Northern Star and Saracen merge to create a top 10 global gold company

Northern Star Saracen merger ASX NST SAR gold
The $16 billion merger-of-equals will unlock up to $2 billion in pre-tax synergies via the consolidation of assets in three production centres.

Northern Star (ASX: NST) is setting out to create a new Australian gold major by acquiring 100% of fellow Western Australian miner Saracen Mineral Holdings (ASX: SAR) through an agreed scheme of arrangement.

It means, among other things, that for the first time in its 125-year history, Kalgoorlie’s “Golden Mile” will be consolidated under one owner.

However, the enlarged Northern Star, with a combined $16 billion market capitalisation, will still rank second to Newcrest Mining (ASX: NCM), which this morning was worth $25.4 billion.

The two companies have agreed to what they call “a merger of equals” — although not quite, with Northern Star shareholders to own 64% of the new entity.

Bringing together three production centres

The merger will bring under one corporate roof three production centres with a combined annual output target of 2 million ounces,  which is expected to be achieved by 2027.

The first production centre is the Kalgoorlie operations consisting of Carosue Dam with its 250,000 ounces per annum target, the already jointly-owned Kalgoorlie Consolidated Gold Mines (550,000oz per annum target) and Northern Star’s own operations (with a 300,000oz target annual production).

Predicted 2021 financial year output in Kalgoorlie is projected at between 950,000oz and 1.03Moz with reserves of 13.3 Moz.

Second is the Yandal operations, which will consist of the Thunderbox, Jundee and Bronzewing mines that are jointly expected to produce between 410,000-450,000oz per year in the current financial year.

Third is Northern Star’s Pogo mine in Alaska with an expected output for this financial year of more than 180,000oz.

Scheme consideration

Saracen shareholders are to receive 0.3763 Northern Star shares for each Saracen stock now held.

Saracen will also pay a fully franked special dividend of $0.038 per share.

The scheme of arrangement has been recommended unanimously by Saracen’s board with the usual proviso that no superior offer is made.

A logical gold merger

Northern Star’s executive chairman Bill Beament will remain initially in that role and then transition to non-executive chair, while Saracen’s managing director Raleigh Finlayson will take the same role in the new, enlarged Northern Star.

The companies expect the merger to unlock between $1.5 billion and $2 billion over 10 years in pre-tax synergies via the Kalgoorlie consolidation, “optimisation” of processing and other savings.

Mr Finlayson said the benefits that will flow to shareholders are significant.

“This is one of the most logical and strategic M&A (mergers and acquisitions) the mining industry has seen,” he added.

“The savings, the synergies and the growth opportunities it will generate make the transaction extremely compelling.”

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