The $18.0 billion Merger of two Aussie Gold Miners
In November 2019, Saracen Mineral Holdings (ASX: SAR) acquired 50 per cent of the Fimiston Open Pit, known colloquially as the Kalgoorlie Super Pit, from Barrick Resources for US$800 million. A month later Northern Star Resources (ASX: NST) bought Newmont’s 50 per cent stake for US$750 million.
Fast forward and SAR and NST have agreed to a merger with SAR shareholders receiving 0.3763 new NST shares for each SAR share held. NST shareholders will end up with 64 per cent of Mergeco, whilst SAR will own 36 per cent of the proposed 1,159 million shares on issue.
At the current NST share price of $15.50, Mergeco’s combined market capitalisation is A$18.0 billion and pro-forma net cash is A$118 million. Annual gold production will approximate 1.6 million ounces at a blended “All-in sustaining cost” (AISC) of A$1,370 per ounce; Reserves are 19.4 million ounces and Resources are 49.2 million ounces. Annualised revenue should approximate US$3.2 billion or A$4.5 billion.
The transaction creates a Top-10 global gold miner, with three large scale Tier 1 production bases. The Kalgoorlie Super Pit will come under one ownership structure for the first time in its 125-year history. Together with the Alaska-based Pogo and the Yandal Operations (Jundee, Thunderbox and Bronzewing) – approximately 520 kilometres north of Kalgoorlie – Mergeco plans on increasing production towards an annualised 2.0 million ounces over the medium term.
For context, the two behemoths of the global gold mining industry – Newmont (production of 7.0 million ozpa and market capitalisation of A$70 billion), and Barrick (production of 5.7 million ozpa and market capitalisation of A$69 billion) – are around 4 times larger than Mergeco, both from a production and a market capitalisation perspective.
The transaction “unlocks A$1.5 – $2.0 billion of Net Present Value in pre-tax synergies over the next ten years via geographic, operational and strategic synergies”. This includes the Kalgoorlie Consolidated Gold Mines consolidation, rationalisation and optimisation of corporate costs, the potential to accelerate Fimiston South Stage 2, leverage open pit and underground skill-sets, processing and haulage optionality, fast tracking the Thunderbox mill expansion for Yandal ore sources and option for Stage 2 Carousue Dam mill expansion.
The Board will comprise 9 Directors, 5 Directors from NST and 4 Directors from SAR. NST’s Bill Beament will Chair Mergeco (moving to a Non-Executive role from July 2021), whilst SAR’s Raleigh Finlayson will be the Managing Director. In 12-18 months, Raleigh will transition to Executive Director (Corporate Development) and Stuart Tonkin (CEO) will be promoted to the amalgamated CEO/ MD role. The combined equity ownership amongst the Board and Management exceeds $200m and employees will number around 3,100.
The transaction is expected to be completed by February 2021.
The Montgomery Small Companies Fund owns shares in Saracen Mineral Holdings. This article was prepared 08 October with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Saracen Mineral Holdings you should seek financial advice.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
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