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.
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.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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