Shareholders have overwhelmingly voted to approve a $16 billion merger between the co-owners of Kalgoorlie-Boulder’s Super Pit, a deal described by analysts as “sensible” which could prolong the life of one of Australia’s biggest gold mines.
- The owners of the Super Pit each spent $1.1 billion to acquire 50 per cent stakes in the gold mine in November 2019 and January 2020
- The deals put the mine in 100 per cent Australian ownership for the first time in the pit’s 31-year history
- After less than a year as partners, Northern Star Resources and Saracen Mineral Holdings announced a $16 billion merger in October
At a shareholder meeting today, 99.95 per cent of votes were in favour of combining Perth-based miners Northern Star Resources and Saracen Mineral Holdings.
Saracen’s managing director Raleigh Finlayson said shareholders had been “virtually unanimous”.
The merger creates the world’s eighth-biggest gold producer and Australia’s second biggest behind Newcrest Mining, increasing production towards 2 million ounces a year by 2027.
It also consolidates Kalgoorlie-Boulder’s famous Golden Mile — once considered the richest square mile on Earth — under a single owner for the first time in its 128-year history.
Mr Finlayson will lead the combined group as managing director before handing over the reins to Northern Star’s current CEO Stuart Tonkin within 18 months.
“Looking forward to the future, to leading Northern Star 2.0, along with Bill Beament and Stuart Tonkin,” Mr Finlayson told the meeting.
Saracen will now seek WA Supreme Court approval on February 2, and if this occurs the company’s shares will be suspended from trading on February 3.
Speaking before the meeting, Canaccord Genuity resources analyst Tim McCormack said the merger was inevitable.
“I canvas a huge amount of both companies’ shareholders and overwhelmingly the market response has been positive,” he said.
“Interestingly, a lot of people had been talking about these two coming together for a long time and how it makes a lot of sense.
“It was the sensible outcome to see them finally announce it and move forward with good momentum.”
Succession plan for combined company
Mr McCormack said both companies’ share prices were “blowing around in whatever direction the gold price is going”, and any recent weakness was unlikely to reflect market reservations about the merger.
Shares in Northern Star shot up from $13.82 after the announcement, hitting an all-time high of $17.03 in November.
Northern Star has since retreated to $12.72 at Friday market close.
But suffice to say, investors who purchased Northern Star in 2007, when Bill Beament took the reins and they traded around 10 cents a share, would be popping the champagne today after watching their stock soar a staggering 12,740 per cent.
It means a $100 investment in 2007 would today be worth $12,840 — and the biggest winner from the golden turnaround has been Mr Beament, whose stake in the company is currently valued around $75.8 million.
Saracen’s stock has enjoyed a similar ride, up from $3.39 when the miner bought into the Super Pit to a record high of $6.75 late last year.
The stock was changing hands for $4.81 at Friday’s market close, valuing Mr Finlayson’s stake around $15.7 million.
Mr Finlayson has spoken publicly of his support for the succession plan.
“To be absolutely clear, I am the number one supporter of my transition from managing director to Stuart Tonkin,” the Kalgoorlie-born mining engineer said in October.
Super Pit future ‘bigger and better’
While both companies operate multiple mines, the Super Pit is undoubtedly the jewel in the crown of the merged group.
It has produced more than 21 million ounces of gold since 1989.
The question of how long the Super Pit could continue to operate has hung around since the first bucket of ore was loaded onto a truck.
In fact, union officials in 1989 had considered it “impossible” for the Super Pit to see out the millennium.
The most recent estimate of mine reserves was revealed in August last year following a six-month strategic review.
Both companies were confident enough to tell the stock market that the Super Pit would continue operating until at least 2035, including the Fimiston South cutback.
The expansion at the southern end of the Super Pit would create another 700 jobs, on top of the 1,200 workers and contractors the mine already employed.
Another mining front is fixing the eastern wall which sustained a significant rockfall in May 2018 and threatened the mine’s short-term future.
Significantly, the companies also revealed exploration drilling had confirmed gold below the deepest historical workings of around 1,400 metres below the surface.
That was enough for the partner to commit to spending $10 million this year to re-establish underground portals from inside the pit.
Mr McCormack said the future now looked bright and he expected the Super Pit to benefit from a single owner.
“The Super Pit, as it stands today with two owners, was always going to be very difficult to realise the ultimate value of that and I think under one umbrella that company can move the future of that project forward and extend it as well,” he said.
Single owners for the first time
Melbourne-based mining analyst Dr Sandra Close, a geologist, banker and author of The Great Gold Renaissance, first visited the Golden Mile in 1967.
She was involved in financing deals during the 1980s and saw how the puzzle of mining leases that made up the fractured ownership on the Golden Mile was pieced together to make the Super Pit possible.
“The machinations that went on during the 1970s and 80s to lead to the formation of the Super Pit joint venture and the big pit that we have right now are absolutely extraordinary,” she said.
“I wrote an entire chapter in my book on the consolidation of the Golden Mile at that time, and there was an awful lot of players involved, and Alan Bond was certainly one of the big ones.”
The original owners of the Super Pit in 1989 were Homestake Gold of Australia and Gold Mines of Kalgoorlie, which later changed its name to Normandy Mining.
In December 2001, Canadian company Barrick Gold merged with Homestake, and a few months later, in February 2002, Normandy merged with US giant Newmont Mining.
The status quo of foreign ownership was maintained until the current owners took over.
Dr Close agreed the Super Pit would likely thrive under one owner.
“We’ve had three major gold booms in the 1850s, the 1890s when Kalgoorlie came to the fore, a very minor one during the Great Depression and then the major gold boom which started in 1982 and is still going on,” she said.
“The possibilities of having that single group and being able to plan the future exploration and production, I think there is really good possibility for a considerable future ahead.”