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Saracen Minerals Make 50% Acquisition of Gold Super Pit in WA

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Saracen Minerals Holdings Ltd (ASX: SAR) is an Australian gold miner. Saracen has two main projects in Western Australia. These include the Carosue Dam Operation and the Thunderbox Operation. Saracen has a market capitalisation of A$2.52 billion.

Saracen 50% acquisition-1

What are the recent developments in Saracen activities?

On 18 November 2019, Saracen announced that the company plans to acquire 50% of the Kalgoorlie Consolidation Gold Mine (KCGM) Super Pit in Western Australia from Barrick Gold Corporation. Saracen has partnered with Newmont Goldcorp, where they will remain the operator of KCGM. The acquisition will cost around US$750 million (~A$1,1 billion). Saracen will finance a proportion of the investment with taking on A$500 million worth of debt.

KCGM is one of the largest gold mines in Australia with gold production of 490koz in FY19 and 730koz in FY18. The production was down significantly in FY19 due to a rock fall. Saracen management have mentioned that it will take more than three years to recover from the rock fall but note that the acquisition will pay off in the long-term and allow for additional revenue growth in the near future.

Today (25 November 2019) Saracen management announced:

Western Australian Minister for Finance, Aboriginal Affairs and Lands consents to Saracen’s purchase of the Kalgoorlie Super Pit stake; The transaction is now unconditional and set for completion on 29 November 2019.

 

What is the outlook for Saracen?

The outlook for Saracen is positive. The acquisition of the KCGM Super Pit could allow Saracen to transition from a mid-tier to top-tier gold producer.

During the September 2019 quarter, Saracen two other operations (Carosue Dam and Thunderbox) peformed well. Carosue Dam gold production was up 10% and Thunderbox gold production was up 5%. Additionally. All-in Sustaining Costs (ASIC) for the September 2019 quarter is A$964/oz, down from FY20 guidance of A$1025 – A$1075/oz.

  • Production guidance for FY20 (Pro forma) is now 605koz, up 68% from the previous full year guidance of 350 -370,000oz.
  • ASIC guidance for FY20 (Pro forma) is now A$1,220/oz, up 16% from the previous FY20 ASIC guidance of A$1050/oz.

The spot price of gold has slightly dropped in the few months. This is in light of a potential new US China trade deal and a new potential Brexit deal. If these deals are reached, global economic and political concerns may ease, causing gold to not be as favourable, as it has been between June 2019 – August 2019. Although, if these global concerns do not ease, gold is expected to continually perform well.

What is the market reaction?

The initial market reaction to Saracen announcements is slightly positive. Saracen share price is up around 1% and is currently trading at around A$3.065 (11.50am, 25 November). Saracen trades on a forward P/E ratio in the low-teens.

 


 

Disclaimer:

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).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

 

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