Saracen Mineral Holdings Ltd (ASX:SAR) is an Australian mid-tier gold producer based in WA.

The company bought its major assets off Sons of Gwalia back in 2006 – when the latter went bankrupt – and has done well to develop the assets and move from an explorer to a producer.

SAR’s key assets are located in the South Laverton mining district, 120km North-East of famed gold mining town Kalgoorlie, in Western Australia. This includes around 200 granted tenements and applications pending spread over 2,500 square kilometres.

Since purchasing these assets, SAR has spent money exploring the tenements and developing the projects to production.

The company completed a Definitive Feasibility Study on the South Laverton gold project in December 2008 and started producing gold in early 2010.

Ramping up

Having started production in April last year, SAR has achieved strong production quite quickly and established itself as an enticing small producer.

The company produced 111,163 ounces of gold in FY11, its first full year of production, at an average cash cost of $738 an ounce.

SAR has forecast production of around 125,000 ounces in FY12 at costs of around $700-$750 an ounce. So far FY12 is off to a solid start, with the company recently releasing its September quarter Activities Statement. Production of 31,790 ounces at cash cost of $730 was right in light with guidance.

By de-watering some of its flooded pits, SAR hopes to ramp up production to over 160,000 ounces a year by 2015.  Management has proven to be conservative and reliable so far, offering some reassurance in what is a speculative sector.

Saracen Mineral Holdings has managed significant upgrades to its gold resources and reserves, presently standing at around 3,300,000oz and 880,000oz respectively.  Most of the reserves are open-pit, which allows for easier and cheaper mining.

The sizeable resources and potential underground mining pave the way for a long mine life, while the company has extensive exploration potential to upgrade this further.

The hunt for Red October

SAR’s has planned to spend $35 million on exploration activities in FY12, a sizeable budget given the size of the company.

The company recently completed a placement, raising $50.2 million and helping the company to end the September quarter with $60.3 million in net cash and no debt. A share purchase plan and subsequent placement have raised a further $15 million since.

Together with cash generated from production (almost $10 million last quarter), SAR will not need to raise significant fresh capital to fund this.

Much of SAR’s exploration efforts will be in exploring its Red October project. The company expects to have completed dewatering the pits shortly, to be followed by underground development work.

Previous drilling results have confirmed the continuity of ore body at Red October and further exploration efforts could lead to significant resource upgrades relatively quickly.

Production from Red October is expected to commence in FY12, but potential major exploration success could provide a major share catalyst before then.

Outlook

SAR only started gold production just over 18 months ago but is already generating output of around 125,000 ounces a year.

Incremental production upgrades could come in the next few years, but the significant upside potential comes from the development of its Red October operation.

While SAR offers significant exploration upside, its existing production provides extra protection, and suggests that the market could re-rate the stock and push SAR shares much higher than current levels.

SAR is a defiantly a stock to watch.

For further FREE Trading Recommendations, Click Now!

Saracen Mineral Holdings (SAR) is an Australian mid-tier gold producer. The company became a producer when production began in April from the Carosue Dam gold project, 120km north-east of Kalgoorlie in Western Australia. Current gold production is from the Porphyry and Whirling Dervish open pit mines.

SAR has only just made the leap to producer, but as its quarterly results demonstrate, the company is already delivering increasing gold production from its flagship Carosue Dam operations.

Carosue cruising along

Carosue Dam’s 2.4 million tonne per annum (mtpa) processing plant is forecast to produce approximately 100,000 to 120,000 ounces of gold in FY11.

SAR is targeting an increase in production to around 160,000 ozpa by 2015. Gold resources at Carosue stand at around 3.3 million oz while reserves stand at around 0.9 million oz.

Saracen’s Carosue Dam operations area contains a large number of known gold deposits within four separate districts (the Carosue Dam, Porphyry, Safari Bore and Red October districts).

SAR is forecasting future production from open pit mines at Karari, Enterprise, Wallbrook and Deep South, and, subject to positive feasibility study results, underground operations at Porphyry, Red October and Deep South.

Project development for a trial underground mining operation at Red October is presently underway.

Looking golden

SAR’s tenement holdings and gold deposits are located in one of the world’s most prospective gold provinces.

In excess of 23 million ounces of gold in resources have been found and/or brought into production in this province, where SAR is building a long-term strategic infrastructure and resource position.

As at 30 June 2010, SAR’s gold hedging position stood at put options bought over 154,347 oz, and call options sold over 90,810 oz, all at an exercise price of $1,250 per ounce and expiring in monthly amounts through to December 2011.

SAR is fortunate in that its commodity of choice – gold – is experiencing a “golden” run over the months, and currently sits at around US$1,400 per ounce.

As a result, Australian gold miners have been among the hot stocks this year as investors look to gain exposure surging bullion prices.

The precious metal has repeatedly hit record highs on demand from China. Even though China is currently in the midst of battling inflation, the country is buying large amounts of gold and creating demand for SAR’s services.

Pumping production

In its first full production quarter, being the quarter ended 30 June 2010, Carosue Dam operations produced 25,036 ounces of gold, from the processing of 520,214 tonnes of ore grading 1.62g/t.

Most of the ore was sourced from the Porphyry open pit mine.

Saracen’s second open pit mine, at Whirling Dervish, supplied first ore to the plant in June 2010.

For its more recent (September) quarter, gold production totalled 27,233 ounces at a cash cost of $705 per ounce.

The quarter saw gold resources increase by 8% to 3.3 million ounces and gold reserves increase to 0.9 million ounces.

SAR clocked mine operating profit (excluding hedging losses) of $11.3 million for the September quarter.

Impressively, over the quarter Saracen Mineral Holdings saw its Million Dollar operation gold resources increasing 55% to 327,000 ounces.

Drilling at Million Dollar is continuing whilst SAR is focused on an exciting broader $12 million drilling campaign, targeting numerous brownfields and greenfields targets.

Outlook

Saracen Mineral Holdings has only just made the leap to producer, but as its quarterly results demonstrate, the company is already delivering increasing gold production from its flagship Carosue Dam operations.

The company is looking at a successful future as a mid-tier gold producer, which will be boosted by the development of its various operations in the lucrative West Australian gold districts.

This bullish outlook means SAR will be one of the stocks to watch in coming months.

Click for a free report to receive daily SAR and stocks to buy advice.