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Saracen share price rises on unconditional Super Pit acquisition

gold asx share price rise represented by hands holding pile of gold
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The Saracen Mineral Holdings Limited (ASX: SAR) share price is one to watch this morning after the company’s Super Pit acquisition is now unconditional. Saracen shares are already up 1.49% in early trade to $3.08 per share. 

What’s the story behind the acquisition?

Last week, Saracen announced a $796 million equity raising to fund its latest acquisition.

Saracen also took on $400 million of debt, which it used to help fund its purchase of a 50% stake in the Kalgoorlie Super Pit resource. The acquisition gives Saracen a half-share of the asset, which has more than 10 years of life based on existing reserves.

The Saracen share price fell lower last week following the news, which is not unusual for acquisitive companies.

However, the purchase does push Saracen’s case as a leading ASX gold producer alongside the likes of Evolution Mining Ltd (ASX: EVN) and Northern Star Ltd (ASX: NST).

The Super Pit produced 730,000 ounces of gold in FY18. For context, Saracen’s FY20 guidance prior to the purchase was 350,000 to 370,000 ounces.

The other 50% stake will be held by Newmont Goldcorp, one of the world’s leading gold producers.

What could move the Saracen share price?

The Saracen share price will be on watch after wrapping up its Super Pit acquisition. Another key factor is the company’s increased hedging activities for FY20 announced today.

The Super Pit purchase is now unconditional and set for completion on 29 November. An additional 200,000 ounces of gold hedging has been added at an average delivery price of A$2,187 per ounce.

Saracen is de-risking its balance sheet to pay down the $400 million debt taken on for the Super Pit purchase.

The new hedging maintains Saracen’s policy of having approximately one year’s production hedged over three years.

The company’s total hedge book now comprises 541,500 ounces at an average of $1,990 per ounce.

The Saracen share price is already an early mover and will be worth watching as investors try to revalue the stock following last week’s news.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. 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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