Dumping a polluting mine on the people of the Solomon Islands proves very profitable for St Barbara shareholders…
Peter Ker | Australian Financial Review
Ten months ago gold miner St Barbara was only for the bravest investors. The stock was fetching 7.2¢, ratings agency Moody’s had named it the miner most likely to default on debt and St Barbara itself had warned that a tailings dam in the Solomon Islands was close to spilling and causing an international incident. The Simberi mine in PNG was producing gold at a cost that was roughly twice the gold price, and the whole thing seemed a bit of a mess.
What’s happened since under new boss Bob Vassie has been incredible.
The company’s flagship Gwalia mine in Western Australia had exploration success but the troubled Solomon Islands project was sold for a peppercorn price. A second mine in WA was shut and sold, while refurbishments to the mill circuit at Simberi led to production rising to the best levels in three years.
Record production at Gwalia and Simberi meant 2015 guidance was beaten, and Moody’s improved its outlook on the miner’s debt.
The 15 per cent fall in the Australian dollar against the US currency added further tailwinds, and Deutsche analyst Matthew Hocking recently noted that St Barbara should be able to pay its 2018 bonds with $190 million of “headroom”.
St Barbara shares reached $1.44 on Friday; a 20 fold increase in just 10 months.
All of this is old news to the team at Hunter Hall Investments, who bought 47 million shares at $0.17, and a further 20 million shares when the stock was $0.22.
But the obvious question looms; has St Barbara’s amazing run gone as far as it will go?
Recent strong performance at Simberi will soon be tested as the wet season arrives in PNG. Most analysts expect gold prices to slide when interest rates are lifted in the US, and the bulk of the falls in the Australian dollar have been had.
Deutsche rates the company a “hold”, and believes St Barbara has a net present value of $1.20 per share.
“Exploration success (at Gwalia Deeps) and or higher gold prices are needed for upside from here,” said Mr Hocking in the note.
Shares were down 3 per cent on Monday for no particular reason, raising speculation that profit-taking is finally under way.