The market seems to be freaking out about the large increase in AISC (all-in sustaining cost) guidance for FY20 (this current full financial year ending June 30, 2020) for the St Barbara consolidated group, Gwalia (at Leonora in WA) and Simberi (in PNG). This presentation (which was released after the market had closed on Monday afternoon/evening) even includes a global cost curve chart that shows that both Gwalia and Simberi are moving from the lower half of the cost curve (in FY19) to the upper (higher cost) end in FY20. Gwalia is moving up from the lowest quartile of gold producers (in terms of costs) into the third quartile. It's alarming stuff, without some context. The context is that Gwalia is approaching 2,000 mbs (metres below surface), so almost 2 kilometres vertical depth (that's where they plan to extend the mine to at this stage, and they're not too far off that now) and they had become very ventilation constrained. At those depths, cooling and adequate ventilation become even more critical, so they've sunk a lot of money into new ventilation shafts and cooling systems in FY20 (this current year) as well as commissioning their new paste aggregate fill (PAF) plant/system, which together is called the Gwalia Extension Program or GEP. The GEP is nearing completion and will be completed within this current half (so this FY) meaning the benefits of all that money spent - and the associated reduced production (and the higher costs that come with all that) - will flow through in FY21 and beyond. Production will increase and costs will once again reduce. Gwalia is a high grade mine, but it's deep underground, so there's a lot of infrastructure spending involved in keeping the mine running efficiently. They took the pain this year for the gains in future years.
Simberi (in PNG) is due to run out of gold next year, so grades (which were already a lot lower than Gwalia) are declining as the mine nears the end of its life. They do have significant gold in sulphide ore below the existing oxide ore pits, but the existing processing plant would need an upgrade to be able to efficiently process that sulphide ore. The decision to spend that money (which would significantly extend the mine life at Simberi) has not yet been made. They call that the "Simberi Sulphide Project" or just Simberi Sulphide and they keep drilling to firm up the numbers to see if the investment case stacks up. We are expecting a decision on "Simberi Sulphide" soon-ish (this half). If they decline to spend that money, then Simberi will close next year, and SBM's group AISC will improve (decline) because Simberi is their most expensive mine (it has the highest AISC of their three producing mines). If they decide to spend the money, then Simberi will be able to keep producing gold for more years than originally expected, with future costs not yet known at this point.
The real positive for SBM is their Atlantic Gold assets at Moose River in Nova Scotia, Canada, which already has one producing mine, Touquoy, with a VERY low AISC - FY20 FY guidance of 95 to 105koz @ A$900 to 955/oz (US$610 to 650/oz) - and at least three more open pits to follow there with similar low costs (based on drilling results already achieved), plus plenty of further exploration upside potential.
I'm also quite bullish on Gwalia over the next 10 years.
However, the market appears to be focussed on the short term - being the substantially higher costs at Gwalia and Simberi this FY, and are selling SBM down accordingly. It's not often you get to buy shares in a good quality gold miner at a discount to their intrinsic value at a time when the overall market is being sold down as aggressively as it is this week, but I think that's the situation here. Normally gold miners get bid up at times like this, as they all were on Monday. That didn't continue through into Tuesday or today (Wednesday) however - with all of our major gold miners being sold down yesterday and today along with most of the rest of the market. St Barbara (SBM) however has been sold down significantly more than the others, and they were already looking like the best value in the sector to me before this week - they certainly are now.
This presentation seems to highlight that short-term downside (higher costs this FY) while underplaying the benefits they will reap in the future from the GEP at Leonora. I wonder if there's an element there of clearing the decks - with Craig Jetson having just taken over the reigns there from Bob Vassie. He could be getting all the bad news out and resetting expectations lower to allow for a nice SP increase over the next few years - which presumably feeds into him achieving his hurdles with his various incentive plans (STIs and LTIs) that form part of his remuneration package. Or am I being too cynical?
My previous Bull Case straw for SBM is now out of date, but if I make any changes to it I'm going to lose all those photos and images that I managed to include in the original.
So, Update: I still hold SBM shares & I still like them a lot, however there have been some changes.
13-May-2020: St Barbara is a top 7 Australian pure-play gold producer. They are in the top 7 in terms of market capitalisation (market cap), so the market value of the company, but that list excludes companies like BHP, SFR, OZL and IGO who do produce gold but only as a byproduct of other production. The "pure-plays" are the companies that are focused on gold and where gold production represents the majority of their revenue. Currently, SBM is Australia's 6th largest Australian listed pure-play gold producer - behind NCM, NST, EVN, SAR and RRL - but they have SLR nipping at their heels. This morning, SBM had a market cap of $1.83 billion (B) and SLR had a market cap of $1.76 B. Next is GOR at $1.4 B, PRU ($1.2 B), RMS ($1.1 B), RSG ($1 B) and WGX comes in at #12 with an $880m market cap as of this morning. With 4 companies who all have a market cap of between $1B and $1.4B, the order can change often, as it will between SBM & SLR, and also NST (#2, $9.7B today) and EVN (#3, $9.4B today). So, while SBM are currently #6, I'll refer to them as a top-seven gold producer, because SLR could leap-frog them at any time.
Next, Bob Vassie has retired and been replaced by Craig Jetson, who is ex-NCM, and used to be in charge of both the Lihir and Cadia gold mines for Newcrest. Lihir is on the next island across from SBM's Simberi mine in PNG, so Jetson is very familiar with the geology over there and the challenges and advantages of gold mining in PNG.
Next, since I typed up that original Bull Case straw for SBM, SBM have acquired Atlantic Gold and the Moose River assets in Nova Scotia, Canada, including one producing gold Mine - Touquoy - which has very low costs (AISC), with a number of other similar open-pit mines along Moose River in various stages of development and permitting. The Atlantic acquisition actually LOWERED SBM's group AISC (all-in sustaining costs). In gold mining terms, that's better than an earnings-accretive acquisition; it makes the whole company better in terms of lower costs and higher margins. Moose River provides SBM with an excellent growth pipeline, via both the development of existing known gold reserves there and further exploration upside.
Next, as soon as Jetson took over (during the first week), he made a presentation at the BMO Capital Markets 29th Global Metals & Mining Conference which was provided to the ASX announcements platform on Feb 24 this year. In that presso, Jetson included a global cost curve chart (slide 12) that highlighted that for FY20 (forecast, compared to FY19 - actual), Gwalia (their #1 mine, and the deepest underground gold mine in Australia - & one of the deepest gold mines in the world) was moving from the lowest quartile of the cost curve to the 3rd quartile, and Simberi was moving from the 2nd quartile to the 4th. There was no change for Touquoy. This meant that SBM were now guiding for two out of their three producing mines to finish FY20 with costs in the upper half of the global cost curve. This was not particularly surprising for Simberi, because it was nearing the end of its life as an oxide ore gold mining operation (despite a huge amount of gold-bearing sulphide ore lying below those oxide pits - more about that in a minute). However, Gwalia had been a high grade and low cost mine that had underpinned St Barbara's phoenix-like rise from their near-death experience prior to Bob Vassie taking over back to being a highly profitable gold miner producing piles of cash. The market didn't like it, and SBM got sold down accordingly. I wondered at the time (and in a straw) if this could have been Jetson resetting the share price, getting all the bad news out there at the start of his tenure, to pave the way for a nice share price rise over time allowing him to earn the incentives that form part of his remuneration package (as the market positively rerates SBM and the SP rises accordingly). It's not uncommon for incoming CEOs & MDs to do this. SBM's SP dropped from $3/share to $2.35/share over 4 trading days on the back of that presentation, and then got coronored. SBM's SP got down to $1.67 on March 16th, during the worst of the panic when people were dumping everything they could sell, including gold stocks. They've been recovering since then, and are now up around $2.60. Importantly, Gwalia's cost issues were temporary, as I've explained in other straws.
