Saracen Minerals Holdings Ltd (ASX: SAR) is an Australian gold miner. Saracen has three main projects in Western Australia. These include the Carosue Dam Operation, the Thunderbox Operation and the joint venture operation of the KCGM super pit (50% interest). Saracen has a market capitalisation of A$6.3 billion.
Saracen’s growth in production over the past 7 years has been impressive. In FY13, Saracen produced around 136,000 ounces of gold from its Carosue Dam operation. This production level marginally increased until FY17, when Saracen’s Thunderbox operation began production. In FY17, this increased Saracen annual production to around 273,000 ounces of gold. Now, in FY20, Saracen produced 520,000 ounces of gold, with its 50% interest in the KCGM operation (known as the super pit) contributing production in the fiscal year. this represents a 282% production increase over a 7-year period.
Saracen’s share price has also grown impressively over the last 5 years, with a 1114% increase in the company’s share price.
Is Saracen positioned for future growth?
The question for investors now is will Saracen continue to grow at a similar rate? For FY21, Saracen expects to produce 600-640,000 ounces of gold (FY20: 520,414 ounces) at an AISC of $1,300 -$1,400 per ounce (FY20: A$1,101 per ounce). Saracen has also announced plans to increase gold production to around 700,000 ounces per annum in FY24, before climbing to around 800,000 ounces per annum in FY27.
If this goal is achieved, between FY27 and FY20, Saracen’s production will grow around 53% over the 7-year period. While this is less than the 282% from the previous 7-year period, the percentage differential is deceiving. In the previous 7-year period, Saracen annual production increased by 384,000 ounces from 136,000 ounces in FY13 to 520,000 ounces in FY20. In the forecast production numbers for 7-years to FY27, Saracen production is expected to increase by 280,000 ounces, which is less compared to the previous 7-years, but still very impressive. This assumes Saracen does not acquire a new gold mine in this time period or have any exploration success.
The gold price
In $US terms, the gold prices in FY20 has performed very well. Gold prices has rose 27% over the year. The outlook for gold prices over the short-medium term is positive. This is based of the current macroeconomic environment. Historically (since 2008), there has been a positive correlation with increases in central banks balance sheet (mainly through quantitative easing) and the price of gold. Between 2008 and 2012, gold prices increased around 90%. This followed the large expansion of central banks balance sheets in developed economies in response to the GFC.
In today’s macroeconomic environment, central banks balance sheets in aggregate continue to expand massively. This is mainly due to COVID-19, as central banks have responded to the economic situation by lowering interest rates to the lower bound and undertaking large quantitative easing programs. If the historical correlation between gold prices and central bank balance sheets is maintained, it can be expected the price of gold can still rise a lot higher than today’s level.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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