Silver Lake Resources Limited

Trading at Higher Levels: Silver Lake Resources Limited (ASX: SLR) is a small-cap gold producing and exploration company with the market capitalisation of ~$408.91 Mn as of March 29, 2019. In November 2018, SLR and Doray Minerals Limited entered into a binding Scheme Implementation Deed, under which the two companies will merge by way of a Doray Scheme of Arrangement. The merger will combine two complementary West Australian gold operations to create a leading ASX mid-tier growth-focused gold producer. Under the proposed merger, each Doray Shareholder will receive 0.6772 Silver Lake shares for every Doray share held. As a result, shareholders of Silver Lake and Doray will own 62.7% and 37.3%, respectively, of the issued ordinary shares in the Merged Entity.

On 28 March 2019, the company announced that the Supreme Court of Western Australia has approved the merger between two gold miners i.e., Doray Minerals and Silver Lake Resources. Doray’s largest shareholders earlier in March month voted in favour of the merger to create an enlarged gold miner with two gold projects in Western Australia. Further, Doray Minerals Limited lately announced to the exchange that the orders made by the Supreme Court of Western Australia (Court) approving the share scheme of arrangement (Share Scheme) and option scheme of arrangement (Option Scheme) have been lodged with the Australian Securities and Investments Commission. As a result, the Schemes are effective. The New Silver Lake Shares will begin trading on ASX on a normal settlement basis from 8 April 2019.
 

SLR & DRM Scheme Implementation Timetable (Source: Company Reports)

Silver Lake Resources Limited had reported a solid set of numbers for 1H FY 2019 which ended on 31 December 2018. The revenue for 1H FY 2019 came in at $119.8 million vis-à-vis $114.7 million in 1HFY2018, resulting in a growth of 4% on a pcp basis. This rise was witnessed predominantly on the back of an increase in the average realised gold sale price.

What to Expect From SLR: On the outlook front, the company seems to be on track to meet FY19 guidance for gold sales of 140,000 to 150,000 at an AISC of A$1,350-A$1,390/oz.

On the financial metrics front, the EBITDA margins have fallen to 19.50% for the HY ended 31 December 2018 from the levels of 33.20% registered for the PCP.

Meanwhile, the share price of the company rose by 47.75% in the past three months and is trading close to the 52-week high levels of $0.850 with a higher PE multiple of 22.97x than concerned industry.  Its P/BV multiple is trading at 2.0x on March 29, 2019, which is higher than the industry median of 1.4x which indicates share price is overvalued. It can be said thatthe current price might have discounted all the recent positive developments andmight trigger some price correction in the stock in the near term. We, therefore, give a Sell” recommendation on the stock at the current price of A$0.820 per share (up 1.863% on 29 March 2019) and advice to the investors that book profit at higher levels.  

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