Finally, on May 5 (last week), SBM announced that they will undertake a feasibility study (FS) of the Simberi Sulphide Project, supported by robust financial metrics indicated by their recently updated pre-feasibility study (PFS). That PFS confirmed that the Sulphide Project could extend mine life at Simberi to FY35.
Yesterday (20-Feb-2020) was another positive day for Australia's larger gold producers, but SBM (St Barbara) did better than most, rising +7.25%, after rising by just under +1.5% on Wednesday (19-Feb) being the day they reported their FY2020 first half results to the market. As is often the case, yesterday's rise can probably be explained by one or more positive broker notes to clients. In this case, Credit Suisse maintained their "Outperform" call on SBM along with their $3.20 TP (target price), and they noted: St Barbara's first half underlying net profit was in line with expectations. The pay-out is elevated, Credit Suisse observes, supported by the balance sheet rather than earnings. The broker assesses a stronger second half is on the way, amid several growth options, and the valuation remains appealing. Outperform rating and $3.20 target maintained.
Macquarie's view yesterday was: St Barbara's first half net profit was in line with expectations. The lifting of the ventilation constraints at Gwalia remains imminent and this will help throughput. A new resource at Simberi is also expected. Nevertheless, Macquarie suspects third quarter production will remain heavily constrained at Gwalia. Target is raised to $2.70 from $2.60. Neutral maintained.
Ord Minnett raised their TP for SBM to $3.60 (from $3.40) back on Feb 4th, and they have a "BUY" call on SBM. Ord Minnett haven't updated this since Wednesday's results.
Citi also haven't provided any update since their January 23 response to SBM's market update at that time. Citi therefore still have a "Neutral" call on SBM and a $2.80 TP.
So, of those four brokers, we have two Neutrals, one Buy, and one Outperform, and price targets of $2.70, $2.80, $3.20 and $3.60.
SBM closed at $2.96 yesterday (Feb 20) and they've been up to $3 already today, although they're back down now.
Disclosure: I'm a happy holder of SBM shares.
Further reading: Gold reaches fresh seven-year high (MiningNews.Net)
From that story:
21-Feb-2020: MiningNews.Net: RENEWED fears over the coronavirus boosted gold overnight and held back stocks and base metals. US stocks fell on concerns of the impacts the outbreak would have on earnings.
That was despite a slowing in new cases overnight to just under 700, though it included cases in a new country, Iran.
Gold jumped to US$1622.20 an ounce after rising as high as $1626.50/oz.
Australian dollar spot gold reached an all-time high of A$2450/oz, while Canadian dollar gold was also at a record C$2147/oz.
Palladium continued to rise, adding another 1% to a record US$2598/oz.
--- continues - click on link for more ---
I read this morning that not one single case of Covid-19 coronavirus has been reported in Indonesia, which can't possibly be right, so it underlines that actual cases are likely to be substantially higher than official numbers. However, I still remain of the opinion that this virus is much less deadlier than previous coronavirus outbreaks (lower fatality rate of only around 2%), that effective treatments will quickly be developed, and that the world will get on top of it shortly.
AQX: HORN ISLAND JV SURFACE SAMPLING RESULTS
31-Mar-2020: 2:20pm: COVID 19 update
Our fly-in, fly-out (FIFO) workforce remains in operation at Leonora, with all passengers travelling on our charter flights screened at Perth airport for COVID-19 symptoms before boarding. Atlantic Gold maintains its drive-in roster with the local workforce. All flights to and within PNG are currently suspended, and we are working with the local, national and expat team on site to accommodate individual circumstances. Exploration fieldwork (outside of our mining leases) has been suspended in Australia, Canada and PNG to minimise the risk to our people and the surrounding communities.
The Company is in a sound financial position, with all three operations continuing to generate positive net cash flows, and internal financial modelling indicating the Company can readily withstand a prolonged hiatus in production across all operations.
To reinforce the Company’s resilience, it has drawn-down A$ 200 million from its existing syndicated debt facility, to bolster cash reserves which will be prudently conserved during this uncertain time. Following the drawdown, the Company has approximately A$ 312 million cash at bank, with approximately A$ 315 million drawn on the syndicated debt facility. The syndicated debt facility is due to be repaid in July 2022, and has standard covenants including interest cover and gearing. The interest rate is commercial-in-confidence at a modest margin above Bank Bill Swap Bid Rate (BBSY). The Company has pre-delivered into its April 2020 Australian-dollar gold forward contracts, and has confirmed that it will be able to roll-forward the majority of existing gold-forward contracts to later maturity dates, should the need arise.
SBM have released an update on the gold they have at Simberi in PNG, following the completion of a 71,000 metre, 365 hole resource definition drill program targeting sulphide resource extensions beneath the Sorowar Pit, in conjunction with revised revenue parameters. Simberi Ore Reserves have increased from 1.7 Moz of contained gold to 2.2 Moz net of mining depletion, and Mineral Resources have increased from 4.2 Moz of contained gold to 4.4 Moz net of mining depletion.
Most of the new gold is in sulphide ore lying beneath the existing oxide pits, and it should be noted that SBM are still looking at whether they want to spend the required money to modify the Simberi gold processing plant to allow the efficient processing of that sulphide ore. That decision, which they refer to as "Simberi Sulphide" is expected this half, and could be quite soon now that they have released this update based on their drilling to date. If they don't go ahead with the plant mods, Simberi will likely close next calendar year (CY2021) and that would lower SBM's overall group (consolidated) AISC (all-in sustaining costs per ounce of gold produced) because Simberi has higher AISC than Gwalia and Touquoy (SBM's other two producing gold mines). If SBM DO decide to go ahead with "Simberi Sulphide", it will significantly increase the mine life at Simberi and I would expect their AISC to decrease over time as well because the sulphide ore has more gold in it (has higher grades) than their remaining oxide ore, as shown in the numbers in this update.
Disclosure: I hold SBM shares.
Disclosure: I hold SBM shares.
19-Feb-2020: H1 FY20 Results: December 2019 Half Year Report and ASX Appendix 4D
What drives gold prices up? Demand? Yes, but what drives demand? Safe-haven buying is one answer to that question (and there are others). Have a look at the following excerpt from MiningNews.Net's morning update (this morning):
Gold leaps through US$1600
A warning from Apple over coronavirus pushed stocks down and boosted precious metals.
US stocks fell more than 0.3% after Apple warned of production and demand disruptions due to the virus and said it would miss its revenue guidance for the March quarter.
The World Health Organisation confirmed 1901 new cases of the virus and 98 deaths yesterday.
Gold got a boost on safe haven buying with Comex futures rising to $1605 an ounce.
Futures rose as high as $1608.20/oz earlier in the session.
Spot gold last traded at $1601.56/oz or a record A$2395/oz
Palladium was a winner from the Apple news with the critical iPhone ingredient jumping a staggering 10% to a record US$2547.30/oz.
