Australian gold miner Northern Star Resources <NST.AX> on Tuesday offered to buy smaller peer Saracen Mineral Holdings <SAR.AX> in an agreed A$5.76 billion ($4.14 billion) deal that will create a global top-10 gold miner by market value.
In a joint statement, the boards of both companies backed the shares and cash proposal, which would create a roughly $11.5 billion company, the 8th biggest gold miner in the world by market capitalisation.
It comes after the price of gold hit a record above $2,000 an ounce in August in a scramble for safe-haven assets as the coronavirus pandemic triggered global economic fears, with growing interest in the sector from major institutional investors.
The prospective deal - recommended to investors by both boards in the absence of a superior offer - catapulted shares in each firm 10% higher. It would see Saracen shareholders receive 0.3763 new fully paid ordinary shares in Northern Star for each share held, plus a special dividend of 3.8 Australian cents per share.
Northern Star will own 64% of the combined entity and Saracen will own the remaining 36%, the two companies said. A shareholder meeting to formally approve the proposal will be held in January 2021.
"It will make a globally competitive gold miner. I think it's quite positive for Northern Star shareholders," said Warren Edney, research analyst at EL&C Baillieu.
The combined company, with mines in both Australia and Alaska, will be aiming for 2 million ounces of gold production by 2027 - a 30% increase in production from 1.6 million ounces currently. By production, the combined Northern Star-Saracen firm aims to rise to the top seven globally over that time.
The pair already have strong links through a major joint venture, having last year acquired a 50% stake each in the Super Pit gold mine in Western Australia, the country's largest open cut gold mine.
"This deal gives the scale and liquidity to attract both gold and generalist investors," said Bill Beament, Executive Chair of Northern Star who will retain the same position in the new entity until July 1, 2021.
A combined, strong balance sheet, he said, would allow the new company to better access "accretive M&A opportunities".
The miner will split itself into three production centres: Kalgoorlie, based around the super pit in central Australia; Yandal, which will consolidate both miners' small mines and mills in the nearby desert region; and North American operations that hinge on Northern Star's Pogo mine in Alaska.
"The pre-tax synergies alone are expected to be worth in order of A$1.5 billion to A$2.0 billion over the next 10 years," said Saracen managing director Raleigh Finlayson, who will take over the same role in the combined group.
Other synergies include cutting costs on procurement, as well as being able to use haulage roads around central Australia to ensure ore from each mine goes to the mill best suited to it.
(Reporting by Shriya Ramakrishnan in Bengaluru and Melanie Burton in Melbourne; Editing by Shinjini Ganguli and Kenneth Maxwell)
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