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Why the Saracen Minerals share price is now up 10x in 5 years

The Saracen Mineral Holdings Limited (ASX: SAR) share price is 4% higher at $3.50 this afternoon after the gold miner revealed it produced a record 144,871 oz of gold over the September quarter, which was up 17% on the June quarter. 

It’s also sticking to FY 2020 guidance for total production between 350,000 to 370,000oz at an all in sustaining cost of A$1,025 – A1,075/oz. This afternoon December 2019 gold futures are sitting at US$1,487  (A$2,163/oz) an ounce which means Saracen should be printing profit margins around A$1,000/oz of gold mined. 

Over the September quarter it sold its gold at an average price of A$1,916/oz to earn revenue of A$186.4 million. It has also hedged 377,000 oz of gold for delivery at an average delivery price of A$1,874/oz. 

The strong A$ gold price translated into an unaudited net profit between $42 million to $45 million over the quarter.

It also flagged plans to payout 20%-40% of net profit in dividends over FY 2020 subject to it maintaining a minimum cash and equivalents balance of A$150 million. As at September 30 2019 it had a cash and equivalents balance of A$196.1 million, up from $154 million over the prior quarter due to the strong free cash flows. 

Saracen shares have more than 10x from 32 cents per share in October 2014 to $3.50 per share today as it benefits from growing production, a tumbling Australian dollar and rising US dollar gold price. As long as this sweet spot lasts the good times could keep rolling for investors, but the risk as always remains the unpredictability of the gold price.

After all gold could not really have enjoyed more accommodative macro conditions over the past 5 years, but has failed to really hits its straps. As such being too bullish on the gold price from here may be a mistake.

Other gold miners to have delivered bumper returns for investors recently include Regis Resources Limited (ASX: RRL), Northern Star Resources Ltd (ASX: NST) and Newcrest Mining Limited (ASX: NCM)

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Motley Fool contributor Tom Richardson has owns shares in Dicker Data.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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