Silver Lake Resources Limited

FY18 Financial Summary and Guidance for FY19: Silver Lake Resources Limited’s (ASX: SLR) stock tumbled 5.825 per cent on August 22, 2018 as there seems to be some sell-off after release of FY18 results wherein the group delivered annual group gold production of 157,936 ounces at an AISC of A $1,289/oz compared to the production of 135,837 ounces at an All-in Sustaining Cost (AISC) of A$1,359/oz in FY17. Resultantly, revenue increased by 12 per cent and amounted to $255.6 Mn in FY18 from the sale of 151,250 ounces of gold at an average realized price of A$1,684/oz compared to the previous year. It was mainly driven by the strong production result during the year as new high-grade ore sources were introduced to the Randalls Mill, supplementing baseload mine production from the Daisy Complex. EBITDA stood at $87.9 Mn in FY18 against the prior year, exhibiting 26 per cent growth on Y-o-Y basis. EBITDA margin expanded by 363 bps and recorded 34.4% in FY18 against 30.8% in FY17. Based on topline growth, the group recorded NPAT growth of 697% in FY18 on a Y-o-Y basis. 1H FY19 AISC metrics are expected to be higher on account of the treatment of stockpiled material (a non-cash charge), however, underlying cash flow should remain strong in 2H FY19 and well into FY20.


FY18 Key Highlights (Source: Company Reports)

On the other hand, for FY19, annual group gold sale is expected to be between 140,000-150,000 ounces at an AISC of A$1,350-A$1,390/oz. The growth capital works expenditure, including the installation of infrastructure at the Aldiss Mining Centre to be incurred in 1H FY19, for FY 19 is expected to be A$5 Mn. In addition to this, the exploration budget for FY19 is A$12 Mn and is designed to pursue numerous high-value targets proximal to existing infrastructure with at least two-thirds of the total exploration budget allocated to the direct “in ground” drilling programs. Meanwhile, SLR stock has fallen 15.57% in the past three months as on August 21, 2018 and is trading at a market capitalization of circa $ 260.42 Mn. Based on the foregoing, we maintain our “Hold” recommendation on the stock at the current market price of $ 0.485.
 

Western Areas Limited

Decent FY18 Performance: Western Areas Limited’s (ASX: WSA) stock tumbled 6.061 per cent on August 22, 2018 following the release of FY18 results in which the group delivered an $11.8 Mn net profit in FY18 but expects a rise in unit cash cost in FY19 on account of various factors such as increases in contractor rates, plus rise and fall allowances based on forwarding trends in the resource industry, etc. Furthermore, FY19 mine plans contain a higher proportion of ore development than late years, as ore drives are sequentially developed in the stage two zone of Spotted Quoll and new ore fronts are accessed at Flying Fox.

Moreover, the company delivered annual Nickel Concentrate Production of 21,060 tonnes at a cost of $2.63/lb in 2018 which was marginally lower by ~0.5k nickel tonnes i.e., approximately 2 per cent of original production guidance for the full year. However, Revenue increased by 16 per cent and amounted to $248.3 Mn in FY18 as compared to the previous year. It was mainly driven by the higher average nickel price for the year at A$7.53/lb (FY17 A$6.11/lb), which was partially offset by a reduction in sales volumes. NPAT contracted to 38.9 per cent to $11.8 Mn in FY18 from the prior year which was at $19.3 Mn. It was primarily impacted by the increased earnings from ordinary mining activities that resulted in an increased tax expense to be around A$7.3 Mn as underlying business earnings are subject to normal corporate income tax. Based on the overall performance, the Board of Directors declared a fully franked final dividend of 2 cents per share, which is in-line with the prior year. It will be paid on 06 October 2018 with the record date of 14 September 2018. As at 30 June 2018, the company had a cash reserve of $151.64 Mn, which reflects the group to be well positioned to fund and complete several organic growth projects.


Key Financial Metrics (Source: Company Reports)

Additionally, FY19 production is expected to be broadly in line with FY18 with the mid-point of guidance slightly higher than FY18. In addition to this, the exploration budget for FY19 will be in the range of A$12 Mn to A15 Mn. Meanwhile, the share price has fallen 12.90 per cent in the past three months as at August 21, 2018 and traded at higher PE level of 36.31x among its peer group. Hence, we maintain our “Hold” recommendation on the stock at the current price of $2.79, considering decent fundamentals and ongoing development which may provide further growth for the company.

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