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ASX 200: The Last 30 Days in Review, Part 2

We look at the details behind Northern Star and Saracen Mineral’s $16 billion merger – including how three top brokers reacted to these developments.

ASX 200 Source: Bloomberg

Northern Star and Saracen share prices in focus following proposed mega-merger

ASX-listed gold miners Northern Star Resources and Saracen Minerals have both seen their share prices trend higher over the last five sessions after it was revealed that the two companies had agreed to a merger of equals.

In response to this news, Northern Star has seen its share price bid more than 10% higher over the last five sessions, while Saracen’s stock has gained close to 9%. Overall, this caps off what has ultimately been an optimistic year for ASX-listed gold miners – as gold prices surge to record highs, with investors growing skittish in response to increasing levels of uncertainty across global markets.

Though trading off its 52-week high, Spot Gold continues to trade close to all-time highs, last sitting at US$1,927 per ounce, according to Bloomberg Data.

Details of the merger

Centrally, under the proposed merger, it has been agreed by both companies that Northern Star will acquire 100% of Saracen’s outstanding stock. More specifically, as part of the merger it was also noted that:

'Saracen shareholders [will] receive 0.3763 Northern Star shares for each Saracen share held at the Scheme record date. Saracen will also pay a special, fully franked dividend of A3.8c per Saracen share, conditional on the Scheme becoming effective and banking consents.’

According to management, not only would a combined Northern Star-Saracen Minerals entity unlock some $1.5 billion to $2.0 billion in pre-tax synergies, but the combined mining giant also has a 'clear trajectory' to produce some 2 million ounces per year by annum, by fiscal 2027, it was noted. Across the next three years, production is estimated to grow by an impressive 30% – underscored by what has been described as 'one of the industry's lowest capital intensities.'

Overall, the pro-forma market capitalisation of the combined Northern Start-Saracen entity is estimated at $16.0 billion.

Commenting on this merger, Northern Star's Executive Chair 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.'

In response to this news, analysts from Morgan Stanley last week retained their Equal-Weight rating on both miners, while nonetheless saying:

‘Given the strong operational track records of both companies and cultural alignment, we trust NST and SAR management’s expectations of synergies. We believe at least some upside value could be realised via the combination. We are EW both stocks.’

By comparison, analysts from Citi said they were supportive of the merger – rasing their price target on Saracen to $6.20 per share, while keeping their price target on Northern Star unchanged – at $15.70 per share.

‘A bigger company doesn’t necessarily mean a loss of the agile strategy and operational prowess which has served both companies well. There are several examples of larger companies who operate or have operated under a decentralised operating model extremely well,’ said Citi analysts.

Commenting on the merger and placing a specific focus on Saracen’s role in it, UBS analysts said:

‘The merger is in our view a rare example of a mining merger that has clear and material synergies to unlock,’ while adding that ‘The combined entity will offer scale, asset diversity with 3 production centres located in tier 1 locations, sector leading production growth of ~5% (5 year CAGR) and a synergistic merger to bed down.’

UBS has a Buy rating and $6.75 price target on Saracen.

Northern Star opened Monday’s session at $16.06 per share, while Saracen opened at $6.16 per share, well ahead of where both stocks traded in January 2020.

The dispatch of the scheme booklet to Saracen shareholders as well as the first court hearing related to the merger is set to take place in December 2020.

How to trade ASX 200 stocks - long or short

Ware you bullish or bearish on ASX-listed equities right now? Wherever you stand, you can use CFDs to trade both rising and falling markets, through IG’s world-class trading platform now.

For example, to buy (long) or sell (short) Saracen using CFDs, follow these easy steps:

  • Create an IG Trading Account or log in to your existing account
  • Enter ‘Saracen’ in the search bar and select it
  • Choose your position size
  • Click on ‘buy’ or ‘sell’ in the deal ticket
  • Confirm the trade

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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