[...continues... see here]
No wonder our largest Australian gold producers are all indicating that they will rise when our market opens this morning.
Here's some highlights from St Barbara's (SBM's) report this morning:
St Barbara Ltd (ASX: SBM) reported a statutory profit after tax of $39 million for the half year to 31 December 2019 (2018 comparative period: $83 million profit), with underlying profit after tax of $35 million (2018: $77 million). Key highlights of the result are:
St Barbara MD & CEO, Craig Jetson, said: “I am excited to be in my third week at St Barbara. The financial result for this half is softer, due to the lower production previously reported at Gwalia and Simberi. Atlantic Gold has made a significant contribution to the Group on the back of its record gold production for the half. With the three operations, St Barbara has a solid platform on which to build. In coming months we will complete the Gwalia Extension Project, provide an update on the sulphide study work at Simberi, and work continues on the Atlantic Gold growth assets. There is also targeted exploration near to all three operations, which I look forward to visiting in the coming weeks.”
Disclosure: I hold SBM shares (also SAR, NST & EVN shares).
Further reading on Covid-19: BBC News: Coronavirus: Largest study suggests elderly and sick are most at risk
22-Jan-2020: From MiningMonthly.Com:
A DELAY sinking a shaft at the Gwalia gold mine in Western Australia’s Eastern Goldfields has led its owner St Barbara to downgrade its gold production forecast for the mine.
The Gwalia guidance for 2019-20 has been reduced to between 170,000 ounces and 180,000oz at an all-in sustaining cost between $1470 per ounce and 1540/oz.
In October the miner revised its Gwalia production down from 200,000-210,000oz to 175,000-190,000oz and its AISC up from $1230-$1290/oz to $1390-$1450.
The shaft is the fourth and final shaft to be sunk as part of the Gwalia Expansion Project with the aim of increasing ventilation flow from 450cu.m per second to 900cu.m/s.
That ventilation increase is needed so the mine can increase its development rates.
At the moment it is being constrained by the number of headings it can open up.
St Barbara managing director and CEO Bob Vassie told an analysts' call over the company's December quarterly report that while three of the shafts had been sunk, the fourth had been slowed by awkward ground conditions.
"We've hit some pillow basalts that just break out of the face and cause us grief but I think we're only a couple of metres away from getting through that area and we have a diamond drill hole right through the guts of that thing so we know the rocks we're going to encounter the rest of the way are better so we we're focusing on that in the coming days," he said.
Vassie expects that fourth shaft to be completed in April and that the mine will be able to access high grade ore again by the end of the financial year.
"Getting that last shaft complete makes everything we're doing more efficient and effective and it's sequence driven because we've been in the outer part of the orebody and we're getting back into the centre towards the end of the financial year," he said.
While there has been the hold up with the full ventilation expansion, Gwalia did manage to increase its ventilation flow to 700cu.m during the quarter.
It also completed key surface infrastructure works including a power station expansion and installing three new ventilation fans, chillers and water bore field infrastructure.
"We've been able to improve development rates through continuous improvements," Vassie said.
"Now we've had a partial ventilation increase that started around Christmas and that does help us.
"That last shaft section will really help us get a lot more volume into deeper parts of the mine."
The ventilation shafts are only part of the GEP story.
Another key part is the paste aggregate fill plant.
It takes paste from the surface and mixes it with waste from the mine workings to reduce the amount of waste being carried out and to also speed up the filling of stopes to improve stope cycle times.
That plant was commissioned last year and has started delivering fill to the stopes.
At its best the PAF will likely make use of 75% of the waste being produced from the Gwalia workings.
Vassie said the PAF was a fairly simple plant and that the company had done a lot of work to make it as sustainable and maintainable as possible.
He said there had been challenges getting power to the plant and also setting up the software to manage the hydraulics.
"One of the delays was just getting that thing to start - just pulling the amps to get that paddle going around," Vassie said.
He said there was one warranty issue around a grizzly on one of the PAF's crushers, however, the company had a workaround for that until the part could be replaced.
St Barbara is a gold mining company operating three mines-the Gwalia in WA, the Simberi in Papa New Guinea and Touquoy in Canada.
Market Capitalisation: $1,929,684,606 (@276)
Earnings/Share: 26.99 cents
Price/Earnings Ratio: 10.23
NTA/Share: 181 cents
Dividend/Share: AUD 7.87 cents
Dividend Yield: 2.85%
Disclosure: I own the stock
Australia's 6th largest listed gold producer.
Very good management in Bob Vassie.
Bob will find a way to keep Simberi (in PNG) open for longer. Currently slated to close after 2 more years of mining and a further year of processing low grade stockpiles, I think Bob will likely expand the plant to process the sulphide ore that is under their oxide pits.
Even with a slightly higher AISC this FY, and slightly lower grades expected, Gwalia is one of the lowest cost and highest grade gold mines in Australia, certainly one of the best gold mines operated by our top 15 listed gold producers.
The following couple of photos are of the innovative and very cost-effective FSWR-driven (flexible steel wire rope) conveyor that brings the ore down to the processing plant. In my earlier years, I used to be a rope splicer working on steel rope like this.
Disclosure: I hold SBM Shares.
St Barbara Limited (ASX:SBM) will undertake a feasibility study of the Simberi Sulphide Project, supported by robust financial metrics indicated by the recently updated pre-feasibility study.
Craig Jetson, Managing Director & CEO, said:
“I am delighted to announce that the Board has approved to advance the Simberi Sulphide Project to the next stage and conduct a feasibility study. The 2016 PFS has been updated and validated by an independent review. The feasibility study will further optimise the work completed in the PFS and target a potential investment decision in Q3 March FY21. Jason Robertson, GM of Simberi Operations, and I are both very familiar with processing sulphide ore in PNG and consider the proposed plant flowsheet to be relatively straightforward.”
An update to the previously announced 2016 pre-feasibility study (PFS) for the Simberi Sulphide Project was completed in March 2020. The 2020 PFS was then validated by an independent review. The PFS confirmed that the Sulphide Project could extend mine life at Simberi to FY35.
The PFS was scoped to focus on low capital expenditure solutions that utilised existing infrastructure to the extent possible. It is based on an independent Mineral Resource estimate, which was released on 2 March 2020. The Reserves were estimated at a US$1,300/oz gold price. Updated indicative parameters of the Sulphide Project based on the PFS are set out below. [click on the link above for those]
It is proposed that the Sulphide Project will utilise existing infrastructure on Simberi Island, including the airport, power station, village and wharf. The existing semi-autogenous grinding (SAG) mill will be utilised in a new plant flowsheet, maintaining the ability to process separately oxide and sulphide ores.
The PFS indicates the production and sale of a concentrate as the preferred option, which avoids the requirement to establish downstream processing on the island.
The current mine plan anticipates the mill processing oxides into FY22. The FS and corresponding Environmental and Social Impact Assessment (ESIA) is expected to be completed in December 2020 at a cost of A$5.4 million. The study anticipates a two year construction window, commencing Q3 March FY21. The Company has engaged with the PNG Conservation and Environmental Protection Authority (CEPA) regarding a variation to the existing environmental permit. As previously reported, the Simberi mining lease (ML136) extends to December 2028.
To minimise interruption to production, a decision to proceed on the Sulphide Project is desirable by Q3 March FY21. It is envisaged that further optimisation and value engineering activities will continue on the Project to support a possible future investment decision, including further investigation of the optimal balance between grinding and flotation time to maximise recovery.
