Date of Data Capture: 29/01/2020
Name: SARACEN MINERAL HOLDINGS LTD (SAR)
Classification: Gold Mining
Current Price: $3.96
Market Capitalisation: $3.37 B
Forecast EBITDA Growth: 126.36%
Yield Estimate: 0.97%
Consensus Price Target: $4.17
# Covering Analysts: 10
Discount at Current Price: 5.30%
Price Target Trend (3-Month): Up +10.90%
Signal Timeframe: Quarterly-Monthly-Weekly
Trend Bias: Up-Flat / Long-Medium
Focus: Capital Growth
Set up Notes:
• Rallying gold has SAR moving higher after breaking major resistance this month, looking like it is on the cusp of a greater uptrend and backed by strong performance and forecasting.
• Strong earnings growth in 2018 gave way to softer gains in 2019, but analysts expect further recovery with aggressive expectations for much higher sales, margins and profits this year.
• SAR has a history of making strong rallies followed by consolidations, and we see recent strength as an emerging new longer-term uptrend, combining well with shorter-termed positive signalling across multiple timeframes.
Support ($): 3.75, 3.50, 3.25 & 3.00.
Resistance ($): 4.00, 4.25, 4.50 & clear.
Growth Focus: SARACEN MINERAL HOLDINGS LIMITED (SAR)
Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.
You don’t have to scratch too far beneath the surface to find deep value in Saracen Holdings Ltd, as the gold miner prepares to more than double production after buying half of the world-famous Kalgoorlie ‘Super Pit’, and with good strength being shown in the gold price, its potential is shining through here.
Starting out on the ASX in 1992, Saracen has carved out a good long-term track record of gold production and asset accumulation within Western Australia, with operations focused in the Leinster/Kalgoorlie goldfields. Acquiring of 50% of the Super Pit gold mine from Barrick in 2019 will greatly boost production, and is now joint venture partners with Northern Star, while Newmont Goldcorp remains in charge of operations. The current mine life stretches to 13 years, though this will be a major focus within the ongoing expansion and exploration program applied to all assets.
Already showing excellent organic growth, the company saw record production of 120koz+ last year, with current ore stockpiling at 3.3Moz. Group production estimates for 2020 are around 500koz+ and this is expected to increase to 600koz+ in 2021. The company has secured favourable risk mitigation with 500koz+ gold hedging at AUD$1997/oz v AUD$1098/oz current cost of production, which illustrates the robust margins currently being achieved.
Analysts maintain a strong positive majority view on the stock, with no negative sentiment, and at the moment see SAR trading at a discount to rising consensus target pricing. The company has produced strong earnings growth since 2017, but with the extra acquired output this is now set to increase dramatically in 2020. This pattern for strong gains across sales, earnings and profit is expected to stretch further out to 2021. The 2019 acquisition was mostly covered by capital raising, with the smaller residual being debt-funded, though the company maintains good cash and liquidity, with potential for asset sales and has already started early debt repayment.
Saracen tends to cycle through rallies and pullbacks within a greater long-term uptrend. More recently pricing shows the stock moving strongly into fresh all-time highs in 2019, before moving into a consolidation phase, exacerbated by the capital raising. After falling 40% by late 2019 the stock began to rally off a $3 support base and by early 2020 had broken through linear resistance and is now continuing higher within a newly emerging medium-term uptrend. With fresh strength pushing pricing higher it looks like we should have a favourable entry here, and we wouldn’t want to pit ourselves against further gains.