ASX gold miners Saracen Mineral Holdings Limited (ASX: SAR) and Northern Star Resources Ltd (ASX: NST).
The merger
The miners are describing the transaction as a merger of equals, though Northern Star will actually be acquiring Saracen.
Saracen’s board has unanimously recommended the deal as long as no better offer comes in and an independent expert concluding that the merger is in the best interests of Saracen shareholders.
It has also been unanimously endorsed and supported by the Northern Star board as long as no better offer comes in.
Saracen shareholders will receive 0.3763 Northern Star shares for each Saracen share held at takeover’s record date. Saracen will also pay a special, fully franked dividend of 3.8 Australian cents per Saracen share if the takeover is to go ahead.
After the merger has finished, Northern Star shareholders will own 64% of the combined business and Saracen shareholders will own the other 36%.
Bill Beament will remain the Executive Chair of Northern Star, though he will transition to become the Non-Executive Chair. Raleigh Finlayson – the current Managing Director of Saracen – will become the Managing Director of Northern Star. Stuart Tonkin will continue to be the CEO of Northern Star.
Northern Star Chairman Bill Beament said: “Northern Star has only ever pursued growth when it will create value for shareholders, and this merger-of-equals will create an abundance of value for both Northern Star and Saracen shareholders.”
What are some of the reasons for the merger?
One key reason for this merger is that it will unlock $1.5 billion to $2 billion in pre-tax synergies with consolidation of KCGM ownership (a joint venture between the businesses – one of the most significant gold mines in the world), optimisation of processing throughout the broader Kalgoorlie and Yandal regions as well as other savings.
Management thinks it will create a business with the scale, liquidity and quality cashflows that will be attractive to both gold and generalist investors.
The combined business will have an expected market capitalisation of $16 billion with net cash of $118 million. It will have immediate production of 1.6 million ounces pre annum with a pathway to 2 million ounces per annum. The company will have 19 million ounces in reserves and 49 million ounces in resources. Production is set to grow by 30% over the next three years.
Summary
This does seem like a very compelling combination of businesses. If I were looking to invest in gold miners, then Northern Star would be one of my preferred options, particularly because of this deal. Evolution Mining Ltd (ASX: EVN) is another gold miner I like. But I’m not sure I’d buy gold miners today with gold prices so high – it only makes sense to me today if inflation is going to pick up.
However, if you’re looking for defensive ideas then ASX dividend shares could be an even better choice like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which I wrote about here.
