Saracen Mineral Holdings Limited

Trading at a Higher level:Saracen Mineral Holdings Limited (ASX: SAR) is a mid-cap gold mine company with the market capitalization of circa A$2.54 Bn as of 8 February 2019. The headquarter of the company is situated in Perth, Australia. Recently, the company has published its quarterly activities report for the fourth quarter ended on December 31, 2018. The company posted 8.03% growth in cash and equivalents from A$131.0 Mn on September 30, 2018 to A$142.6 Mn on 31 December 2018 after spending ~A$43 Mn on growth capex and ~A$12Mn on exploration. Gold sales for the quarter posted at 85,049oz at an average sale price of A$1,724/oz, generating revenue of A$146.6 Mn. Decent December quarter production performance was recorded at 88,833oz at an all-in sustaining cost (AISC) of A$1,067/oz. Based on decent performance in December quarter, the company has upwardly revised its production guidance for FY19 to 345-365,000oz (previously 325-345,000oz), with unchanged AISC at A$1,050-1,100/oz. The Company remains debt free and retains an undrawn corporate facility of A$150 Mn as on December 31, 2018.



Group production and AISC (Source: Company Reports)

On the valuation front, SAR looks impressive with Net Margin at 14.8% in FY18 compared to 6.7% in FY17. Return to the shareholders has also been good with ROE coming in at 22.4% as compared to the industry average of 11.5%.Operating margin for FY18 was recorded at 22.1% which is higher than the industry average of 19.8%. The company has also maintained sufficient liquidity with the current ratio at 3.10x compared to the industry average of 1.72X. In light of recent exploration success, the company has increased the FY19 capital development budget by A$35 million. Organic production growth outlook has been set at 350k oz pa with an upside case to 400k oz pa. Fundamentally, the company’s earnings are purely depended on gold demand and its price. Gold export is expected to decline owing to global slowdown which might affect the company’s margin especially for the financial year of 2020. It is expected that in subsequent years there will be a rise in gold demand which will help Saracen boost its balance sheet. Meanwhile, the share price has risen 61.44 percent in the past six months as at February 08, 2019 and is trading close to 52-week high level. Hence, we maintain our “Hold” recommendation on the stock at the current market price of $3.140, considering the trading level and aforesaid facts.
 

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