Saracen’s debt reset after Super Pit stake purchase

Saracen Mineral boss Raleigh Finlayson believes the company can be in a net cash position within 18 months after borrowing $400 million to seal the goldminer’s $1.1 billion deal for a half-stake in Kalgoorlie-Boulder’s Super Pit.

Mr Finlayson last week told the Kalgoorlie Miner debt made him feel “highly uncomfortable”.

But he said he believed Saracen was well poised to bring the balance sheet back into the black, and soon.

That is despite a slump in gold coming out of the historic Golden Mile in the wake of a failure on the pit’s eastern wall in May last year.

Last year’s production fell to 490,000 ounces from 738,000oz in 2017.

This year’s production is poised to be even worse, and cash will have to be spent on remediation works, predicted to take 3½ years.

Mr Finlayson said 2019 had probably been the worst year the asset had had in its history, but he believed the prevailing Australian dollar gold price meant there was still cash to be made.

“So that’s the irony of the situation,” he said.

“We are in the fortunate situation where an asset that’s in its rebuild phase is actually making good money.

“From our perspective, we are really confident that they can keep that trend going and improve on that as we get through the wall remediation.” Mr Finlayson said Saracen’s immediate priority was to push for a net cash position.

“Regardless of the interest rate, regardless of gold price, regardless of anything else, our first, most important priority is to get that debt into net cash as quick as we can,” he said. “I think we can get to net cash inside that 18-month period.

“As far as whether it’s fully paid off, I’m not as concerned about, as long as we’ve got a situation where there is as much cash as there is debt.” Mr Finlayson said future quarters would illustrate Saracen’s aggressive debt repayment strategy.

“It just takes any anxiety away from us but also you just have to be careful to know you don’t know what the future looks like,” he said.

“We had around $207 million at the end of last quarter in cash, so net debt is less than $200 mill ion —for a company with a market cap of $3.5 billion, it’s comfortable.

“We have looked at it on most downside scenarios — lower gold prices, more wall remediation time and those sorts of things — and just felt comfortable that debt repayment can occur from our existing assets, so it just gives us a bit more time.”

The deal was yesterday given the tick of approval by RBC Capital Markets mining analyst Paul Hissey.

Mr Hissey said while he felt $1.1 billion was “slightly expensive”, the deal elevated Saracen’s prominence in the global investment market.

“Furthermore, we would consider that the addition of this asset to Saracen’s portfolio further dilutes the operational risks from any one asset, and improves the overall quality of the business by adding considerable reserve life,” he said.