Company Overview: St Barbara Limited (ASX: SBM) is a gold exploration and production company with operations in Australia, Canada, and Papua New Guinea. The company’s assets include Leonora operations in Western Australia, Atlantic Gold Operations in Nova Scotia, Canada, and Simberi operations in Papua New Guinea. The company’s strategy is focused on developing or acquiring gold deposits in order to diversify its production base to create a portfolio of sustainable long-life operations.

SBM Details

2021 AGM Highlights: On 27 October 2021, SBM held its 2021 Annual General Meeting (AGM), wherein, the management highlighted that moving forward the company is focused on building momentum with its Leonora Province Plan, leveraging the excellent infrastructure and the decades of operational experience. Some of the key highlights of AGM are as follows:

• Decent Dividend Track Record: For FY21, SBM has paid a total fully franked dividend of 6 cents per share, maintaining its track record of consistently paying dividends to its shareholders.
• Challenges Faced in FY21: During FY21, the company’s financial performance was impacted by the impairment charge at its Atlantic Operations, the delays in permitting its future satellite operations and COVID-19 restrictions.
• Sulphide Project Update: During FY21, the company announced the results of its Simberi Sulphide Feasibility Study, indicating decent fundamentals for the Sulphide Project.

Q1FY22 Result Highlights:

• Production Update: For the quarter ending 30 September 2021 (Q1FY22), SBM reported total gold production of 67,000 ounces. On quarter-on-quarter basis, the production was down as the Simberi operations remained offline. Notably, the production from Leonora operations grew by 15% on the previous quarter to 51,757 ounces.
• Decline In Costs: Group All-In Sustaining Cost (AISC) was down by 8% on the previous quarter to A$1,492 per ounce, mainly due to increased gold production from Leonora.
• Exploration Update: Over the quarter, the exploration at both Leonora and Simberi have yielded strong results, reflecting the upside in the company’s brownfield portfolio.
• Transforming via Building Brilliance Program: Over the quarter, the company’s Building Brilliance transformation program delivered a cash benefit of $23 million.

Leonora Production Trend (Source: Analysis by Kalkine Group) 

Key Metrics: Gross margin for FY21 stood at 46.4%, down from 50.4% in FY20, but higher than the industry median of 38.6%. EBITDA margin for FY21 stood at 35%, down from 43.4% in FY20, but higher than the industry median of 29.1%. Current ratio for FY21 stood at 1.26x, down from 4.41x in FY20. Debt to equity ratio for FY21 stood at 0.1x in FY21, down from 0.25x in FY20.

Debt to Equity Ratio (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 41.99% of the total shareholding while the top four constitutes the maximum holding. Van Eck Associates Corporation and L1 Capital Pty Ltd. are holding a maximum stake in the company at 9.89%, and 7.58%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Fluctuations: SBM is exposed to the risk related to the volatility in the gold prices as it creates revenue uncertainty.
• Change in Laws and Policies: As the company’s operations are located in different jurisdictions, its operations are exposed to the risk associated with the changes in the laws or rules in any of the jurisdictions.

FY22 Guidance: In FY22, the company is focused on developing and implementing business improvement initiatives under its Building Brilliance program. The consolidated gold production in FY22 is expected to be between 305 – 355k ounces with AISC of between A$1,710 – A1,860. Growth capex in FY22 is expected to be between $70 – $95 million.

Operation-wise Outlook and Guidance:

• At its Leonora Operations, the number of development fronts is expected to increase to 28 by the end of FY22.  FY22 production from Leonora is expected to be between 180,000 and 200,000 ounces with AISC of between A$1,605 and A$1,720 per ounce.
• From its Simberi Operations, the company expects the gold production in FY22 to be between 60,000 and 70,000 ounces with AISC of between A$2,465 and A$2,650 per ounce.
• At its Atlantic operations, the company expects the new initiatives to repopulate the pipeline of improvement opportunities. The gold production from Atlantic operations is expected to be between 65,000 and 85,000 ounces with AISC of between A$1,305 and A$1,515 per ounce.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of SBM gave a negative return of ~9.47% in the past three months and a negative return of ~22.26% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.255 - $2.660. The stock has been valued using an Enterprise Value to Sales-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The stock can trade at a slight discount than its peers, considering the risks associated with the fluctuations in gold price and COVID-19 uncertainty. For the valuation purpose, peers such as, Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), Resolute Mining Ltd (ASX: RSG), other have been considered. Considering the expected benefits of the ongoing Building Brilliance program, current trading levels, improved production at Leonora operations, lower AISC in Q1FY22, modest production outlook and valuation, we give a ‘Buy’ rating on the stock at the closing price of $1.450, down by ~3.334% as on 23 November 2021.

SBM Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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