The head of Australian gold miner Northern Star says merging with smaller rival Saracen Mineral Holdings will unlock sector-leading growth potential and create a top global producer capable of sharply lifting output while gold prices surge.
As both miners’ boards recommended their shareholders support the tie-up to become a $16 billion mining giant, Northern Star executive chairman Bill Beament pointed to growth opportunities across “all metrics” including a 30 per cent expansion in gold production in the next three years and a trajectory to 2 million ounces of gold by 2027.
“This is M&A that works – a unique and significant opportunity only available by combining the two companies to unlock this potential,” Mr Beament said on a conference call. “This deal gives the scale and liquidity to attract both generalist funds as well as gold-focused investors.”
Northern Star and Saracen have been joint-venture partners in one of Australia’s largest gold mines, the Kalgoorlie Super Pit, for the past nine months. The companies said placing the Kalgoorlie operation under single ownership for the first time in its 125-year history would be among a suite of efficiencies within the merged entity that would achieve up to $2 billion in cost savings and unlock previously constrained deposits.
“This is one of the most logical and strategic merger and acquisition transactions the mining sector has seen,” Saracen managing director Raleigh Finlayson said. “The savings, the synergies and growth opportunities it will generate make the transaction extremely compelling.
“It’s a textbook illustration of the adage about one plus one making four.”
Both companies’ shares surged following news of the deal, which would be the biggest in Australia’s gold sector for several years. Northern Star ended the day 12 per cent higher at $15.48, and Saracen 10 per cent higher at $5.78.
The potential to sharply increase gold production comes as the coronavirus pandemic has driven gold prices to all-time high prices, recently hitting a record $US2075 an ounce. The price of the yellow metal has surged in recent months as investors seek out safe havens to protect their wealth from the effects of economic uncertainty and unprecedented global stimulus.
Rising gold prices have spurred a new wave of investment in gold exploration across Australia and lifted gold export earnings. The federal government projects gold exports will reach a record of $31 billion in 2020-21.
Richard Morrow, an equity partner at EL&C Baillieu, said a Northern Star-Saracen merger would be “like an earthquake through the Australian and global gold sector”.
“It is going to create a major gold miner that will rank up there but slightly behind Newcrest in terms of gold production and size,” Mr Morrow said.
RBC Capital Markets analysts on Tuesday said the deal appeared “favourable” and would create a “strong combined company” with increased scale, significant growth, solid cash flow and a strong balance sheet.
“The released presentation has outlined indicated synergies of $1.5 billion to $2 billion expected to be delivered over the next 10 years via geographic, operational and strategic synergies,” they said. “However, we are yet to assess these proposed synergies.”
Under the terms of the deal announced on Tuesday, Saracen shareholders would receive 0.3763 Northern Star shares for each Saracen share on the record date and a special dividend of 3.8¢ a share. Shareholders of Northern Star would own 64 per cent of the combined entity and Saracen shareholders would own the remaining 36 per cent.
A Saracen shareholder meeting to vote on the proposal will be held in January 2021.
Source: Thanks smh.com