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Saracen Minerals Holdings Ltd - Response to COVID-19

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities 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$2.52 billion.

 

SAR


Update on Coronavirus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 462,684 and 20,834 deaths globally. As of today (26 March 2020), there have been over 2,985 confirmed cases and 8 have died of COVID-19 in Australia.

 

What has happened to Saracen share price?

Over the last month, Saracen share price has fallen 21% and is currently trading at A$3.58.


What is Saracen response to COVID-19?

Saracen announced today (27 March 2020) surrounding the company’s responses to COVID-19. Firstly, Saracen group production is between 150,000 and 155,000 ounces estimated for the March quarter 2020 and production in the six months to December 31 was 216,452 ounces. Secondly, a positive announcement is that COVID-19 has had minimal impact on the March quarter production, however, there is no certainty that COVID-19 will not impact June quarter production levels. Thirdly, Saracen is not withdrawing FY20 guidance of 500,000 ounces. Finally, Saracen has large ore stockpiles available for milling (more than 1.7Moz attributable) which will help insulate the business should mining be further restricted.

Ore stockpiles currently available at each of Saracen sites is as follows: Carosue Dam -Approximately 9 months processing, Thunderbox - approximately 13 months processing, KCGM low grade -approximately 25 months processing and KCGM sub-grade - approximately 92 months processing.

 

What is the outlook for Saracen?

The short-term and long-term outlook for Saracen is positive. Saracen is benefiting from a falling A$ and a rising gold price. This could increase revenue in the short-term for Saracen. Saracen has a strong balance sheet with cash and bullion of A$325 A$330 million is estimated for 31 March 2020. Drawn debt is A$360 million, after making voluntary debt repayments of A$40 million since initial drawdown of A$400 million in November 2019 to fund the Super Pit acquisition. This should allow Saracen to navigate this troubling economic environment.

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 exposer to the gold industry could consider following Saracen to observe the company’s performance during the COVID-19 crisis. Saracen is trading at a forward P/E ratio in the mid-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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