St Barbara Ltd (ASX: SBM) is an Australian based gold producer and explorer. St Barbara’s assets include the Leonora Operations in Western Australia, the Simberi Operations in Papua New Guinea, and the Atlantic Gold Operations in Nova Scotia, Canada. St Barbara has a market capitalisation of A$2.5 billion.
What is the production and cost guidance update?
St Barbara management announced that the Gwalia (Australia) gold production for FY20 is revised to between 175,000 and 190,000 ounces (previously 200,000 to 210,000 ounces), with All-In Sustaining Costs of between A$1,390 and A$1,450 per ounce (previously A$1,230 to A$1,290 per ounce). Sustaining Capex is forecast to be between A$60 to A$65 million (previously A$55 to A$65 million), and growth Capex between A$32 to A$38 million (previously A$30 to A$35 million).
The main reason for the production update is that the remaining Gwalia Extension Project (GEP) construction and raise-boring program is competing for constrained ventilation with scheduled production and development activities.
St Barbara management also announced FY20 guidance for Atlantic Gold (Canada) is forecast to produce between 95,000 and 105,000 ounces, with All-In Sustaining Costs of between A$900 and A$955 per ounce, with sustaining Capex of between A$13 to A$17 million, and exploration of between A$11 and A$13 million.
Investors could closely monitor this situation, further commentary on the operations will be provided in the Q1 September FY20 quarterly report scheduled to be released on 21 October 2019.
What is the outlook for St Barbara?
The general global outlook for gold is positive. This assessment reflects a number of global political and economic concerns. A few concerns include the continuation of the proliferation of trade barriers in the form of tariffs mainly from the US and China, significant uncertainty around whether the new Prime Minister of the UK Boris Johnson can reach a successful Brexit deal, continued nuclear tensions in the Middle East surrounding the US and Iran and continuing tensions in Hong Kong.
However, the spot price of gold has slightly dropped in the last few weeks. This is in light of a potential new US-China trade deal (11 October Trump announced that China and the US had reached a tentative agreement for the first phase of a trade deal) and a new potential Brexit deal. If these deals are reached, global economic and political concerns may ease, causing gold to not be as favourable, as it has been in the last number of months.
What is the market reaction?
The initial market reaction to St Barbara production update is negative. St Barbara’s share price is down around 7% and is currently trading at around A$2.59 (11.00 am, 18 October). This decrease can be attributed to the reduction in production guidance at the Gwalia mine, as other gold producers are slightly up today. St Barbara trades on a P/E ratio in the low-teens and an annual dividend yield of 2 per cent (fully franked).
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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