Gold Gleams For St Barbara In FY18

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This story features ST. BARBARA LIMITED.
For more info SHARE ANALYSIS: SBM
The company is included in ASX300 and ALL-ORDS

Gold miner St Barbara expects to finish FY18 with a flourish, upgrading FY18 production guidance for its two gold mines.

-Outlook improves for Simberi
-High grade sections remain available at Gwalia
-Cash accumulation higher than expected
 

By Eva Brocklehurst

Much better grades of gold were accessed at Gwalia in the March quarter, countering lower output, while St Barbara Mining ((SBM)) has upgraded FY18 guidance as the outlook for Simberi improves.

Overall production guidance has been lifted to 375-392,000 ozs from 365-385,000 ozs because of an increase in expectations for Simberi. The company expects Gwalia will finish strongly as high-grade sections of the ore body remain available.

With forecasts already ahead of guidance, the upgrade was no surprise to Credit Suisse. The March quarter preliminary update was mildly stronger than expected and, with the June quarter expected to improve at Simberi, it is likely to have been the weakest for FY18, in the broker's view.

This was largely because of lower grades, as expected, but also the lost production because of recent industrial action that has since been resolved. Year-to-date production at Simberi of 99,800ozs indicates 25,000ozs is required in the June quarter to meet the lower end of guidance.

Underground expansion affected Gwalia in the quarter while milled grades were near double the reserve grade. This went some way to offset the volume decline. There is no change to Gwalia's FY18 guidance of 250-260,000ozs.

A miss to Canaccord Genuity's estimates was primarily because of lower mining/milled volumes at Gwalia from changes in the mining sequence and waste from the bore activities affecting ore haulage. This was offset by higher grades, at over 14g/t versus Canaccord Genuity's estimates of 11.8g/t and a reserve grade of 7.8g/t.

Expectations for a strong finish on the back of high-grade and improved volumes at Gwalia should mean the company comfortably achieves upgraded guidance and the broker, not one of the eight monitored daily on the FNArena database, maintains a Buy rating and $4.35 target.

Group production of 85,885ozs of gold in the March quarter was -11% short of Macquarie's expectations on the back of softer milled tonnage at Gwalia and Simberi. The broker lowers FY18 production assumptions by -2% after incorporating the result. Expected tonnage from Gwalia is lowered while grade is lifted in line with the March quarter milled grade.

Cash Build

The company has no debt, which provides options and cash to pursue external growth, although Credit Suisse suggests high competition and elevated prices for quality assets will provide a challenge. The broker has a Neutral rating and $3.85 target.

Cash accumulation was also higher than Macquarie expected after dividend payments of $16m as well as a $4m outflow from investing in ABM Resources ((ABM)). Macquarie maintains a Outperform rating and $4.70 target. The catalysts include the Gwalia extension project and its impact on production outcomes.

FNArena's database shows two Buy, two Hold and one Sell (Citi, yet to update on the March quarter). The consensus target is $3.99, suggesting -2.4% downside to the last share price.

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