Gold producers join hands
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    Gold producers join hands

    Alice Shen, Senior Associate - Investments & Capital Markets
    13 October 2020

    Northern Star Resources (ASX: NST) and Saracen (ASX: SAR) have agreed to a $16 billion merger-of-equals under which NST will acquire 100% of the shares in SAR, with a ratio of 0.3763 shares of NST for every share of SAR. The merger will result in NST becoming the second largest gold miner by market cap in Australia and six largest in the world.

    Geographic concentration is estimated to provide synergy benefits of $1.5 - 2 billion over the next 10 years. The two rivals already share ownership of Super Pit mine in Kalgoorlie, Western Australia, which has one of the richest gold depositsan in the world.

    We expect the new company to create value through operational and management synergies in Australia. Greater liquidity and financial strength should enable the stock to attract a broader range of investors globally.

    Markets have shown optimism on the deal based on the strong track records and growth profile of the two companies. On 6 October, the S&P/ASX200 rose 0.3%, while NST was up by 11% and SAR advanced 9.6%.

    Analysts also largely show confidence in unlocking synergies from the merger. Citi indicates that NST would be able to catalyse future growth via expansion of SAR’s portfolio; operations will be streamlined to three centres: Kalgoorlie, Yandal and North America. Morgan Stanley suggests upside value could be realised via aligned company cultures, complimentary operational, technical and financial skill sets.


    Source: Bloomberg as of 7 October 2020

     

    Peer Avg

    Est EPS FY21

    1D Price % Change

    1D % Change vs ASX/S&P200

    Est EV/

    EBITDA

    52w High

    52w Low

    Consensus Rating

    NST AU Equity

    0.49%

    0.88

    1.90%

    0.65%

    8.0x

    16.64

    8.78

    3.47

    SAR AU Equity

    0.29%

    0.34

    3.85%

    2.60%

    8.6x

    6.75

    2.81

    3.43

    Source: Bloomberg as of 7 October 2020. Peer includes Westgold, Northern Star, Gold Road, Silver Lake, St Barbara, Evolution, Perseus, Ramelius, Regis, Resolute and Saracen. Consensus rating range: 5 (Buy), 1 (Sell).


    NST and SAR are in VanEck Vectors Gold Miners ETF (ASX: GDX).

    Issued by VanEck Investments Limited ACN 146 596 116 AFSL 416755 (‘VanEck’). This is general advice only, not personal financial advice. It does not take into account any person’s individual objectives, financial situation or needs. Read the PDS and speak with a financial adviser to determine if the fund is appropriate for your circumstances. The PDS is available here [LINK to https://www.vaneck.com.au/library/regulatory-documents/], and details the key risks. No member of the VanEck group of companies guarantees the repayment of capital, the payment of income, performance, or any particular rate of return from the fund.

    An investment in GDX carries risks associated with: financial markets generally, individual company management, industry sectors, ASX trading time differences, foreign currency, country or sector concentration, political, regulatory and tax risks, fund operations and tracking an index. See the PDS for details.