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kalGOLD® (Kalkine Gold Report)

St Barbara Limited

May 05, 2020

SBM:ASX
Investment Type
Small-Cap
Risk Level
Action
Rec. Price ($)


Company Overview: St Barbara Limited (ASX: SBM) is an Australian based gold producer and explorer with a diversified portfolio of gold operations including Leonora operations in Western Australia, the Simberi operations in Papua New Guinea, and the Atlantic Gold Operations in Nova Scotia, Canada. Incorporated and listed in 1969 as Endeavour Oil, the company was initially focussed on mineral exploration, however, following a change in management in July 2004, the company shifted its goal to be an Australian based gold producer and explorer. Currently, the company’s vision is to be a successful, leading and growing gold company.


SBM Details
 


Focused on Diversifying its Production Base: St Barbara Limited (ASX: SBM) is focused on mining and the sale of gold, mineral exploration and development. The company has a diversified portfolio of gold operations including Leonora Operations in Western Australia, the Simberi operations in Papua New Guinea, and the Atlantic Gold Operations in Nova Scotia, Canada. The company is currently focused on diversifying its production base by developing or acquiring gold deposits. The company intends to add, manage and progress assets in all phases of the ‘growth pipeline’ from exploration through feasibility and construction to production. St Barbara Limited maintains prudent financial management policies to ensure that there is adequate liquidity to pursue appropriate investments in operations and exploration. From 2015-2019, the company’s sales revenue increased at a CAGR of 4.16% and its statutory net profit after tax increased at a CAGR of 38.06%. 


Past five-year performance (Source: Company Reports)

Looking forward, the company continues to see significant growth potential at all three existing operations and in existing land holdings. Further, the company intends to have a portfolio of robust operations with a quality growth pipeline. St Barbara Limited has identified a number of near mine prospective targets at each of its operations that are planned to be drilled in FY20. Although COVID-19 has slowed some aspects of its strategic projects, the company remains excited with the opportunity for growth within its existing portfolio. 

FY19 Performance Highlights: In FY19, the company reported a statutory net profit after tax of $144.163 million and underlying net profit after tax of $141.728 million. For the full year, the company declared a total dividend of $0.08 per share fully franked. During the year, the company reported total gold production of 362,346 ounces and gold sales of 368,444 ounces at an average gold price of $1,762 per ounce. 

During FY19, SBM reported record production and cash flow from Simberi operations. For the year, the company reported a consolidated All-In Sustaining Cost (AISC) of $1,080 per ounce in 2019, higher than the previous year, reflecting the impact of lower production and higher operating costs at Gwalia, and increased sustaining capital expenditure at both Gwalia and Simberi.

During the year, the company raised new equity of $479.558 million to fund the acquisition of Atlantic Gold, causing the net assets and total equity to increase substantially by $591.153 million to $1,257.023 million.

 
FY19 Financial Snapshot (Source: Company Reports)

H1FY20 Performance Highlights: The company entered FY20 with a strong balance sheet sufficient to finance the SBM’s strategy and with the flexibility to adapt to different gold price environments. For the half-year ended 31 December 2019 or H1FY20, the company reported statutory profit after tax of $39 million and underlying profit after tax of $35 million. During the period, the company’s profitability was impacted by the lower production at Gwalia and Simberi and higher depreciation and amortisation due to Atlantic Gold acquisition. For the period, the company declared a fully franked interim dividend of $0.04 per share. For H1FY20, the company reported an EBITDA margin of 47% and cash flow from operating activities of $65 million.

During the period, the company reported total gold production of 181,728 ounces at a Group All-in Sustaining Cost1 of A$1,391 per ounce. Atlantic Gold operations made a significant contribution to the company in H1FY20. Atlantic Gold contributed a segment profit before tax period of $34.839 million.


EBITDA and NPAT Profile (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 32.67% of the total shareholding. Van Eck Associates Corporation and The Vanguard Group, Inc. hold the maximum interests in the company at 9.90% and 5.00%, respectively.
 

