St Barbara Limited

Company Overview: St Barbara Limited (ASX: SBM) is a gold production company 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. The company’s strategy is focused on developing or acquiring gold deposits in order to diversify the Group’s production base to create a portfolio of sustainable long-life operations. SBM was listed on ASX on 15 May 1969.

SBM Details

Acquisition of Bardoc Gold Limited: On 20 December 2021, St Barbara Limited (ASX: SBM) announced that it has entered into a binding scheme implementation deed with Bardoc Gold Limited (ASX: BDC), under which, SBM will acquire all of the shares in the capital of BDC by way of a scheme of arrangement. This transaction is expected to expand SBM’s footprint in the Leonora province and accelerate the Leonora Province Plan.

• Under the transaction, the shareholders of BDC will receive 0.3604 new St Barbara shares for each Bardoc share held.
• Upon implementation of the Scheme, the shareholders of SBM will own around 87% and Bardoc shareholders will own approximately 13% of all issued SBM shares.
• It is expected that the Scheme will be implemented in April 2022, subject to Bardoc shareholder and Court approvals.

Q1FY22 Result Highlights: During the quarter ending 30 September 2021 (Q1FY22), the company advanced the Leonora Province Plan with drilling at Trevor Bore delivering near surface high-grade intercepts with 7 metres at 10.5 g/t Au from 17 metres. Some of the key highlights of the quarter are as follows:

• Production Update: For Q1FY22, SBM reported total gold production of 67koz, down from 84koz reported in Q4FY21, 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: Due to increased gold production from Leonora, the Group’s All-In Sustaining Cost (AISC) was down by 8% on the previous quarter to A$1,492 per ounce.
• Transforming via Building Brilliance Program: Over the quarter, the company’s Building Brilliance transformation program delivered a cash benefit of $23 million.

Quarterly Gold Production Trend (Source: Analysis by Kalkine Group)

Completed the Tailing of DSTP Pipeline: On 4 January 2022, SBM notified that it has completed the laying of the deep-sea tailings placement (DSTP) pipeline at Simberi operations. Notably, over the last few months, the company has conducted substantial pre stripping at Simberi and is now preparing for the commencement of full processing at the process plant of Simberi operations.

Key Metrics: EBITDA margin for FY21 stood at 35%, down from 43.4% in FY20, but higher than the industry median of 29.3%. Asset turnover ratio for FY21 stood at 0.39x in FY21, down from 0.46x in FY20. Current ratio for FY21 stood at 1.26x, down from 4.41x in FY20. Debt to equity multiple 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 43.60% 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 8.96%, respectively, as also highlighted in the chart below:

(Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The company is exposed to the risks related to the uncertainties surrounding the COVID-19 pandemic, as it could cause temporary suspension of company’s operations and labor shortages.
• Gold Price Fluctuations: SBM is exposed to the risk related to the volatility in the gold prices as it creates revenue uncertainty.

Outlook: The proposed acquisition of BDC will provide SBM access to the advanced Aphrodite and Zoroastrian underground deposits lying immediately adjacent to the rail line, which runs to the Leonora processing plant. Further, the acquisition will help SBM in expanding the Leonora processing plant from 1.4Mtpa to 2.1Mtpa. 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 – A$1,860. Growth capex in FY22 is expected to be between $70 – $95 million.

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: Over the last three months, the stock has been corrected by ~9.47% and is trading lower than the average 52-weeks’ price level band of $1.255 - $2.390. 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 uncertainties surrounding the COVID-19 pandemic, and gold price fluctuations. For the valuation purpose, peers such as Regis Resources Ltd (ASX: RRL), OceanaGold Corp (ASX: OGC), Red 5 Ltd (ASX: RED), etc. have been considered. Considering the expected benefits from the proposed acquisition of Bardoc Gold Limited, cost savings expected from the ongoing Building Brilliance program, current trading levels, improved production at Leonora operations in Q1FY22, modest production outlook and valuation, we give a ‘Buy’ rating on the stock at the current market price of $1.325 as on 11 January 2022, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

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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