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Saracen Minerals Holdings Ltd - March 2020 Quarterly Activities Report

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

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$2.5 billion.

 

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What are they key features of Saracen’s quarterly activities report (March quarter)?

For the March quarter 2020, total gold production was 158,132oz at an all-in sustaining cost (ASIC) of A$1,133/oz. Thunderbox operation reported gold production of 50.1koz at AISC of A$682/oz (December quarter 46.6koz at A$754/oz). Carosue Dam operation reported gold production of 49.5kozat AISC of A$1,308/oz (December quarter 52.9koz at A$1,231/oz). Finally, KCGM (Saracen 50% interest) reported gold production of 58.6koz at AISC of A$1,415/oz (first full quarter of production since acquisition).

Production levels at Carosue Dam was slightly down on the quarter due to scheduled shut-down at the processing plant. In addition, the mill expansion that is estimated to increase throughput to 3.2Mtpa continued to make good progress. However, the mill expansion will be delayed by one quarter to the March quarter 2021 due to COVID-19 related delays.
The Thunderbox operation operated as expected. The only point to note is that the development of the Thunderbox underground continued to progress well with 1,071 meters of horizontal development completed.
KCGM operation performed as expected. However, there was a 203-hour shutdown of the processing plant. This impacted total milling during the quarter. The next major shutdown is planned for the September quarter 2020.

 

What is the outlook for Saracen?

The short-term and long-term outlook for Saracen is positive. Saracen is benefiting from a weak A$ and a rising gold price. This could increase revenue in the short-term for Saracen. Saracen has a strong balance sheet with total cash, bullion and investments of A$340 million and debt of A$360 million as at 31 March 2020. Regarding Saracen’s debt, an early debt repayment of A$25 million was made in February 2020. The next debt repayment of A$38 million is due June 2020.

The long-term outlook for Saracen is also positive. The recent acquisition of the KCGM Super Pit could allow Saracen to transition from a mid-tier to top-tier gold producer. The acquisition is estimated to more than double Saracen’s total gold production in the coming years. Saracen expects to produce over 500,000 ounces of gold in FY20 and over 600,000 gold in FY21.

Investors that want exposure to the gold industry could consider following Saracen to observe the company’s performance during the COVID-19 crisis (which to date has had no material impact) and developments of its mining operations.

 

What is the market reaction?

The market reaction to Saracen’s quarterly activities report is positive. Saracen’s share price is up around 1% and is currently trading at A$4.61. This is slightly better than the Australian market, as the Australian market is up 0.2%. Saracen has a forward P/E ratio in the high teens but is yet to pay a dividend.

 


 

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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