jurisdiction of Western Australia, enhancing the quality of Northern Star’s asset portfolio to generate cash earnings.”

The Hemi large-scale gold development project has estimated mineral resources of 11.2moz and ore reserves of 6moz.

Once operational, the project is expected to produce 530,000oz of gold annually over its first decade.

De Grey Mining managing director Glenn Jardine said: “Given the high-quality nature of Hemi, De Grey is in the fortunate position to have had many avenues to progress the asset, including M&A [mergers and acquistions].

“The transaction that we have entered with Northern Star today is a highly attractive opportunity for De Grey shareholders in terms of the upfront premium, as well as retaining ongoing exposure to Hemi and gaining exposure to the broader Northern Star portfolio.”