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Q3FY20 Update: In the third quarter of FY20, the company reported consolidated gold production of 91,547 ounces at an AISC of $1,405 per ounce. During the period, the company’s all three mines in Australia, Canada and PNG have maintained operations while implementing a range of physical distancing and hygiene measures to prevent the spreading of Covid-19. For the period, the company reported an operational cash contribution of $86 million. At the end of March quarter, the company had a total cash at bank and term deposits of $320 million and total debt of $316 million.


Quarterly Performance (Source: Company Reports)

A Quick look at Key margins: The company’s gross margin for H1FY20 stood at 47.40%, slightly higher than the industry median of 46.8%. For the same period, the company reported an EBITDA margin of 39.5%, higher than the industry median of 36.6%. For H1FY20, the company’s current ratio stood at 2.25x, higher than the industry median of 1.76x, demonstrating that the company is well-positioned to pay its short-term obligations. 


Key Metrics (Source: Refinitiv, Thomson Reuters)

Feasibility Study at Simberi Sulphide Project: On 5 May 2020, SBM announced that it is going to perform a feasibility study of the Simberi Sulphide Project, supported by robust financial metrics indicated by the recently updated pre-feasibility study.  The pre-feasibility study had confirmed that the Sulphide Project could extend mine life at Simberi to FY35. The company will continue to perform further optimisation and value engineering activities at the Sulphide Project in order to support a possible future investment decision, including further investigation of the optimal balance between grinding and flotation time to maximise recovery.

Covid-19 Update: Amid Covid-19 pandemic, the company’s all three mines in Australia, Canada and PNG have maintained the operations, production and gold shipments. At all three mines sites, the company has implemented measures to mitigate and minimise any potential impacts of COVID-19. In order to bolster its cash reserves, the company has drawn down $200 million from its existing syndicated debt facility. It is to be noted that COVID-19 restrictions have curtailed off-mine exploration and suspended or slowed activities and projects not directly related to current production.  SBM is evaluating the resumption of exploration activities within relevant guidelines.

What to expect: With all three operations continuing to generate positive net cash flows, the company is currently in a sound financial position. Further, the internal financial modelling indicates that the company can readily withstand a prolonged hiatus in production across all operations. However, it is to be noted that increasingly stringent COVID-19 prevention measures in all of the relevant jurisdictions increase the risk that one or more of the operations may be impacted at some stage.

In FY20, the company is focused on completing the final vent shaft of the Gwalia Extension Project, progress the Simberi sulphide project to feasibility study, and Optimise and progress the timeline for permitting and development of the Atlantic Gold projects. Several reviews of the company’s operations are currently underway, focused on maximizing the operational and growth potential at each operation, and maximise the value of the company overall, and will continue during Q4 June FY20. 
FY20 Guidance: In FY20, the company’s full-year production is expected to be at the lower end of the guidance range of 370 to 400 koz. At Gwalia, the company’s full-year production is anticipated to be at the lower end of the guidance range of between 170 to 180 koz, with AISC correspondingly at the higher end of the guidance range of between A$1,470 and A$1,540 per ounce. At Simberi, the full-year production is expected to be at the lower end of the guidance range of between 105 and 115 koz, with AISC correspondingly at the higher end of the guidance range of between A$1,500 and A$1,645 per ounce. At Atlantic Gold, the FY20 production is expected to be in between 95and 105 koz with AISC of between A$900 and A$955 per ounce. The company’s FY20 exploration expenditure is expected to be between A$30 and A$37 million. 


Production and Cost profile (Source: Company Profile)


Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation MethodologyEV/Sales Multiple Based Relative Valuation (Illustrative)

EV/Sales Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: SBM is in a strong financial position as all its operations continue to generate positive net cash flows.  In the last six months, the stock of SBM has declined by 11.89% and is currently inclined towards its 52-week low price, offering investors a decent opportunity for accumulation. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and have arrived at a target price with lower double-digit upside (in % terms). For the purpose, we have taken peers like Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), Silver Lake Resources Ltd (ASX: SLR), etc. Considering the aforesaid facts, the company’s decent financial performance in the recent past, its resilient performance amid Covid-19 pandemic, and current trading levels, we give a “buy” recommendation on the stock at the current market price of $2.530, up by 0.397% on 5 May 2020.
 

SBM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)


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