Company Overview: St Barbara Limited is a gold producer and explorer. The Company is engaged in mining and the sale of gold, mineral exploration and development. The Company segments include Leonora and Simberi. The Company's Leonora Operations include the Gwalia approximately 1.2 million tons per annum (Mtpa) processing plant and the Gwalia Underground mine. The Company's Simberi mine is on Simberi Island in Papua New Guinea, which includes gold and porphyry copper-gold targets. The Company's Simberi gold resources, reserves and mining operations are located in Mining Lease (ML) 136, which covers eastern half of Simberi Island, and the remainder of the island is covered by Exploration License (EL) 609, which also covers Tatau and Big Tabar Islands. Simberi focuses on epithermal gold in oxide and sulfide deposits. Simberi produced approximately 110,286 ounces of gold. The Company's Big Tabar Island is located approximately 20 kilometers south of Simberi, and over 30 kilometers north of Lihir Island.

 SBM Details

Decent Performance Despite Lower Production at Gwalia: St Barbara Limited (ASX: SBM) is primarily engaged in mining and sale of gold, mineral exploration and development. The company has three mining operations; Leonora Operations in Western Australia, Simberi Operations in Papua New Guinea and Atlantic Gold Operations in Nova Scotia, Canada. Leonora Operations comprise of the Gwalia underground mine, with a mine plan to at least FY31. Simberi Operations consist of an open pit mine and associated processing plant. Atlantic Gold Operations comprise of the Touquoy open pit mine and associated processing plant. As at 30 June 2019, the company had mineral resources of 11.97 million ounces of contained gold, including ore reserves of 5.94 million ounces of contained gold. Over the period covering 2015 to 2019, the company’s top-line posted a CAGR growth of 4.4%, with FY15 revenue amounting to $548.21 million and FY19 revenue amounting to $650.32 million. Bottom-line CAGR growth stood at 61.6%, with FY15 and FY19 profits amounting to $21.15 million and $144.16 million, respectively. In FY19, the company reported gold production of 362,346 ounces, as compared to 403,089 ounces in FY18. Simberi Operations reported a record production of 142,000 ounces, increasing throughout the period covering 2015 to 2019. Production for Simberi operations in 2015 stood at 80,000 ounces. AISC for the year met the guidance provided at A$1,080 per ounce. FY15 AISC was reported at A$1,007 per ounce.

The company has stepped into FY20 with a number of near mine prospective targets at each operation to be drilled during the year. Moreover, it owns a strong balance sheet to sufficiently finance the company’s strategy and adapt to different gold price environments. In 2020, the company’s exploration program will be focused on continued deep drilling at Gwalia along with exploration in the Greater Gwalia area and in the Leonora region, continued exploration at Pinjin in Western Australia and Back Creek in New South Wales and drilling of targets on the Tatau and Big Tabar islands in Papua New Guinea.
 

NPAT (Source: Company Reports)

Financial Highlights in FY19: Statutory net profit after tax for FY19 was reported at $144.16 million, as compared to $226.99 million in prior corresponding year. EBITDA for the year amounted to $274.81 million, as compared to $345.51 million in FY18. EBITDA margin for FY19 stood at 43%, in comparison to a margin of 51% in FY18. During the period, net cash flow from operations was reported at $213.21 million, as compared to $300.55 million in FY18. The change in cash flow represented an increase in sustaining capital expenditure in 2019 at Gwalia and Simberi.

In FY19, the company reported a record production and cash flow from Simberi Operations. Production at the Simberi Operations exceeded the guidance provided for the year. All in-Sustaining cost for the year was in-line with the guidance provided. The year was also marked by the acquisition of Atlantic Gold Corporation in Nova Scotia, Canada. Overall, the company reported a decent performance during the year despite lower production and profit from the Leonora operations.


Group Results (Source: Company Reports)

Production & Sales: During the year, the company reported total production of 362,346 ounces from both Gwalia and Simberi Operations, as compared to production of 403,089 ounces in prior corresponding year. Gold sales for the year stood at 368,444 ounces, as compared to FY18 sales of 400,956 ounces, at an average gold price of $1,762 per ounce.

Significant Increase in Cash: Cash on hand and deposits held to maturity within the 12 months amounted to $890.20 million, in comparison to $342.64 million in FY18. Cash during the year increased due to net proceeds from new shares issued to fund the acquisition of Atlantic Gold, that amounted to $479.56 million.

Leonora Operations Update: In FY19, total sales revenue for the Leonora operations stood at $392.68 million, as compared to $461.26 million. Gold sales for the year stood at 222,625 ounces, in comparison to FY18 sales of 271,141 ounces. The reduction in sales was attributable to lower production from the Gwalia mine, which came in as a result of lower ore tonnes mined and lower grade in 2019. Ore tonnes mined from the Gwalia underground mine reduced to 625,000 tonnes in 2019, from 679,000 tonnes in 2018 due to a combination of ventilation constraints limiting parallel work activities in the underground and Gwalia Extension Project activities. EBITDA margin for Gwalia operations stood at 56%, as compared to 62% in FY18. The company has in place the Gwalia Extension Project consisting of two main components – a ventilation upgrade and paste aggregate fill. The project which is planned to be completed in Q3 March FY20, is budgeted at A$112 million.


