Growth Focus: Saracen Mineral Holdings Limited (SAR)

by Patrick Taylor



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

Indicators:
Short-term: Positive-Neutral
Medium-term: Positive
Long-term: Positive-Neutral

Recommendation: Buy

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.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of Bespoke Portfolio Pty Ltd (AFSL 341991). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.