...click on link above for more...
[Disclosure: I hold SBM shares. Simberi is currently SBM's highest AISC mine out of the their three operating mines, and has the shortest mine life. If the "Simberi Sulphide" project gets the green light at the end of this FS (feasibility study), then the mine life at Simberi (in PNG) will be extended for another 14 to 15 years. The FS is all about the cost/benefit analysis. Gwalia (in WA) has plenty of life left in it, despite being Australia's deepest underground mine, and one of the deepest gold mines in the world. The Atlantic Gold mines along Moose River, Nova Scotia, Canada (one in production now and more to follow) are also high grade, like Gwalia, but open pits like Simberi, and have long lives. Simberi has lower grades, but there is substantial infrastructure already in place on the island and a trained workforce that is already working there, so there are certainly benefits in going ahead with the plant mods required to efficiently process that Sulphide ore there, as opposed to spending money on a greenfields project. I have less of a feel for Craig Jetson than I did for Bob Vassie (the previous boss of SBM), but I have a gut feel that the FS will give them the numbers they need to go ahead with this. Jetson used to be in charge of Lihir for Newcrest (NCM), which is on a neighbouring island (you can see Lihir from Simberi), so he is no stranger to the geology over there, the challenges, and the opportunities. Whatever decision is made, it will be made in a fully informed manner.]
28-Apr-2020: Quarterly Report Q3 March FY20
--- click on link for full report --- [Disclosure: I hold SBM shares]
25-Sep-2018: For St Barbara's presentation to the 2018 Denver Gold Forum, see here.
All of Australia's larger listed gold companies' share price fell yesterday, but SBM shares dropped the most - by over 10% yesterday, which probably has a bit to do with their MD/CEO Bob Vassie selling a substantial portion of his stake in the company in the past week. He said it was partially to enable him to pay his tax bill, but that's what Dr. Paul Dalgleish was saying for a couple of years when he was selling down his RCR holding, and in both cases the amount of money involved would be far in excess of any money they might have owed to the ATO for a single year. I don't think SBM is going the way of RCR, but it's something to be aware of.
Disclosure: I hold SBM shares.
21-August-2019: St Barbara FY19 Financial Results:
St Barbara reported statutory net profit after tax of $144 million for the year ended 30 June 2019 (2018: $227 million) and cash flow from operating activities of $241 million (2018: $316 million).
Bob Vassie's address to the Melbourne Mining Club on 30 May 2019, Straw #6 of 6:
Imagine starting marriage discussions with a prospective partner by picking holes in them. Pumping your own attributes and downplaying theirs. Or potentially highlighting the risks involved in a union. It’s a race to the bottom and it’s happening a lot.
On to some pet themes that persist in my thinking about the industry that I love. Why do I love it? It’s not just because it’s a primary industry that the world relies on for almost everything it requires, and that it is responsible for 55% of Australia’s export revenues. It’s also because of the breadth of opportunity the resources industry offers people, and the quality and diversity of the people within it.
Still, it appears we have an image problem and we are battling to attract talent to the industry, and while there is a diverse range of skills and backgrounds and personalities, we are not far enough along on real diversity and inclusion.
The slide here is just an example of the decline in mining school intakes. A real opportunity here, one I exploited when I left school not knowing what I really wanted to do and without top marks.
My point is that people broadly, including the talent we want to attract, simply do not understand the breadth of roles and opportunities in this important primary industry. The MCA and others are doing some excellent work here but it is in the face of some stiff opposition from the marketing of the new information economy. Can’t have these new age economies without food and things to cook with. Our people can be our best advocates here. It’s not all about engineers and geologists. It’s also lawyers, accountants, and all the other professions that make this all work and make it a great industry to work in.
Some of you may know that I am a pay equity ambassador for the Workplace Gender Equity Agency (WGEA). Due to the good work that started in St Barbara before I joined the company, we continue to be recognised by the industry for diversity and our diversity programs.
However, we are the only miner in Australia that has been awarded WGEA Employer of Choice after an assessment of our programs and policies, ranging from how we recruit people, parental leave and flexible work arrangements. That is just one mining company in 141 Australian companies that have gained this recognition. All companies with 100 or more employees have to submit pay equity data and other information to the WGEA.
Now I suspect that many Australian mining companies are maybe there or close already, but have not yet gone the extra yard to get this accreditation, so I encourage leaders here today to have another look at it.
Resources create value
Finally, another people opportunity. When I had global resource development roles in Rio Tinto I learned from some very impressive people about how the resource creates value. Sounds simple, doesn’t it? Well, it is not simple and more importantly, many resource business leaders may not fully understand that flow and its risks, and also seemingly lose the connection altogether as they get on with the myriad of other issues day to day, reporting cycle to reporting cycle.
Risk in the resource is risk to business value. In fact, Rio Tinto made a program for senior leaders on this.
The key take away for me is that for all senior leaders that find themselves running a resource business that are not from an orebody knowledge or mine planning background, there is a very simple yet powerful way to engage with the people and processes in the foundations of your “wall of value”.
This is centred in the concept of reconciliation and can be used to engage in a number of ways.
Perhaps engage with a junior geologist doing grade control and ask about how sampling might create uncertainty and how that relates to value. Alternatively, ask a mine manger how the orebody is reconciling from the resource model to production, and why it is negative or even positive. Watch the colour drain from their face. But at least they will know you care …
Engage in all the ways you should, on safety, on improvement, on costs, but do not avoid engaging on the resource when you are running a resource business. This goes for mining engineers (like me), metallurgists and geologists in senior leadership roles that may also not have as full of an understanding of the flow of resources to value that they think they do.
You never stop learning in this game and I have learnt more in my last 10 years than in the first 25.
--- That's it folks ---
Bob Vassie's address to the Melbourne Mining Club on 30 May 2019, Straw #5 of 6:
Atlantic Gold (Nova Scotia)
I will now briefly touch on St Barbara’s recent announcement of the proposed acquisition of Atlantic Gold in Nova Scotia, Canada. We have not got the keys yet, that should be late July, so I can’t say too much on their behalf. We are, however, already engaging constructively to ensure a smooth integration, and I am flying there tomorrow as part of this.
While speaking to media about the Atlantic deal on the day we announced, I was prompted to say to one of the reporters – “I’m pumped about this one!” and “I had to pinch myself”, rare language in the context of M+A, but in this case I feel it is appropriate.
Why did we elect to pursue inorganic growth at a time when global forces are impacting the industry as a whole? Because in its most simple terms, Atlantic ticks all the boxes on our published strategy. It is our strong conviction that growth by acquisition must first and foremost be strategic.
We are a patient company and diligent in our assessing our expansion opportunities. We will not acquire ounces for ounces sake - as I have said before and continue to believe, inorganic growth is no automatic salvation.
In keeping with this view, we adopted a very disciplined approach to inorganic growth and have opted not to pursue a number of assets and corporate opportunities which haven't met all of our strategic criteria.
I had said for some time now that we needed to diversify our production base given the nature of our existing assets. To me that meant adding around 200 koz of production and I imagined that we might have to do that in two goes, and that we would have to accept that we would likely dilute our existing All-In Sustaining Cost (ASIC) margin position.
I’m excited about this acquisition because Atlantic’s bottom quartile AISC production makes it a margin accretive, transactable asset with a strong growth profile to 200,000-plus ounces per annum production with a team of talented people in a stable and attractive mining jurisdiction.
