Saracen Mineral Holdings Ltd (SAR $0.22)Buy, Initiation of...

Saracen Mineral Holdings Ltd (SAR $0.22)
Buy, Initiation of Coverage

Investment Case:

Low capital, emerging gold producer
SAR offers exposure to an emerging, low capital intensity gold producer with a resource
base of +2moz and signifi cant land holding in a proven gold belt.

First production is slated for Mar’10 with annual production estimated at 110koz at an
operating cost of ~A$670/oz.

Initial capex is estimated at $27m to refurbish the mill and cut back/pre strip open pits
at Whirling Dervish and Porphyry.

Reserves of 580koz support a mine life of ~ 6 yrs
Grid power is likely to be installed by the end of CY’10. This should reduce operating
costs by ~ $3/t or around $50/oz.

A recent $20m debt and $28m equity raising means SAR is fully funded through to fi rst
production with suffi cient cash to continue exploration with drilling planned at Million
Dollar, Wallbrook and Porphyry.

Key assets include a 2.4mtpa mill, 150 man camp and associated infrastructure that are
in excellent condition. The replacement value of these assets would be in the order of
$100-120m.

SAR differentiates itself from many of its peers (ie CAH and IGR) with a low capital route
to development and earlier production. It has similar operating costs to CAH, slightly
higher than IGR but capex is >50% less.

SAR is cheap it trades on Enterprise per reserve and resource ounce multiples of ~ $90/
oz and $20/oz respectively well below market averages of established producers of
+$200/oz and +$100/oz respectively.

We forecast EBITDA of $40-50m pa and NPAT of $20-25m pa. This equates to a PER of <4x.

Our valuation of $0.42/sh is based on the current defi ned reserve and a nominal $20m
for the remaining 1.4moz resource ounces. The leverage to gold price and/or exploration
success is large as each additional yr of mine life adds 15% to our valuation.

We initiate coverage with a Buy recommendation for exposure to a medium cost, low
capital emerging gold producer. Short term catalysts are
• Successful commissioning of Carouse Dam
• Achieving production forecasts and operating costs.
• Drilling at Porphyry, Million Dollars and other prospects.

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Bought in today at 28 cents. Certainly looks good with gold shooting up.

Good luck holders! Go gold!