The deal is the latest sign of consolidation in the gold mining sector as companies look to improve operational efficiencies and access a wider pool of investors © REUTERS

Australian gold miner Northern Star Resources has agreed to combine with its smaller rival Saracen Mineral Holdings in a $4.14bn deal that aims to create the country’s second-largest gold miner. 

The two companies, who together own Australia’s Super Pit mine, said the nil-premium merger would create a globally competitive miner that would be among the 10 biggest in the world with an equity market capitalisation of more than $11bn.

The deal is the latest sign of consolidation in the fragmented gold mining sector as companies look to improve operational efficiencies and access a wider pool of generalist investors. 

The price of gold has risen 26 per cent this year and hit a record high above $2,000 an ounce in August.

But gold miners have pledged not to repeat the mistakes of gold’s last bull market when miners made a series of expensive acquisitions that cost shareholders when the gold price fell in 2013.

In May Canada’s SSR Mining agreed a zero-premium merger with Alacer Gold, while in 2018 Barrick Gold acquired London-listed Randgold in a similar deal.

“This is M&A that works,” Tony Kiernan, chairman of Saracen, said about the deal with Northern Star. “It is a true merger of equals, with real synergies, that combines two dynamic, entrepreneurial management teams.”

Northern Star said the deal would consolidate mining assets in Australia and enable a 30 per cent increase in gold production over the next three years. By 2027 the combined entity would be able to produce 2m ounces of gold a year, it added.

It would be Australia’s second-largest gold miner after Newcrest, which produced 2.2m ounces of gold in the fiscal year ending in August. 

The deal would consolidate ownership of the Super Pit in Kalgoorlie for the first time in 125 years. Northern Star bought a 50 per cent stake in Australia’s largest open-pit gold mine from Newmont last year, while Saracen bought an equal stake from Barrick Gold. 

It would also bring together gold mining operations in the Northern Goldfields region of Western Australia, enabling the companies to combine infrastructure. 

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The boards of both companies have recommended the deal, which still has to be voted on by investors. Saracen shareholders will receive 0.3763 shares in Northern Star for each Saracen share they hold, as well as a dividend of 3.8 cents a share. 

Saracen shareholders will own about 36 per cent of the merged group while Northern Star shareholders will own 64 per cent. 

Shares in Northern Star rose by 11 per cent on Tuesday to A$15.29 while Saracen rose 10 per cent to A$5.72. 

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