Win, win, win, win.
Our objective was to add a third leg to the tripod, if you like, to make the Company more sustainable and stronger for longer.
Associated with the acquisition, we used our strong balance sheet which had been built through consistently strong operating performance and sound capital management. We undertook a significant capital raise with the team at Deutsche Bank and improved our liquidity headroom with a new $200m facility with Westpac (which is undrawn).
This raising was noticed in Canada, with quotes like:
The key for us was, given our share price since the GMX announcement (which I feel will recover when we can show better mining rates with the new ventilation), we wanted to keep the deal for our own shareholders. It creates some interesting metrics for our combined business, particularly NPAT versus Market Cap and Enterprise Value per Reserve ounce.
In doing so, we’ve preserved a balance sheet which allows us to continue progressing our organic opportunities, which now includes opportunities in a dominant ground position in Nova Scotia, whilst still keeping an eye on inorganic opportunities. From our new base in Nova Scotia, we’re on the ground in North America which puts us closer to new opportunities.
We managed to achieve the full range of analyst outcomes upon announcing the deal. Of our main analysts 2 went buy, 2 went hold, and 2 went sell (with 2 excluded). The institutional entitlement offer was substantially oversubscribed and we have the money from that part in the bank already. The retail offer closes on 4 June and my wife and I have already participated, together with our eligible Directors.
Atlantic will provide immediate low cost production and cash flow and a growth pathway. That growth pathway does of course mean a focus on the studies and permitting which is well underway. It also means you cannot necessarily use current earnings metrics for accretion analysis.
Why could we not have done this in Australia? Truth is we tried, and tried hard. We looked at some things a bit smaller than us but when we raised the hood on the car and took a closer look we felt that some of the cylinders were missing. Larger mergers including the elusive “merger of equals” or the new variant (nil premium merger of equals) where often the parties are clearly not equal. These have all been tried but none have worked in the Australian space at any meaningful scale.
Relative valuation (who gets what slice of the combined pie) and social issues (who gets what job) abound. Sometimes a social issue is disguised as a valuation issue, or the other way around. Not just talking about St Barbara here.
--- continued in Straw #6 ---
Bob Vassie's address to the Melbourne Mining Club on 30 May 2019, Straw #4 of 6:
Typical of innovations, the more you study them the more you find out about the cost of mitigating the associated risks. Capital estimates eventually doubled and the construction impact on existing production was significant. Ultimately, a non-optimised trucking case (meaning 1.1 Mtpa) returned the better Net Present Value. Indeed, the non-optimised trucking case was less cost with less risk and uncertainty, less disruption and more flexibility and it gives us a viable and lucrative mine life to 2031 in any case. GMX by trucking is anticipated to demonstrate better mining rates when we double our ventilation in the new year. While highly innovative, hydraulic pumping was a step too far, and we selected the prudent option.
There’s always an element of risk involved with innovation. At St Barbara, we believe we have a serious and committed tradition of technical innovation. It’s got us to the depth we’re mining at Gwalia. We have adapted absorption refrigeration technology, utilising waste heat from our power generation to chill the air. To change the economics of our deep trucking operation we have developed our own paste aggregate fill system, which can liberate trucks from carrying waste to the surface by crushing and mixing waste with paste underground to fill worked stopes.
We are aiming to roughly double our truck fleet and drive half a kilometre deeper. We’ll need to think hard about ventilation, stope cycle times, development rates and a myriad of other trade-offs. But I believe we’ll find opportunities for further innovation that we haven’t discovered yet. There will be a time when we look back and say to ourselves that persisting with trucking gave us opportunities we would never have discovered any other way. That’s the nature of our operation and indeed this is what the quality of the Gwalia orebody has always provided to its owners. In the end, a great orebody is all about optionality.
We took a bit of a hit when we announced we would not go forward with pumping options, but I am looking to claw a fair bit of that back. Production for FY20 will remain ventilation constrained until the second half of that year and then we have a backlog of development to do once the ventilation is available and to set us up for GMX. The opportunity to improve the future production profile centres largely on underground development rates, given the orebody geometry at depth requires higher development meters per ounce.
We have also sought to broaden our portfolio through exploration. We at St Barbara are currently pursuing both greenfield and brownfield programs.
I should point out that we have an impressive tenement package from Gwalia North through Tower Hill, Harbour Lights, King of the Hills, up towards Jaguar and Bentley. It has not been explored by modern means and it presents a real opportunity for us. We are now in a position to do something here. Previously we did not have the money and then when we did we were more focussed on deep hole drilling in the existing Gwalia mine, and some of those holes are $1 million each!
Beyond these programs there is something else. There are the relationships characteristic of this new exploration era where explorers are not being backed by the stock market. This is where we have focused on both operational and investment partnerships.
We’re not alone in funding or supporting strong exploration teams positioned on good ground. But it seems to us that the market is not happy funding greenfields exploration in an era where the dominant belief is that the lowest hanging fruit in Australia has already been picked. We don’t think so and we think that’s a great opportunity for us.
--- continued in Straw #5 ---
Bob Vassie's address to the Melbourne Mining Club on 30 May 2019, Straw #3 of 6:
We are also focussed on leaving something behind for the community that makes it worth it that mining ever happened on the Island, if and when mining ever concludes. To that end, we have helped set up an independent landowner company that is already advanced on things as broad as market gardens, marine agriculture, bakery and chickens. We are assisting the schools and we provide courses for adults that never finished schooling, and providing other training to make the transition to closure more effective. We are also funding the New Ireland Province Malaria Alliance. This is the heart of what sustainable development is all about.
By the way, I should mention the Arial Rope Conveyor, or ‘RopeCon’ as we call it, is a truly great bit of kit when you have terrain to cross in difficult conditions.
Gwalia (Western Australia)
I could talk all day about Simberi, but fundamentally, when people talk about St Barbara they talk about the Gwalia mine. Some people still call us Sons of Gwalia (or SOGS). When you talk about the Gwalia mine, you talk about the challenges of depth, and about what history teaches us. This is because Gwalia is not just Australia’s second deepest mine and the deepest trucking mine in the world, it is also Australia’s oldest operating mine.
Now I want to talk about something which is very St Barbara – the interaction between the challenges of depth and the lessons of our history.
The original Mt Leonora discovery was made in 1896. Production began a year later – that is 123 years ago. Herbert Hoover, then mine manager [later a US President], was instrumental in the float of Sons of Gwalia Limited on the London Stock Exchange in 1898. Since then, the Gwalia mine has produced roughly 5.8 million ounces, 2 million ounces of which has been under St Barbara’s ownership.
Over the 123 years, it hasn’t been plain sailing. Gwalia and the shareholders associated with it have had good periods of production from a fabulous resource, but for most of its life, no one knew how good the resource actually was. The mine was on care and maintenance for 20 years, crippled by an internationally regulated commodity price. Twice the workforce went off to war. Once the plant was largely burnt out. Hedge book risk then famously took off another set of owners. Our own company almost succumbed to acquisition and debt as recently as 2014, which could have seen this fantastic mine in the hands of the receivers again.
I will note that when I joined St Barbara in 2014, whilst we had to let a number of good people go (in that year Corporate headcount was reduced by over half), we did not add any new people to the Company, and the remaining team performed the turnaround, for which I will for ever be proud and grateful.
