St Barbara Limited

SBM Details

Diggers and Dealers Mining Forum Presentation Highlights: St Barbara Limited (ASX: SBM) is a gold explorer and producer with Leonora operations in Western Australia, the Simberi operations in Papua New Guinea, and the Atlantic Gold project at Nova Scotia, Canada. At the forum, SBM notified that in FY21 it reported total gold production of 327,662 oz at an AISC of 1,616 per ounce.

• In the next 18 months, SBM plans to achieve growth via operational brilliance and mine life extension, by implementing brownfield expansion projects (Simberi Sulphide and Atlantic), and by developing the nearby Leonora province.
• In the third phase of uplift, SBM plans to grow inorganically via acquisitions, JVs, and explore avenues to develop future operations.

Drilling Results from Lake Wells Project:

• On 3 August 2021, Australian Potash Limited (ASX: APC), the JV partner for the Lake Wells gold project, declared the significant assay results from the diamond drilling completed by SBM at the project.
• The companies will now undertake a follow-up exploration consisting of diamond drilling of 16 holes and mobilise the rig and crew in late Q1FY22 (September 2022 quarter).

Highlights of Q4FY21 (June 2021 quarter):

• Steady Gold Production: SBM reported a stable production of 82,698 oz of gold in Q4FY21 (82,303 oz in Q3FY21). The company reported the highest mill throughput rates at Atlantic and the highest quarter of mill throughput witnessed in ~5 years at the Gwalia operations.
• Gold Sales: SBM sold 95,535 oz of gold in Q4FY21 at $2,336 per ounce versus 71,329 oz sold at $2,247 per ounce in Q3FY21.
• Lower AISC: SBM recorded $1,623 per ounce of All-In Sustaining Cost (AISC), down by 2% QoQ primarily because of the higher gold production at Atlantic.
• Higher Cash Flows: SBM reported $100 million of operating cash flows in Q4FY21 vs. $$36 million in Q3FY21.
• Higher Cash Balance: The company held $133 million of cash balance ($92 million in Q3FY21) after repayment of $21 million debt as of 30 June 2021. SBM has $82 million of total debt under the syndicated facility as of 30 June 2021 versus $102 million as of 31 March 2021.
  

Total Gold Production from FY16-FY21; (Analysis by Kalkine Group)

Recommenced Mining at Simberi: In May 2021, due to a fatality at Simberi Operations in New Ireland Province, the mining operations at Simberi were temporarily suspended. The company has recently received conditional approval to restart mining operations at Simberi. 

Key Risks:

• Change in Gold Prices: SBM faces changes in the average realised price of gold which can impact the revenue and profitability of the company.    
• Forex Fluctuations: The company operates in multiple geographies and hence faces the impact of the forex changes on earnings and assets valuations.

Outlook:

• SBM estimates 305,000 - 355,000 oz of gold production at an AISC of $1,710 - $1,860 per ounce in FY22.
• The company plans to ramp up the processing facility at Simberi in the coming months and expects to resume production by the close of Q2FY22 (December 2022 quarter).

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 5.05% in the past three months and a negative return of 22.05% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $1.680 - $3.690. We have valued the stock using the Enterprise Value to Sales-based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer average, considering the trend of falling net margins, and ROE, along with the associated risks of changes in realised gold price and production levels. For this purpose, we have taken peers like Ramelius Resources Limited (ASX: RMS), Perseus Mining Limited (ASX: PMS), Silver Lake Resources (ASX: SLR), and others. Considering the current trading levels, repayment of debt & lower AISC in Q4FY21, improved operational performance at the Atlantic and Gwalia operations, mine planning process at Leonora operations, an ~30% uplift (~1.4 million oz) of resources in the Leonora Province, recommencement of operations at Simberi mine, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $1.780, down by ~1.658%, as on 4 August 2021.

SBM Daily Technical Chart, Data Source: REFINITIV 

Sandfire Resources Limited

SFR Details

Investor Briefing Update: Sandfire Resources Limited (ASX: SFR) is involved in mining and producing various metals such as copper, gold, and silver. SFR runs flagship Degrussa operations in Western Australia and owns (interest) landholding in Kalahari Copper Belt in Botswana. On 2 August 2021, SFR presented the following strategy updates and outlook at the Diggers & Dealers Investor Briefing, held in Kalgoorlie.

• The company has expanded the leadership team with new appointments for the Head of Investor Relations, Head of Exploration, and others in FY21.
• SFR reported debt-free status and $574 million (unaudited) cash as of 30 June 2021.
• The Group is developing a new long-life Motheo Copper Mine and targeting the first production in Q4FY23.
• SFR has a robust global pipeline with the inclusion of the approved Black Butte Copper Project in the US and a budget of $50 million per year for exploration.

Highlights of Q4FY21 & FY21:

• Met FY21 Guidance: SFR met the guidance provided for copper and gold production for FY21. SFR reported 70,845 tonnes of copper production versus the provided guidance of 67,000 – 70,000 tonnes for FY21. The gold production stood at 39,459 oz versus 36,000 – 40,000 oz of guidance given.
• C1 Cost: SFR reported US$0.82/lb of C1 cost within the guidance range of $0.80–$0.85 provided.
• Resource Exploration: SFR continued the drilling for resource definition at the Doolgunna project and is progressing the scoping studies for the Old Highway gold project.
• Mining Licence Obtained: SFR received the approval grant for the Motheo Copper Mine project from the Botswana Government. It will now commence full-scale project construction.
• Higher Cash Balance: SFR recorded $574 million (unaudited) of cash on hand balance as of 30 June 2021 versus $463.6 million as of 31 March 2021.

Revenue & Net Profit from FY18-FY20; (Analysis by Kalkine Group)

Key Risks:

• Exploration Related Risks: The company faces exploration and mining-related risks across projects to discover mineralisation areas, deposits, and prospects. SFR risks low-quality of gold extraction and lesser mined and processed ore.
• Change in Gold Prices: SFR faces fluctuations in gold prices which could adversely affect its quarterly and annual production targets.

Outlook: SFR estimates copper production of 64-68k tonnes and 30-33K ounces of gold production and between C1 costs ~US $1-1.10/lb for FY22. SFR is pacing up the development activities and site works at the Motheo project as it targets the first production in early 2023.

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 SFR gave a positive return of 69.01% in the past nine months and a positive return of 47.54% in the past year. The stock is currently trading higher than 52-weeks’ average price level band of $3.970 - $7.830. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight premium than its peer average, considering the decent production and cost performance in FY21 and the grant of mining approval for the Motheo Copper project. For this purpose, we have taken peers like Aeon Metals Limited (ASX: AML), Aurelia Metals Limited (ASX: AMI), Gascoyne Resources Limited (ASX: GCY). Considering the current trading levels, decent stock returns in the past nine months and the past year, and valuation indicating correction, we suggest investors book profit and give a ‘Sell’ rating on the stock at the current market price of $7.200, up by 1.983% as on 4 August 2021.

SFR Daily Technical Chart, Data Source: REFINITIV  

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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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