Date : 06/10/2020

Saracen Minerals

ASX :

SAR

Market Cap : $5.77 Billion

Buy

52 Week Range : $2.81 - $6.75

Share Price : $5.72

The Northern Star – Saracen merger will benefit both firms. Guidance forecasts are high – with both production and AISC reaching new levels. We recommend investors already exposed to “Hold” at this price.

Company Analysis

The latest news to come out of Saracen is the merger between the firm and Northern Star (ASX: NST). The news broke out on the 6th of October 2020 as Northern Star and Saracen agreed on a $16 billion merger. A merger does not entail a premium such as an acquisition, and the board of directors of both firms have agreed to this. The merger is set to boost the combined entity to a top-10 global major gold producer.

The below table outlines the details of the merger:


Source: SAR

Saracen shareholders are to receive 0.37 shares in Northern Star for every Saracen share they owned. The combined entity will consist of 64% ownership by Northern Star shareholders and the remaining 36% to be owned by Saracen shareholders. A fully franked dividend of 3.8 cents a share has been announced by Saracen prior to the merger.

The deal is set to unlock high synergies – boosting the prospects of Saracen and Northern Star. Few of the key benefits arising out of the deal are below:

  • Net cash position of $118m
  • Production capacity increased to 1.6Moz per annum
  • 19Moz in Reserves
  • 49Moz in Resources
  • An estimated $1.5b – $2.0b of pre-tax synergies (NPV)

Another highlight of the merger is the tier-1 mine locations, with assets located close to each other.

The merger comes with a production target of 2Moz per annum by FY2027. This road to this incredible level consists of Saracen’s current Kalgoorlie Operation, and North Star’s Yandal Operations and North American Operations. The Kalgoorlie Operations is targeting production of 1.1Moz per annum, while Yandal and North American Operations are targeting 600koz per annum and 300koz per annum, respectively.

The picture below shows a brief description of all the assets the merged entity will hold and operate.

Source: SAR

The stock surged 9.58% on the back of the announcement as investor moods were high for the potential the future holds. The portfolio of assets the combined entity will own is backed by strong performances and high forecasts for the future.


Source: Tradingview.com

Recommendation

The Northern Star – Saracen merger will benefit both firms. Guidance forecasts are high – with both production and AISC reaching new levels. The highly capable management will ensure execution. We issued a buy recommendation for Saracen when the stock was trading at $5.20 in September. Since then, the stock has added 10% to its price and is currently trading at $5.72. We urge our members with exposure to “Hold” the stock.

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