Saracen Mineral’s Share Price Up on Record Gold Production (ASX:SAR)

Saracen Mineral’s Share Price Up on Record Gold Production (ASX:SAR)

The Saracen Mineral Holdings Ltd [ASX:SAR] share price is up 10 cents or 1.98% to $5.14 at time of writing thanks to record production in the first half of FY2021.

ASX SAR Share Price Chart

Source: Tradingview

In its December quarter results release today, SAR said it was on track to hit its FY2021 gold production guidance of 600,000–640,000 ounces.

Which could signal, despite a rough end to 2020, that gold stock like SAR and Ramelius Resources Ltd [ASX:RMS] could be in for a resurgence in the new year.

Good results but let’s talk about what happens next

In its December quarter updates, SAR said it had produced a record 309,512oz at all-in-sustaining-cost (AISC) of AU$1,196/oz during the first half the financial year.

The December quarter alone saw production of 155,122oz at an AISC of AU$1,224/oz.

Gold sales for the quarter came in at 150,163oz at an average price of AU$2,322/oz, for sales receipts of $349 million.

Which helped the gold miner deliver a net profit after tax of $115 million to $125 million for the half.

SAR also spent $13 million on exploration through the December quarter.

REVEALED: What’s Next for Aussie Gold Stock Prices? Learn more.

That’s something I wanted to focus on.

Take a look at the graph below:

ASX Saracen Gold Production Chart

Source: Saracen Mineral Holdings

Quarter-on-quarter the cost of mining has increased; particularly as the current stockpile from SAR’s low-cost Thunderbox Mine is depleted.

And they expect AISC to continue to increase, with a full-year guidance of $1,300–1,400/oz.

Not only that, but gold grades have been falling at both of its 100% owned projects, Thunderbox and Carosue Dam for the past four quarters.

To be fair, there are significant works continuing to ramp up operations at both projects, though the declining ore grades should be of some concern.

What does that mean for the SAR outlook?

With the merger between SAR and Northern Star Resources Ltd [ASX:NST] receiving overwhelming support from shareholders, there is real potential we could see a top-10 gold producer emerge.

SAR said with the combined assets, the new company would target production of two million ounces of gold per annum by FY2027.

Nothing to sneeze at.

And while the gold price remains high, the economic conditions are still favourable in my opinion.

Although, with their aging assets and a shift to underground operations I do anticipate seeing increasing AISC over the coming years.

What that means for their bottom line, I cannot say.

But I do believe the winds of change could favour gold miners like SAR. The recent recovery in the gold price shows there is plenty of upside still remaining, especially with Australia shaping up to be the new gold capital of the world. In her latest report, gold expert Shae Russell breaks down what Australia becoming the new gold ‘epicentre’ means for gold and your Aussie gold stocks. Click here to download the free report.

Kind regards,

Lachlann Tierney

For The Daily Reckoning Australia