Saracen bets $1.1bn on Super Pit riches
The nation’s best known gold mine, built along the Golden Mine, is back in Australian hands — at least partly.
The first discovery along Kalgoorlie’s Golden Mile in 1893 helped gut the Victorian mining industry, delivered Western Australia into the Federation and spawned the nation’s biggest infrastructure project until the Snowy Dam was built.
And now the nation’s best known gold mine, built along the Golden Mine, is back in Australian hands — at least partly — for the first time in 30 years, courtesy of homegrown gold miner Saracen Mineral Holdings.
The $US750m ($1.1bn) Saracen will pay for Barrick’s half of Kalgoorlie’s Super Pit has raised eyebrows in WA’s mining community, with the price seen as close to full value for the ageing asset.
But despite having produced more than 21 million ounces of gold already, there is plenty more to be found around the 30-year-old mine, according to Saracen managing director Raleigh Finlayson, who was keen to emphasise the mine’s potential as the company tapped the market for $796m on Monday to pay for its new prize.
“It’s been reported as a very competitive process and I can confirm it has been,” he said.
“For us, the assumptions we put into our model on the gold price were consensus and lower from brokers, which has it declining, so we’re not relying on the gold price to stay at these levels or higher to justify the investment.”
The mine is run by Kalgoorlie Consolidated Gold Mines, a joint venture vehicle until now owned by Barrick and Newmont Goldcorp. Exploration around the massive mine has been a constant source of speculation among Kalgoorlie’s mining community, but largely buried within the operations of the two gold majors.
Exploration drilling was ramped up in the wake of a 2018 pit wall failure that buried part of the mine, cutting its production by a third for the next three years, to about 490,000 ounces a year and pushing costs up from $1023 an ounce to $1470 an ounce.
That drilling suggests the mine could run for decades more, according to Mr Finlayson.
“KCGM has done a fantastic job in the last 12 months of drilling to the south (of the Super Pit) and what they’re calling the Fimiston south lodes is what will be, in our view, something that keeps the mine going for decades to come,” he said.
Since 2015, Barrick’s involvement in the mine has been largely passive, after the miner — amid a broader retreat from its Australian operations — decided the Super Pit was surplus to requirements. Barrick signed over the running of KCGM to Newmont, overseen by a joint committee.
That agreement is due to expire in May next year and, although Mr Finlayson said Saracen did not see any reason to end the management contract with Newmont, he flagged a more active role for the Australian mid-tier miner.
“We don’t see any need to change that, but what it does is facilitate us going back a little bit to what it was when it was a genuine joint venture without having Newmont as an operator,” he said. “But from what we’ve seen so far they’re doing a great job and we’re keen to get in among it, and for us it’s just about making sure we can add value.”
Mr Finlayson spent Monday on the phones drumming up support for Saracen’s $369m institutional placement at $2.95 a share, a 13 per cent discount to its last traded price of $3.39. That placement will be followed by an entitlement offer for existing shareholders at the same price, offering one new share for 5.75 shares currently held. On top of that, Saracen will take out a new $400m debt facility, and hedge a portion of future production from the mine against possible falls in the gold price.
Mr Finlayson said the acquisition was “transformative” for Saracen, pushing its annual production above 605,000 ounces for the current financial year, from earlier guidance of 360,000 ounces, and further in future years as issues caused by the pit wall failure are solved.
Gold was first discovered in Kalgoorlie’s Super Pit by Paddy Hannan, Thomas Flanagan and Daniel Shea in 1893 and, when added to discoveries in nearby Coolgardie, caused a gold rush that helped strip miners out of Victoria’s gold fields, as alluvial finds dried up.
The sudden population influx helped win the popular vote in Western Australia to join the Australian Federation, despite opposition in Perth. It also led to commissioning of a 530km water pipeline from Perth’s Mundaring Weir to Kalgoorlie to keep the rush going, at the time the most significant engineering feat in early Australian history.
The square mile around the discovery has produced more than 61 million ounces of gold, with more than 21 million from the Super Pit — the brainchild of the late Alan Bond, who spent the 1980s trying to buy up the mining tenements that underpin it.
Bond’s corporate empire collapsed in the aftermath of the 1987 stockmarket crash. His stake in the project was sold to US miner Homestake Gold, which was taken over by Barrick in 2001.