Company Overview: Silver Lake Resources Limited is a gold producing and exploration company. The Company's principal activities include gold mining and processing from the Mount Monger Operation, gold exploration and evaluation projects. Its projects include Mount Monger operation, Murchison operation and Great Southern Gold project. The Mount Monger goldfield is located approximately 50 kilometers southeast of Kalgoorlie, Western Australia. Its operations include Daisy Complex, Cock-eyed Bob, Santa and Imperial/Majestic. The Murchison operation is located southeast of the town of Cue, over 600 kilometers northeast of Perth. Its assets consist of the Tuckabianna, Comet, Moyagee and Eelya projects. The Great Southern Gold Project is a gold exploration project located in the Ravensthorpe region of Western Australia, approximately 200 kilometers west of the Port of Esperance. The Great Southern Project consists of a package of tenements, gold and base metal mineral resources and ore reserves.


SLR Details

Silver Lake Resources Limited (ASX: SLR) has been noted to benefit from the capital that the group has invested so far in bringing three underground mines (Cock Eyed Bob, Maxwells, & Daisy Milano) into production. The continued efforts at Mount Monger operations have been encouraging while SLR targets its AISC to reduce at the back of lower development costs. The developments at Aldiss open pits as planned for 1Q19 with Harry’s Hill and Karonie South replacing Imperial/Majestic, seem to be providing additional benefits. The group’s recent interim result was also sound and above consensus driven by lower operating costs. 

High Grade Mineralisation at the Easter Hollows Lode structure: SLR has updated that the Easter Hollows target zone has been identified within an untested package of the Daisy mine stratigraphy; and the company had completed the single drill at the southern end of the target area in 2015, which returned 1.20m @ 15.4 g/t Au. This left an untested down plunge area greater than 800 metres between this intersection and the near surface Christmas Flats deposits. A drilling program comprising of four diamond holes is recently done after the 2015 intersection into the broad Easter Hollows target zone. All the four diamond drill holes successfully intersected the target Easter Hollows Lode structure located approximately 300m west from the current Daisy underground development. The type of mineralisation intersected is approximately similar to the highest-grade lodes in the Daisy Complex, including quartz veining, galena and visible gold. The holes intersected show multiple mineralised structures in the area between the Daisy infrastructure and the Easter Hollows lode position. The assay results for the first of the four holes (EH346001) had confirmed a 400m up plunge extension to the original 2015 Easter Hollows drill intersection. The highlights of EH346001 included 3.30m @ 5.25 g/t Au, with 0.50m @ 16.3 g/t Au, and 0.21m @ 8.23 g/t Au. The company has now received further significant assay results from the second diamond drill hole (EH346002), that intersected multiple high-grade Daisy-style lode structures between 160 metres and 400 metres laterally from the existing Daisy underground development. The remaining two drill holes EH346003 and EH346005 are also intersected the Easter Hollows target including laminated quartz veins, sulphides and visible gold. However, the assays are pending for these two drill holes. The company will be preparing a further drill program and prioritised to target the Easter Hollows area within the FY19 exploration program. The discovery of Daisy style mineralised lodes proximal to existing mine development provides the potential to truncate the development timeframe to access a new mining front if the continuity of mineralisation be confirmed.
 

Daisy Mine Lode System (Source: Company Reports)
 
Rapidly advancing shallow high-grade target at the Daisy North and five diamond drill holes program: The company during the June 2017 quarter, had completed the six-hole diamond drill program over the Daisy North target area. The results had confirmed a significant step-out extension of mineralisation to the north from the Haoma and Stanley lodes in the Daisy Mine. The visible gold logged in these holes is associated with the sheared porphyry contacts and quartz veining and is of similar mineralisation style to the Daisy lode. The assay showed 2.0 metres at 31.0 g/t Au, 1.39 metres at 13.86 g/t Au, and 1.0 metre at 33.54 g/t Au. The follow up drill program, that consists of five diamond drill holes from surface, has now been completed at Daisy North. The objectives of the recent drilling were to confirm the geometry, tenor and continuity of the high-grade Daisy North mineralisation encountered in the previous program. All five holes have successfully intersected the target and have returned visible gold associated within the lode structure along the porphyry contact. The results have confirmed the continuity of high grade mineralisation between the current Daisy gold mine operation and the historically drilled Caledonia exploration prospect, which is more than 300 metres along strike to the north. The success of the program has increased the confidence for a potential near-term, shallow underground development to add a new mining front given its proximity to the upper areas of Daisy development. As a result, the FY19 exploration program will include follow up infill and extensional drilling along the Stanley and Daisy North target zone to identify potential production areas to be incorporated into future mine planning.

Strong Result at the Lower Prospect: The strong intersections from the Lower Prospect extensional program reflect the depth potential and plunge continuity of multiple lodes within the Daisy gold mine. The lodes are open at depth and along strike. Further, resource definition drilling will progressively extend these lodes as the Daisy mining front advances into the new lode positions.

