Aussie gold miners Saracen Mineral Holdings Ltd [ASX:SAR] and Northern Star Resources Ltd [ASX:NST] are looking to merge into one. If the deal goes through, the new entity will become a top 10 gold major with a $16 billion market cap.
Under the Merger Implementation Deed (MID) agreement they announced today, Northern Star will buy 100% of Saracen’s shares. Saracen shareholders will get $0.3763 Northern Star shares per Saracen share they hold. They’ll also be receiving a $3.8 cent special fully franked dividend.
That is, as long as the deal goes through.
The deal leaves Northern Star shareholders with 64% ownership and Saracen shareholders with 36%.
The merger combines their assets, which are all in tier 1 locations, as you can see below:
The new company will also have 100% ownership of the Super Pit, the largest open pit gold mine in Australia. Located in Western Australia, Saracen bought a 50% share from Barrick Gold last year and Northern Star got the other 50% earlier this year from Newmont Corp.
The idea is to increase growth and save costs with the new company looking to produce 2 Moz per annum by FY27.
Saracen’s Raleigh Finlayson who will be staying on as Managing Director of the new entity said:
‘The benefits which will flow to Saracen shareholders from this merger are significant. The pre-tax synergies alone are expected to be worth in the order of A$1.5 to A$2.0billionover the next 10 years.
‘It is difficult to foresee anything like that reduction in our cost base outside of this merger.’
What will happen next?
Both boards have recommended the deal to their shareholders.
The deal will go through pending court and shareholder approval, which is scheduled to happen around January 2021, with the deal completing by February 2021.
At time of writing, both Saracen and Northern Star shares are up by 7.5%.
Focusing on growth and cost savings when gold is trading at close to US$2,000 could turn out to be quite a good strategy.
One way to get exposure to higher gold prices is through gold. Another is gold stocks, like gold miners. But this can be risky.
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