Northern Star, Saracen in $16bn merger
Australia’s biggest gold merger in a decade put a rocket under local gold stocks, after Northern Star Resources and Saracen Mineral Holdings agreed to a friendly $16bn “merger of equals” that will consolidate key gold WA districts under one ownership.
Northern Star and Saracen say the mega-merger — the biggest in the Australian gold space since Newcrest Mining’s $10bn takeover of Lihir Gold a decade ago — will bring Kalgoorlie’s Golden Mile under the ownership of a single company for the first time in its 125-year history.
If agreed by shareholders, the deal will bring the ownership of Kalgoorlie’s iconic Super Pit mine into the hands of a single Australian owner for the first time, and create a company holding more than 19 million ounces of gold resources, and resources worth almost 50 million ounces.
Northern Star would emerge as Australia’s second biggest producer, with output of about 1.6 million ounces this financial year and a mission to build production to 2 million ounces by 2027 — putting it within sight of Newcrest’s crown as Australia’s biggest gold company.
The two Australian gold majors announced the friendly tie-up on Tuesday morning, with Saracen shareholders to receive 0.3763 Northern Star shares for each Saracen share held, and the company to pay out a 3.8c a share special dividend once the merger is completed.
Northern Star shareholders will emerge with 64 per cent of the combined entity, with leadership of the new company split evenly.
Under the terms of the deal Northern Star will not pay a takeover premium for the friendly acquisition, but Saracen boss Raleigh Finlayson defended the decision by the company’s board on Wednesday, telling analysts and reporters he was confident the tie-up would deliver value for Saracen holders.
Mr Finlayson pointed to the cost savings that would come from the merger of the near-neighbours, arguing the synergies created in the deal — tipped at $1.5bn to $2bn over the next ten years — would help deliver greater value.
“Over the last 12 months deals that have been done at a premium have actually created a discount to the market. Those that have been done at nil premium — merger of equal types — have actually outperformed all of those that were done at a premium,” he said.
“So we are absolutely comfortable that this is the right thing for shareholders and both sets of shareholders will get the premium.”
Northern Star founder Bill Beament will remain the company’s executive chairman until mid-2021, before moving to a non-executive role, with Mr Finlayson acting as its managing director.
The tie-up was announced after The Australian’s DataRoom column flagged last week that a major gold mining merger transaction was underway in Western Australia.
Mr Beament said in a statement the merger would create “an abundance of value” for shareholders of both companies.
He told analyst the two companies had been in discussions over a potential merger since earlier this year, after the pair had finalised their combined $2.2bn acquisition of the Kalgoorlie Super Pit from US majors Barrick and Newmont, and had begun to consider the future of the iconic mine.
The merger will fuel speculation of further consolidation in the Australian gold space, as the WA mining sector prepares for the annual Diggers and Dealers mining conference in Kalgoorlie next week — traditionally seen as the starting point of many merger discussions.
Traders and investors welcomed news of the long-mooted deal with open arms, sending Northern Star shares up $1.47, or $10.6 per cent to close at $15.29. Meanwhile Saracen stock jumped 50c, or 9.6 per cent, to a $5.72 close.
The prospect the mega-merger could be followed by more deals sent other local gold stocks surging, with Westgold Resources — said to be looking for a buyer – up 17c or 7 per cent to $2.57, Silver Lake Resources up 6.1 per cent or 14c to $2.44, and Dacian Gold up 5.5c, or 16.7 per cent to 38.5c.
With mid-tier producers still on the hunt for future growth options, Tuesday’s deal also helped fuel interest in gold developers, with Bellevue Gold up 7c to $1.15 and De Grey Mining up 6c to $1.25.
The Australian gold price hit a record price above $US2063 per ounce on August 6, driven by the weakening US dollar and the search by investors for diversification, and amid global fears about economic recovery from the COVID-19 pandemic.
At that time, gold was up 33 per cent from the start of the year.
On Tuesday night the precious metal was trading around $US1907 an ounce.
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