$11.5 Billion Australian Merger Could Trigger A Global Gold Rush

There’s a new member of the world’s mining elite with a friendly merger in Australia creating a top 10 gold producer in a move which could potentially act as a trigger for a wave of similar deals.

The $11.5 billion amalgamation of Norther Star Resources and Saracen Mineral Holdings has been expected since last year when the two became joint owners of the Fimiston mine on the outskirts of Kalgoorlie, Australia’s gold capital.

Also known as the Superpit, the mine has been in continuous production for more than 100 years and ranks as one of the biggest man-made holes on the earth’s surface and one of Australia’s biggest mines.

But it’s what happens next in the gold industry which will be closely watched by investors because the gold industry has been buzzing with merger talk since the price started to rise two years ago.

Rising Gold Price

From a low of $1178 an ounce in August, 2018, the gold price has risen by 62% to latest sales at $1911/oz, down on the peak of $2067/oz reached two months ago but trending up after a correction last month which pulled the price back to $1859/oz.

The upward price move, and forecasts that global economic and political uncertainty could see even higher prices next year, lies behind forecasts from gold industry leaders that a wave of consolidation could be on the way.

Last month the chief executive of Barrick Gold, Mark Bristow, told a mining conference that there was an industry-wide mismatch, with assets in the hands of too many managers.

“The industry would be better served if we could reallocate some of the assets into the right place with managements that have proven records to deliver value,” Bristow said.

As well as being chief executive of the world’s second biggest gold producer Bristow has been one of the most active gold-asset consolidators, though his last major deal was two years ago when he merged Randgold Resources with Barrick.

$1.5 billion In Cost Savings

The nil-premium merger of Northern Star with Saracen is expected to generate up to $1.5 billion in cost-saving synergies with combined annual gold output of 1.6 million ounces from mines in Australia as well as the Pogo mine in Alaska.

Once complete, existing Northern Star shareholders will own 64% of the combined business with its executive chairman, Bill Beament, becoming non-executive chairman while Sarcen’s chief executive, Raleigh Finlayson, will be appointed managing director.

Current output of 1.6 million ounces of gold a year is expected to rise to 2m/oz over the next few years. Gold reserves in the ground total19m/oz with 49m/oz in the resource category.

In terms of global ranking the combined business will rank as the world’s 9th biggest gold producer by annual ounces, and 6th by stock-market value.

It will be the first time in 125 years that the once broadly-owned Golden Mile has been in the hands of a single owner.

On the Australian stock market today Northern Star added A$1.47 (10.6%) to close at A$15.29. Saracen rose by A50 cents (9.6%) to A$5.72.

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