Since then, of course, Gwalia has been mining through a sweet spot in the orebody between 1450 to 1750 metres below surface, allowing us to pay back debt and invest in going deeper to extend mine life with comfortable margins and optimised risk.
With our knowledge of history and the experience of our operations, we have an acute awareness of what can go wrong. Believe me, over the century of operations at Gwalia, much of what could go wrong has gone wrong!
A review of our history is an appropriate introduction for a discussion of our current major challenge, which is the challenge of depth. To our knowledge, we are the deepest trucking operation in the world. Gwalia is currently operating at 1660 metres below the surface. At that depth, it’s a 12 kilometre trip each way of the decline. You can go down and back four times during an average 12 hour shift. Obviously you want to see if there’s a better way, especially if you have found that the ore-body extends to 2690 metres below surface and you believe there is a very reasonable proposition to extend the mine life of this historic mine past the current 2031 end date.
For a time, we thought there was a better way than trucking and we pursued it under the banner of Gwalia Mass Extraction (GMX) it until it didn’t work for us. We were attracted to underground crushing and perhaps milling, and slurry pumping options, although we assessed an expanded trucking option alongside them. How efficient it would be if we could mix a slurry underground and shoot it up to surface harnessing the energy to get water 1,500 metres down a shaft? By expending some capital, we could reduce operating cost and drop cut-off grade.
--- continued in Straw #4 ---
Bob Vassie's address to the Melbourne Mining Club on 30 May 2019, Straw #2 of 6:
Gold miners everywhere face the challenge of dealing with ever-rising costs resulting in margin pressure. The fact is that most operations can book more reserves in each reporting year but not all reserves are equal. Therefore, you must aim to operate more cheaply each year. You do that with better technology, with better ways of working, with smarter ways of dealing with capital.
Let’s look at the global industry and then the Australian industry with these basics firmly in mind. We are seeing a round of very significant consolidation, especially in the large-scale end of the global industry. There was the Barrick and Randgold merger announced late last year, followed in short order by the announcement that Newmont and Goldcorp would merge. Arguably, both of these moves were triggered in part by shareholder frustration with modest long-term returns on one hand, and on the other with the promise of step change cost synergies.
In Australia, it’s a different picture. Our generally smaller companies managed the last gold price collapse and recovery with remarkable agility. The creation of Evolution Mining was a case in point. Good assets were acquired at reasonable prices, re-capitalised, and then renewed with fresh ideas, good technology and low corporate overheads. Northern Star has also done a wonderful job and Saracen and Regis, each with somewhat different strategies but both executed well such that they have been successful at their chosen paths. Growth is now proving much more difficult.
Then of course, there was St Barbara’s own near death and recovery experience, arising from an acquisition that failed to meet its objectives. It’s far enough in the past now for us to have stopped remarking on what happened – except to say that near death contributed to a street-wise culture of risk management at St Barbara that I’ll also talk about shortly.
The point here is that our recovery, the resulting cash flows and the continuation of strong performance – together with that of many of our Australian peers – has given the Australian gold industry a positive investment rating relative to many overseas gold miners. This in turn is a measure of the quite dramatic recovery in our sector beginning from my short time in gold from only five years ago.
Hence, we’ve seen Australian companies begin to look offshore, where we can hopefully leverage our scrip, but as always, there’s risk. This stems from working in new and unfamiliar jurisdictions, the limits on, or quality of, what’s for sale, and so on. The new element, of course, is the chance that consolidation at the large end of the industry, especially in North America, will result in a plethora of unwanted assets becoming available. We’ll see. So far, many of us have been looking hard throughout the USA and obviously in Canada. The new frontier may well be Alaska, where Northern Star has successfully achieved the acquisition of a producing asset with interesting potential. You’d have to say that so far, however, the deals have been few.
More generally, the Australian industry has largely remained at home working on maintaining the margins of their assets, consolidating only when it makes sense and otherwise striving to apply new technology and news ways of thinking to the assets that support current cash flows, and to both brownfields and greenfields exploration in largely established gold provinces. This is precisely what St Barbara has been doing.
Simberi is a marvellous operation. It’s generated over $200 million in cash since we decided to keep it back in late 2016, with a mine life out to 2021, even though it was originally anticipated to close a couple of years ago. To be making this kind of cash flow in a ‘one and a bit’ gram per tonne operation with a 2 ½ strip ratio on a remote island in the pouring rain with diesel power and high logistic costs, you must be doing something right, and the team there has done a fantastic job. There is also the prospect of significantly extended mine life, should the sulphide project come to fruition.
When you think about it, we already have the airport, roads, village, power station, mill and over 700 trained local Islanders and PNG nationals, as well as local landowner contractors. We have even prestripped some of the sulphides by mining the oxides. We are continuing to drill beneath the Sorowar pit, seeking to improve the financial case for a potential sulphide project.
--- continued in Straw #3 ---
Bob Vassie's address to the Melbourne Mining Club on 30 May 2019, Straw #1 of 6:
Over in the general forum section, I have recently made comment on the importance of strong management to the success of gold miners in this country. While waiting in the car for my wife yesterday while she shopped at polar opposite ends of the fiscal spectrum - an organic produce shop followed by an op shop - I re-read Bob Vassie's presentation notes to the Melbourne Mining Club - which occurred back on May 30th this year.
The full presentation can be accessed here, and the notes start on page 28 after the cover page and the 26 pages of slides.
The thing is too long to reproduce here in its entireity, but I'm going to give it a red hot go anyway by splitting it into a number of straws. The best way to follow it is to actually print off the notes and then read them while flicking through the slideshow. All of that is available from the link above.
Bob is quite a character, and this is well worth reading, and gives a really good insight into the gold mining industry in this country, its importance, and the challenges it faces. Here goes:
Bob Vassie address to Melbourne Mining Club 30 May 2019
As the presentation slides to this event are not self-evident, the following notes of Bob Vassie’s address were provided to media attending the event.
I have been to a few MMC events and really enjoyed them. Irrespective of who the speaker is, you always learn something and of course, the networking opportunity is fantastic. I never thought I would be addressing such an audience, but I will give it a go.
Today is not the forum for your common and garden-variety investor presentation. Rather, I will explore some aspects of the Australian gold mining industry in general, then I’m going to use some of our recent history at Gwalia and the challenges we have confronted to illustrate how a lengthy time frame can provide what I might call a humbling framework for the consideration of risk in our industry.
I will also touch on M&A in the gold industry, our strategy in that regard, and a bit about our recently announced proposed acquisition of Atlantic Gold in Nova Scotia.
I will also cover a couple of themes that I am passionate about, which are:
While I am truly excited about the opportunities that our recent acquisition of Atlantic Gold present to us, I am more cognisant than ever about the challenges facing our local industry and more personally, St Barbara’s existing operations.
We are a good-sized mid-cap gold company, but with only two existing operations. They could hardly present a greater contrast – one is the oldest mine in Australia’s greater Kalgoorlie gold field of WA. This is the Gwalia mine. It is also the second deepest mine in the country and it presents formidable technical challenges the deeper we go.
The other is the Simberi mine. This is an island-based, open-cut operation in the northern islands of Papua New Guinea. It is intimately entwined with its strong Melanesian community.
