Northern Star, Saracen To Merge To Create $11.5B Gold Miner

Australian gold miner, Northern Star Resources Ltd. has agreed to snap up rival Saracen in a merger-of-equals deal to create a top 10 global producer with a A$16 billion ($11.5 billion) pro-forma market capitalisation.

Under the terms of the deal, Saracen shareholders will receive 0.3763 new fully paid ordinary shares in Northern Star (NESRF) for each Saracen share held. Post-completion of the transaction, Northern Star shareholders will own 64% of the merged group while Saracen shareholders will own the remaining 36%. Saracen will also pay a special, fully franked dividend of A3.8¢ per Saracen share.

The deal, which is subject to approval by Saracen (SCEXF) shareholders and other customary conditions, is expected to be completed by February 2021. The transaction is expected to unlock A$1.5 billion – A$2 billion in pre-tax synergies over the next 10 years via geographic, operational and strategic synergies.

“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,” said Northern Star Executive Chair Bill Beament. “This is significant value-creating M&A. The close proximity of the majority of the combined company’s assets and a host of other synergies makes this a unique opportunity exclusive to Saracen and Northern Star shareholders.”

The merged entity will create a new global top 10 gold producer with a A$118 million net cash position, targeting production of 2 million ounces per annum exclusively from Tier 1 locations.

Saracen shares closed 2.4% lower on Monday. JPMorgan analyst Levi Spry last month upgraded the stock to Hold from Sell with an unchanged price target of $3.38 (9.7% downside potential), saying that he remains bullish on the outlook for gold and views valuations as “less stretched” at current levels.

Northern Star shares have surged 24% so far this year after hitting a low earlier this year. For now, Wall Street analysts are sidelined on the stock. The Hold analyst consensus shows 5 Holds, 1 Sell and 1 Buy. (See Northern Star stock analysis on TipRanks)

The $10.08 average analyst price target implies a modest 1.4% upside potential in the shares over the coming year.

Back in July, Canaccord Genuity analyst Tim McCormack cut the stock to Hold from Buy with a $10.40 price target, because of valuation and the impact of COVID-19 on the company’s Pogo operation in Alaska.

“In the short term, we view FY21 guidance as a potential risk to the investment thesis but continue to rate organic potential of the portfolio highly, as an aspect that the market is yet to fully appreciate,” McCormick wrote in a note to investors.