Gwalia Production Performance (Source: Company Reports)

Simberi Operations Update: The period saw Simberi Operations setting a new record in terms of production and cash generation. Total sales revenue in 2019 was reported at $257.64 million, as compared to $217.94 million in FY18. Gold sales during the year were reported at 145,819 ounces, as compared to FY18 sales of 129,815 ounces. During the year, the Simberi Operations generated a positive net cash flows of $98.31 million, against FY18 cash flow of $82.60 million. EBITDA margin for the Simberi Operations stood at 42%, as compared to FY18 EBITDA margin of 44%.


Simberi Production Performance (Source: Company Reports)

Atlantic Gold Update: In FY19, production for Atlantic Gold Operations stood at 93,000 ounces, at an All-in Sustaining Cost of A$862 per ounce. FY20 guidance for the operations is due to be released in Q1FY20 report. Atlantic Gold represents a scope to expand production beyond the existing 12-year reserve life with expansion potential across all pits.

Dividend: Total dividend for FY19 stood at A$0.08 per share, to be paid to on 25 September 2019. The company recommenced payment of dividend in FY17, with cumulative dividend payments of A$0.26 since FY17.


Dividend Paid (Source: Company Reports)

5-Year Strategy: The company has provided with a strategy for the next 5 years, aiming at a strong business that will sustain for a longer term. The company is seeking a portfolio of robust operations and is looking forward to diversify its production base. The company aims for above average mine life at bottom-third AISC to sustain long life operations. The company will focus to actively add, manage and progress assets in all phases of the growth pipeline from exploration through feasibility and construction to production.

Going forward, the company will focus on developing or acquiring gold deposits to diversify the group’s production base to create a portfolio of sustainable long-life operations. The company has planned exploration of over 4,000 sq km of prospective tenements across Western Australia, Papua New Guinea and Nova Scotia in FY20. Its decisions and activities are aligned to focus on key value drivers including, relative total shareholder returns, increase in gold ore reserves, return on capital employed and exploration success.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 36.68% of the total shareholding. Van Eck Associates Corporation holds the maximum interest in the company at 12.21%, followed by Societe Generale SA holding 4.40% of the shares.
 

Top Ten Shareholders (Source: Thomson Reuters)

Key Metrics: In FY19, the company had a gross margin of 51.5%, as compared to the industry median of 38.9%. EBITDA margin for the year stood at 44.3% which was again higher than the industry median of 28.2%. FY19 net margin stood at 21.8% as compared to industry median of 11.0%. Current ratio for the year stood at 10.07x, as compared to FY18 current ratio of 4.28x and industry median of 1.75x.


Key Metrics (Source: Thomson Reuters)

Outlook & Guidance: In FY20, the company expects consolidated production from Gwalia and Simberi Operations to be in the range of 310,000 – 335,000 ounces. Group AISC for the year is anticipated to be in the range of $1,250 - $1,350 per ounce. Sustainable capital expenditure for the year expected to be between $59 million and $70 million. Gwalia’s growth capital is anticipated to be in the range of $30 million - $35 million. During the year, the company expects to incur exploration expenditure in the range of $20 - $28 million. In 2020, the group will be focused on consistent production from Gwalia and Simberi, successful integration of Atlantic Gold with the group’s operations and further advancement in organic growth opportunities across all operations.


Key Valuation Metrics (Source: Thomson Reuters)
Valuation Methodologies:
 
Method 1: EV/Sales Multiple Approach:

EV/Sales Multiple Approach (Source: Thomson Reuters)

 Method 2: EV/EBITDA Multiple Approach:

EV/EBITDA Multiple Valuation (Source: Thomson Reuters)

Stock Recommendation: The stock of the company generated negative returns of 30.70% over a period of 6 months and has a market capitalisation of $2.12 billion. Looking at the performance in FY19, the group reported a record production and cash flow from Simberi Operations. The year was marked by significant deep drilling activities at Gwalia and sulphide drilling at Simberi, with total exploration expenditure during the year amounting to $31.40 million. In July 2019, the company completed the acquisition of Atlantic Gold that provides it with another operating mine with a number of organic growth prospects and exploration opportunities. The Gwalia Extension Project also made good progress and is on schedule to be completed by March 2020 quarter. The group is now aiming to drive further growth by optimising the cash flow from operations through maximising production and managing costs at its existing operations. It will also work on enhancing its operating capabilities and incorporating new technologies in the current operations. Considering the decent performance in FY19 despite lower production and profit from Leonora operations and growth prospects for future, we have valued the stock using two relative valuation methods including, EV/Sales multiple and EV/EBITDA multiple and arrived at the target price of the stock in the range of $3.31 to $3.46 (lower double-digit upside (in %). Hence, we recommend a “Buy” rating on the stock at the current market price of $3.010, down 0.987% on 17 September 2019.

 
 SBM Daily Technical Chart (Source: Thomson Reuters)

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