Despite the fact that both mines could hardly be more different, in strategic terms they broadly present similar and well-understood mining challenges. This is how to grow reserves without collapsing margins. In other words, how to harness new technology and better ways of working to compensate for the challenges our respective resources put in our way: depth and grades in relation to Gwalia; and changing ore types in relation to Simberi.
Being on the board of the Minerals Council of Australia (MCA) I have access to good information. I am continually annoyed at the repeated reference in some circles, including some politicians and media, to the mining boom being over and the need to look to some new information economy for Australia.
What people sensed as a boom was in fact a construction boom, which does indeed drive heightened spend and activity and you do notice when it subsides. However, that investment gave way to a production boom, as evidenced on this slide where mining revenues have increased along with employment.
The fact is, we need all types of industry for Australia’s economy, but we certainly need the primary industries.
Gold mining’s position in the Australian industry is impressive. It is the third biggest mining industry behind iron ore and coal. Gold is the sixth largest industry overall, with revenues larger than beef, wool, wine and cheese put together.
--- continued in Straw #2 ---
24 July 2019: St Barbara Quarterly Report Q4 June FY19
23-Jan-2020: Outlook and Revised Production Guidance for FY20:
FY20 Consolidated Group Guidance now: Production 370 to 400 koz (previously 380-420 koz), AISC A$1,330/oz to A$1,420/oz (previously A$1,240 to A$1,330/oz), Sustaining capex A$79 to A$88 M (previously A$77 to A$87 M), Growth capex A$51 to A$59 M (now inc. Atlantic Gold, previously A$35 to A$42 M excl. Atlantic Gold).
22 July 2019: St Barbara completes acquisition of Atlantic Gold
FY19 consolidated gold production was 362,346 ounces, consistent with revised guidance of 360,000 ounces.
Gwalia produced 49,966 ounces of gold in the quarter and 220,169 ounces for the full year. In Q4, 161 kt of ore was milled at an average grade of 9.9 g/t Au.
--- click on link above for more ---
Yeah, that's right - 9.9 grams per tonne was their gold production AVERAGE for the whole June quarter at Gwalia. Gwalia is the gift that just keeps on giving. Little wonder I hold SBM shares, eh!
27-June-2019: Presentation to Macquarie Melbourne Mining Forum by Bob Vassie, Managing Director and CEO, to analysts and investors attending the Macquarie Melbourne Mining Forum today.
St Barbara Ltd (ASX: SBM) (“St Barbara” or “Company”) and Atlantic Gold Corporation (TSX-V:AGB) (“Atlantic”) are proceeding with the customary closing conditions precedent under the Arrangement Agreement (“Agreement”) announced on 15 May 2019. Pursuant to the Agreement and the related Canadian Plan of Arrangement (“Transaction”), St Barbara intends to acquire 100% of the outstanding common shares and options of Atlantic for A$768 million. Further details of the Transaction, including its strategic and financial benefits, are set out in the corresponding announcement and presentation of 15 May 2019.
Following completion last week of the A$490 million Entitlement Offer, on 14 June 2019 St Barbara had A$870 million in cash and deposits in readiness for settlement, plus a A$200 million three year revolving facility, which is undrawn. The Supreme Court of British Columbia has issued an interim order ("Interim Court Order") in connection with the Transaction which authorises, among other things, Atlantic to convene a special meeting of Atlantic securityholders ("Atlantic Meeting") on 15 July 2019 in Vancouver to consider and vote on the Transaction. The corresponding notice of meeting (“Arrangement Circular”) is due for release to Atlantic shareholders on 20 June 2019.
The Transaction is subject to customary closing conditions, including court approvals, a successful Atlantic shareholder vote, and no material adverse change to regulatory approvals.
St Barbara Operations
At Gwalia, the blocked paste reticulation circuit announced on 31 May 2019 was resolved and paste fill operations resumed in the subsequent week as anticipated in that announcement. Full year production guidance for Gwalia is maintained at approximately 220,000 ounces of gold.
As anticipated in the Q3 March FY19 Quarterly Report, dry commissioning has commenced on sections of the Paste Aggregate Fill (PAF) circuit on the 1420 metres below surface (mbs) level, and the associated high voltage power cable has successfully been lowered from surface to the 1420 level.
Due to higher than anticipated grade of ore processed to date in June (currently averaging approximately 2 g/t Au), late last week Simberi exceeded the previous annual production record of 134,661 ounces of gold, and is now anticipated to produce close to 140,000 ounces for FY19, which is above the previously announced target of 135,000 ounces.
Monday 3rd December 2018: St Barbara will present at the Papua New Guinea Mining and Petroleum Investment Conference in Sydney, on Wednesday 5th December 2018. For a copy of that presentation, see here.
31-May-2018: Revised FY19 production guidance
St Barbara have this morning downgraded FY19 production guidance for Gwalia (their main and most profitable gold mine, located in WA) by around 7% (7.37%) to ~220,000 ounces of gold (previously between 235,000 and 240,000oz), with a corresponding increase in All In Sustaining Cost (AISC) in this quarter due to the lower production volume. Simberi (in PNG) continues to perform well and is anticipated to produce approximately 135,000 ounces of gold in FY19, which is at the upper end of its guidance range of 130,000 to 135,000 ounces. Consolidated gold production guidance for FY19 is now approximately 355,000oz (previously 365,000 to 375,000oz). That means they are now expecting to report total gold production that is 4% below the mid-point of their previous guidance range, and 2.7% below the lower end of their previous guidance range.
This is a relatively small downgrade, caused by a production delay in one stope at Gwalia on the 1660 level - which is explained in detail in the announcement (and it's too late in the FY to make up the shortfall - with only a month left) but the market doesn't like downgrades, and the SP of SBM is down over 5% today on the back of it.
They were already down quite a bit since they announced they were raising capital at $2.89 (when they were still trading at well over $3/share) to help fund the purchase of TSX-listed Atlantic Gold Corporation, who have some high grade deposits in Nova Scotia in SW Canada, one of which is already in production with costs that are so low that the aquisition actually lowers SBM's already low AISC. SBM were already the second lowest cost major gold producer in Australia (due to their high grades at Gwalia). The only major ASX-listed gold producer with lower costs than SBM is EVN (Evolution Mining). That cost hierarchy remains with SBM's aquisition of Atlantic, but the market was underwhelmed by the news of the aquisition. Bob Vassie explained that it ticked all of their boxes and fitted very well into their mantra of "Stronger For Longer", as Atlantic have one project in production now, and 3 more that are scheduled to come online progressively over the next 3 or 4 years, all with high grades and corresponding low costs, plus heaps of upside potential via further exploration in a relatively under-explored region (Moose River region, Nova Scotia, Canada).
The market might have preferred Bob to return some of the hundreds of millions of dollars of net cash that he had to shareholders, rather than buy an overseas company for a premium to what they were trading at on the Toronto Stock Exchange (TSX), especially as there are very few synergies. It is more about providing years of future growth, and increasing overall gold production to keep the company relevant.
If you contrast this to Northern Star's (NST's) announcement last August of their acquisition of the Pogo mine in Alaska, the market reaction has been very different this time. The NST SP rose very nicely on that August announcement, and stayed up, and that's probably because Bill Beaument talked up the opportunities to improve efficiencies there, lower costs, and increase production - as he had done with a similar mine here in Australia. His track record gave the market confidence that he could do it all again, even though this mine was at the other end of the world - all of NST's other gold mines are located here in Australia.