Development at the Aldiss Mining Centre: The company will commence pre-development works for the Aldiss mining centre in Q4 FY18. Aldiss Mining Centre consists of the previously mined Karonie Main open pit, the Harry’s Hill and French Kiss deposits, and several near surface exploration targets along the north-trending shear zones that host the Aldiss gold deposits. The exploration drilling completed at Aldiss over the previous six months has confirmed the extension of mineralisation south of the historical Karonie open pit which, if contiguous, will provide a material extension to the Aldiss Mining Centre. Moreover, SLR had completed the maiden surface RC drilling program in the December 2017 quarter. The program had comprised both extensional and infill drilling along the western and eastern lode trends immediately to the south of the Karonie open pit. The program was successful and encountered strongly altered shear zones within the anticipated target horizons, including quartz veining and sulphides. Assays reported earlier included 2.34m @ 52.1 g/t Au, and 4.89m @ 17.7 g/t Au. Further, the company has completed the follow up program incorporating two phases of RC and diamond drilling at Karonie South. Initial evaluation of the latest set of broad, high grade drill results has significantly increased the confidence in the potential to include a southern cutback of the Karonie open pit as part of the Aldiss Mining Centre production plan with detailed planning currently underway. Additionally, the company has commenced further RC and diamond drilling at the Karonie deposit, targeting further southern and down plunge extensions to the Karonie South deposit, potential extensions to the mineralisation in the north and west side of the Karonie open pit, and evaluating a strong geophysical IP target north of the Karonie deposit. The company has received encouraging results from the initial geological logging of the drilling, with coarse visible gold observed in RC chips within the potential open pit cutback. The assay results of this drilling are expected in the June 2018 quarter.
 

Karonie Open Pit (Source: Company Reports)
 
First half 2018 Financial & Operating Performance: SLR in the first half of 2018 delivered 7% growth in the revenue to $114.71 million, while its Profit after tax fell 74% to $2.13 million. In 1H 2018, the gold sales of 68,704 ounces at A$1,662/oz was up from 64,416 ounces at A$1,661/oz in 1H FY17. The cost of sales for 1H 2018 has increased to $105.52 million due to the ramp up of mine production and associated amortisation and depreciation costs on the new mines. The All-in Sustaining Cost (AISC) for 1H 2018 is of A$1,387/oz compared to A$1,389/oz in 1H FY17 and is consistent with the company’s guidance for the increased costs in the first half driven by the investment during the period in the Maxwells and Cock-eyed Bob underground mines and accelerated open pit mining at Imperial/Majestic. The combination of steady state production rates at Maxwells, commissioning of Cock-eyed Bob and high-grade production from Imperial has led Silver Lake to expect generating strong cashflows in the second half of the year. The AISC is forecast to fall during 2H FY18 and average out at ≈A$1,350/oz for the full year. Moreover, in the 1H 2018, the Cash and Bullion fell 3% to $66.59 million. SLR expects the cash and bullion position to improve in 2H FY18. Additionally, $6.41m invested in exploration during the 1H 2018 reflects encouraging results returned from drilling campaigns across the Daisy, Mt Belches and Aldiss mining centres. These persistent and promising exploration results validate the strategy of investing in group’s Mount Monger exploration zone to target lower cost discoveries proximal to existing mines and mine infrastructure. In addition, the Hedge book position at 31^st December 2017 totals 124,000 ounces to be delivered over the coming 2½ years at an average forward price of A$1,710/oz. The company has not declared the dividend for 1H 2018.
 

1H 18 Financial Performance (Source: Company Reports)
 
Future Outlook: SLR is well positioned to meet the upper end of FY18 gold sales guidance of 135,000 to 145,000 ounces. The company has maintained FY18 AISC guidance and is expected to be in line with FY17 (≈A$1,350/oz) with an increase in high grade ore production from the shallow Mount Belches underground mines in 2H FY18 as they reach target production rates. The FY18 cash flow guidance remains unchanged. Moreover, the mining operations at the Majestic West pit (125,380 tonnes at 1.61 g/t Au for 6,486 contained ounces) are due for completion in early Q3 FY18. The development of the Aldiss mining centre was deferred by 3 months and will commence in Q1 FY19, allowing for further drilling of a potential southern cutback of the Karonie open pit and the optimisation of the operating plan for Aldiss. The development schedule is expected to deliver first ore to the mill in Q2 FY19 with ore processing scheduled to commence in Q3 FY19, which unites with the drawdown of stockpiles post completion of the Imperial/Majestic open pits.
 

Mount Monger Camp (Source: Company Reports)
 
Stock Recommendation: As per March 2018 Quarterly Rebalance of the S&P/ASX Indices, SLR stock has been removed from S&P/ASX 300 Index, effective from March 19, 2018. Meanwhile, SLR stock has risen 9.7% in one month as on March 26, 2018 with positive sentiments gearing up on exploration updates while the stock had fallen about 35% in last one year. The company has not proposed to pay any dividend for 1H 2018 while its return on equity has been maintained in positive zone as also seen in 2016 against the past few years. Further, the macro scenario at the wake of recent geopolitical situation opens an opportunity for SLR. Based on the growth prospects, we give a “Speculative Buy” recommendation on the stock at the current price of $0.385
 

SLR Daily Chart (Source: Thomson Reuters)

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