(BSS/AFP) - Australian gold mining giant Northern Star Resources said Monday it has agreed to buy a rival that owns a vast undeveloped gold project in a deal worth US$3.2 billion.

Northern Star said it would acquire full ownership of De Grey Mining along with its Hemi gold development in Western Australia`s Pilbara region.

The all-share offer valued De Grey at about Aus$5 billion (US$3.2 billion), it said.

Gold prices have surged about 30 percent so far this year, sparking a scramble for more supplies.

"De Grey`s Hemi development project will deliver a low-cost, long life and large-scale gold mine," said Northern Star chief executive Stuart Tonkin.

In late morning trade on the Australian Securities Exchange, shares in Perth-based Northern Star fell 5.5 percent while De Grey, also based in Perth, surged 31 percent.

The deal, which was unanimously approved by De Grey`s board, implies a price per share more than 37 percent above De Grey`s closing price on Friday.

The share price premium was "adequate" considering the value of the Hemi project, which carried some development risks, said a report by RBC Capital Markets analyst Alex Barkley.