I rate NST's Bill Beament as the best gold mine manager in Australia, and Jake Klein at EVN isn't far behind him in terms of making the right deals at the right times and then working those assets hard to get the very best out of them, but I rate Bob Vassie at SBM very highly also, as a manager and a turnaround specialist who has certainly turned SBM around in the past 3 years. He is now setting SBM up for the future, and I think it's the right move. He is also a realist and very pragmatic. He won't talk up synergies that aren't there. He said that the current Atlantic management have done an excellent job, and he intends to keep them on to run the Moose River Assets over there. His reason for buying Atlantic isn't because he can run it better than it is currently being run (Bill B's reason for buying Pogo). Bob V is buying Atlantic Gold because he sees a lot of value there. It lowers SBM's AISC even further, and Atlantic have a solid pipeline of new gold projects scheduled to come online over the next few years, and there is heaps of upside potential via further exploration success.
In time, I believe the market will come around to the benefits of this acquisition, but that hasn't occurred yet. As I type this, SBM is trading at $2.57, which is 11% below their offer price of $2.89. That accelerated non-renounceable pro-rata 1 for 3.1 entitlement offer is fully underwritten, so the money will still get raised, but it's not great that SBM are trading so far below the offer price.
Disclosure: I hold SBM, NST & EVN.
Post #2 (of 2, Read Post #1 first).
Continued from Post #1 (about this aquisition)...
15th May 2019:
Another interesting thing is that Bob rates the Atlantic management team highly ("The Atlantic team has delivered the Touquoy operation on time and on budget and exceeded guidance in the first operating year"), and plans to keep a number of them in place (in Canada running the Canadian operations), including their CEO & Chairman (who will join the SBM Board) and their President & COO. He doesn't plan to change everything like Bill Beament at NST (Northern Star) was expected to do at Pogo (NST's recent Alaskan gold mine acquisition which was very well received by the market).
The 1 for 3.1 underwritten pro rata accelerated non-renounceable entitlement offer is set (priced) at A$2.89 per New Share representing:
They resumed trading on Friday (17th May) and took a dive. They opened down 14% at $2.85, and got as low as $2.57 (-22.6%) during morning trade, before closing at $2.91, which was 12.35% down from their previous close (on Tuesday 14th May - they were in a trading halt on the 15th and 16th due to the institutional component of the raising being completed). They closed above the $2.89 offer price, but only 2 cents above it.
When Northern Star (NST) announced their acquisition of the Alaskan Pogo Mine in August, they rose 16.7% when they resumed trading - from a closing price of $6.96 on 29-Aug-18 to a $8.12 close on 3-Sep-18 (the day they resumed trading). They closed Friday (17th May) at $9.43, 35% above their pre-Pogo close (of $6.96).
I would expect that in time this acquisition by SBM of Atlantic Gold and their Nova Scotia gold assets should also be positively viewed by the market, especially because of the low costs that Atlantic comes with, and because it expands St Barbara beyond a two mine company, takes the immediate focus off Simberi, and gives SBM plenty of future growth. It makes sense every way I look at it.
Disclosure: I own SBM shares and am inclined to participate in the entitlement offer but that will depend on what the SP does during the offer period. If I can buy shares cheaper on-market than via the EO, then that would be better still. The offer is underwritten, so the money will get raised regardless.
15-May-2019: Post #1 (of 2): SBM announced they are buying Atlantic Gold Corporation, listed on the TSX in Canada for A$781m, which includes a 1 for 3.1 underwritten pro rata accelerated non-renounceable entitlement offer (with an over-subscription facility allowing people to subscribe for up to 25% of unsubscribed shares above their own entitlement) to raise $490m of the $781m - the other $291m coming out of SBM's substantial net cash in the bank.
Atlantic are a relatively new gold producer that has only been in production since last year - with only one (Touquoy) of their 4 projects (which are together known as the Moose River assets) operational so far, but they have a very low AISC (all-in sustaining costs) of only A$761/oz for FY18 and guidance for AISC of A$740-$803m for FY19 - which is very low. Most companies are very happy with AISC of around A$1,000 to $1,050/oz.
In their presentation, SBM show that the pro forma CY18 numbers show that their own AISC falls 9% with the inclusion of Atlantic - from A$943 to A$909/ounce. With and without Atlantic, they are (and would be) the second lowest cost gold producers on the ASX (of our top 10 goldies). EVN (Evolution Mining) remain the lowest cost producers. SBM are #2 and the Atlantic acquisition makes SBM look even better.
Atlantic Gold have 4 projects spread over 80km in Nova Scotia in SE Canada and the first - Touquoy (which Atlantic holds a 63.5% beneficial interest in) is in production now - and has a 12 year mine life, although they have been finding more gold around it, and they have an active exploration program which is expected to locate more gold and extend the mine life further. Beaver Dam (100% owned) is 37km from Touquoy and is scheduled to be in production in 2022. Fifteen Mile Stream (100% owned) is 57km from Touquoy and they plan to be producing gold there in late 2021. Cochrane Hill (100%) is 80km from Touquoy and is planned to be in production from 2023.
As well as increasing SBM's Reserves by 48%, and their Production by 23% (CY18 pro forma numbers), and their Resources by 26% (and lowering costs by 9%), this acquisition will provide SBM with a pipeline of future growth, and Bob Vassie said during the conference call that, "Those of you who know me will know that that's something that I've been very passionate about achieving", or words to that effect. I'm working off notes here.
Bob has turned SBM around, paid down their massive debt, built up a large pile of cash, and now he has set them up for the future. I always rated Bob Vassie as a top turnaround specialist and excellent gold mine manager. The only thing he's done that bothered me a little was selling down his personal SBM shares a while back, but I guess he's entitled to enjoy the fruits of his hard work.
He was asked by one analyst what this meant for the Simberi Sulphide ore option - whether that would be put on the back-burner now. Bob said that he was still red hot on getting that done. He said it could be done and they've got the money to do it, and he looks at the drilling results every week with that project in mind. This is the project that I've long tipped would be a goer at some stage - to modify the Simberi plant to efficiently process the sulphide ore that lies below their oxide ore pits - the pits they're already mining there. It would significantly extend the mine life at Simberi - which currently only has a couple of years left in it unless the Sulphide ore project gets the green light - which I think is an 80% probability - as it was before (IMHO).
Gwalia has more than a decade left in it, but these Nova Scotia gold mines that Atlantic Gold bring into the company will be producing gold long after Gwalia has been mined out I would expect, as there is still a lot of exploration to be done there, and the grades are very high, hence the costs being so low.
Post-transaction, SBM will have $130m cash, and $6m net cash (after allowing for a debt facility that comes with Atlantic Gold), so still no net debt. They will also have a new $200m revolving loan facility supplied by Westpac which is currently undrawn, and may well remain undrawn. When asked during the conference call whether he would now be comfortable to have a small debt position, Bob said that it was always his preference to remain in a net cash position - especially considering the trouble that SBM got into under previous management with too much debt - although the new facility did made sense to have. It's there if they need it, but they don't expect to need it, was my take on it. Atlantic's Touquoy mine is spitting cash just as Gwalia is, so I would expect that if the Westpac facility gets used, it would be paid down PDQ.
Continued in Post #2.
24-Oct-2018: Presentations at St Barbara (SBM) 2018 AGM - see here
23-Oct-2019: 2019 AGM Presentation - see here
They also provided FY20 production and cost guidance update last week (on October 18th).