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.
What are the key features of Saracen’s FY20 result?
Saracen reported an increase in underlying net profit after tax (NPAT) of 173% to a record A$257 million (FY19: A$94.2 million). Revenue from gold sales rose by 93% to A$1,074 million (FY19: A$555 million). This outcome reflects a rise in gold production of 47% to a record 520,414 ounces (FY19: 355,077 ounces) and a rise in the average realised gold price of 24% to A$2,142 per ounce (FY19: A$1,722 per ounce). All-In-Sustaining-Costs (AISC) remained steady at A$1,101 per ounce (FY19: A$1,030 per ounce). At 30 June 2020, Saracen has debt of A$321 million and a net Cash position of A$48 million.
Saracen will not pay a dividend in respect of its FY20 earnings. Saracen’s dividend policy has been amended such that a dividend will be declared when the Company has a minimum net cash balance of A$150 million. The target pay-out ratio of 20-40% of NPAT remains.
What is the outlook for Saracen?
The short-term and long-term outlook for Saracen is positive. Saracen is benefiting from rising production and a rising gold price partly offset by rising costs of production. The outlook for gold prices is also positive and is expected to remain strong over the short-term. 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.
Saracen plans to spend around A$273 million in FY21 on growth related project development projects and on exploration. This will underpin growth in production to 800,000 ounces per annum by FY27. Saracen preference to make this investment in its 3 mining operations during FY21 is also the reason why it prefers not to pay dividends in respect of FY20 earnings.
What is the market’s reaction to Saracen’s FY20 result?
The market reaction to Saracen’s June quarter report is broadly neutral. Saracen is trading at around A$5.50 (19 August 2020), down around 3.6% in line with movement in other gold producing stocks while the ASX200 is up 0.8%. That said, the market may have been a little disappointed by the lack of a dividend payment. Saracen is trading at a forward P/E ratio in the mid-twenties.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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