St Barbara Limited

Company Overview: St Barbara Limited (ASX: SBM) is an Australia-based gold mining company, which is engaged in the exploration and production of gold. SBM’s assets include the Atlantic Operations, Leonora Operations, and the Simberi Operations. The company got listed on ASX on 15 May 1969.

SBM Details

This report is an updated version of the report published on 10 May 2022 at 3:55 PM GMT.

Synergies from the Recent Acquisition to Aid Future Business Growth: The company’s recent acquisition of Bardoc Gold Limited through a scheme of arrangement has enabled the acceleration of the Leonora Province Plan. In addition, the said acquisition provides the company with access to the advanced Aphrodite and Zoroastrian underground deposits. The acquisition also includes Bardoc’s extensive land package, contributing to SBM’ leading position in the Leonora province and providing a strong platform to deliver further organic growth in the upcoming years. The company has updated its Ore Reserves and Mineral Resources as of 31 December 2021. The total reserves have been estimated at 101.4Mt @ 1.9g/t Au for 6.2Moz, and mineral resources stood at 269.1Mt @ 1.9g/t Au for 16.5Moz of contained gold. The upgraded mineral resources statements include Zoroastrian and Aphrodite based on ore being delivered to the Leonora processing plant.

Insights of Q3FY22:  Despite marginally lower production in the quarter, the company seem to be well- positioned to deliver on its updated full-year guidance and growth opportunities. SBM closed the quarter with a total cash balance of $79 million against $94 million on 31 December 2021. Total debt owing under its syndicated facility was $50 million as of 31 March 2022.

Operational Summary (Source: Analysis by Kalkine Group)

1HFY22 Financial Highlights: The below picture highlights the company’s financial performance in 1HFY22:

Financial Summary (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form ~45.07% of the total shareholding, while the top 4 constitute the maximum holding. L1 Capital Pty Ltd. and Van Eck Associates Corporation are holding a maximum stake in the company at ~10.69% and ~8.54%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: During 1HFY22, the company recorded a current ratio of 2.30x against 1.26x in 1HFY21. In addition, quick ratio surged in 1HFY22, reaching to 1.40x as compared to 0.85x in 1HFY21.

Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Risk: SBM’s business could be affected by the negative movement in the prices of gold as it is a major revenue stream for the business.
• Competition from Peers. The company’s performance could be impacted by the rising market share of peers in the industry.
• Change in Climate: SBM’s operational and financial performance could be impacted by the extreme change in the climate, which may pause its operations temporarily.

Outlook: For FY22, the company expects to produce gold in the range of 275-290koz and AISC of $1,750-1,870 per ounce. With respect to Simberi, SBM anticipates production in the ambit of 25-30koz at an AISC of $3,200-3,600 per ounce. In addition, Atlantic Operations and Leonora Operations are expected to produce gold in the vicinity of 55 – 65koz and 180 – 200koz at an AISC of between $1,650 – $1,850 per ounce and $1,605 – $1,720 per ounce, respectively. The company intends to complete the feasibility study for Leonora mill expansion to 2.1Mtpa & refractory ore processing in Q3FY23 and mobilisation of mining contractors for Aphrodite and Zoroastrian underground mines in Q2FY23. In addition, the company is likely to report the first ore from the Zoroastrian mine in Q1FY24.

Valuation Methodology: P/E 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 is trading near its 52-week level of $1.090, offering a decent opportunity for accumulation. The stock has been corrected by ~20.10% in the past month. The stock has been valued using a P/E multiple-based illustrative relative valuation method and arrived at a target price of low double-digit (in percentage terms). The company might trade at a slight discount to its peers, considering the COVID-19 uncertainties and volatility in the gold prices, etc. For the purpose of valuation, a few peers like Westgold Resources Ltd (ASX: WGX), West African Resources Ltd (ASX: WAF), Regis Resources Ltd (ASX: RRL), and others have been considered. Considering the expected upside in valuation, rising mineral and ore reserves, synergies from the recent acquisition, optimistic long-term outlook, current trading levels, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $1.110, as on 10 May 2022, 11:30 AM (GMT+10), Sydney, Eastern Australia.

Markets are trading in a highly volatile zone currently due to certain macroeconomic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

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 for 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 stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in stock prices tend to find resistance when they are rising, and an 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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