Saracen Minerals Holdings (ASX: SAR)

Saracen Minerals Holdings Ltd (Saracen) is an Australian gold miner. Saracen has three main projects in Western Australia. These include the Carosue Dam Operation, the Thunderbox Operation and the joint venture operation of the KCGM super pit (50% interest). Saracen’s market capitalisation is A$6.2 billion.

Saracen announced on 27 March 2020 the company’s responses to COVID-19. Firstly, Saracen notes that COVID-19 has had minimal impacts on gold mining operations. Secondly, Saracen maintained its FY20 guidance of 500,000 ounces and FY21 guidance of over 600,000 ounces. Finally, Saracen has large ore stockpiles available for milling (more than 1.7Moz attributable) which will help insulate the business should mining be restricted.

During the March quarter 2020, Saracen’s production levels were sound with total gold production of 158,132oz at an all-in sustaining cost (ASIC) of A$1,133/oz.

The long-term outlook for Saracen is also positive. The recent acquisition of the KCGM Super Pit could allow Saracen to transition from a mid-tier to top-tier gold producer. The acquisition is estimated to more than double Saracen’s total gold production in the coming years.

Northern Star Resources Ltd (ASX: NST)

Northern Star Resources (Northern Star) is an Australian gold producer with projects located in the regions of Australia and North America. Northern Star has four Tier-1 assets that includes Jundee operations, Kalgoorlie operations (including Kanowna Belle, Kundana (the East Kundana Joint Venture – Northern Star’s interest: 51 per cent), Kalgoorlie Consolidated Gold Mines (KCGM) also known as the super pit) and Pogo operations. Northern Star has a market capitalisation of A$10.8 billion.

Northern Star announced on 26 March 2020 that it will withdraw its production and cost guidance for FY20. Movement restrictions in Western Australia and Alaska on employees and suppliers are causing a disruption to Northern Star’s operations. During the March quarter 2020, Northern Star’s production levels were in line with the previous quarter with total mined gold production of 250,399oz at an all-in sustaining cost (ASIC) of A$1,590/oz. Northern Star management also notes that the company cannot give production guidance for the June quarter, as the outlook surrounding COVID-19 is uncertain.

The long-term outlook for Northern Star is positive. Currently, Northern Star has four Teir-1 assets in Teir-1 locations delivering well over a million ounces a year (subject to change for FY20 due to impacts from COVID-19). Like Saracen, the main driver of the positive outlook for Northern Star is its 50% acquisition of the KCGM, which took financial effect from 1 January 2020. KCGM is one of the largest gold mines in Australia.

The gold price

All commodity producers benefit from the falling $A. Even though there has been a recent rally in the $US/$A exchange rate, the it remains at low level in the low to mid 60s. Gold producers such as Saracen and Norther Star are also benefiting from both a rising gold price of gold. The Gold price in $US dollar terms is currently around US$1,730 per ounce. If this operating environment continues where $US/A$ exchange rate remains low with an increase gold price, gold producers should see increases in revenue over time. Consequently, investors that want exposure to gold producing companies they could consider Saracen and Northern Star.


 

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May 20, 2020