06-July-2023: St Barbara (SBM) went "ex" today for the 205 million GMD shares that they are going to distribute next week to their SBM shareholders - those registered as SBM shareholders tomorrow, being the record date for the distribution.
SBM currently have 817,841,645 (817.84m) shares on issue, and they said (see here: Sale-of-Leonora-Assets-complete-and-GMD-share-distribution.PDF) on Friday (30-June) that SBM shareholders can expect to receive approximately 0.25 GMD shares for every SBM share they own (or 1 GMD share for every 4 SBM shares they own) on the record date, which is tomorrow, Friday 7th July, meaning that anyone buying SBM shares today misses out on that distribution from SBM of GMD shares because the T+2 trade settlement rule means that shares bought/sold today change ownership officially on Monday (10th July), being the second trading day after the date of sale. Therefore, to be on the SBM share register tomorrow (Friday) and qualify for the GMD shares, you would have to have bought the SBM shares before today (Thursday), so yesterday (Wednesday 5th July) or before.
And there were plenty of people who do want to own GMD, but no longer want to hold SBM shares, because a total of just over 78 million SBM shares traded hands today, and their volume is usually under 20 million (shares traded) per day.
Those people who sold all of their SBM shares today will still get their GMD shares, but those who bought SBM shares today will not, due to today being the "ex-distribution" day for those GMD shares.
That would be why the SBM share price almost halved today from 56 cents/share (yesterday's close) to a close of just 29 cents/share today, only a couple of cents above their low of the day (which is also their low of the year), which was 26.5 cents/share.
Funny thing is, if you look at their share price graph (see below), they actually went up today!!
What?!?!
That is because all of their previous price history has been adjusted for the capital return, which is what this distribution of GMD shares is being classed as.
To explain, GMD (Genesis Minerals) closed at $1.265 yesterday, and $1.19/share today. Based on yesterday's close, the value of the 205 million GMD shares that SBM are giving to their shareholders is $259.325m (and is $243.95m based on today's close).
SBM's market cap yesterday was $458 million, being 817,841,645 shares on issue times $0.56 (their closing share price yesterday). The logic is that SBM are returning GMD shares worth $259.3m to their shareholders, which theoretically reduces the company's (SBM's) remaining value by that amount, which is 56.62% of their market cap. Therefore, all share price history has been adjusted down by that percentage for the purposes of their share price graph, or by close to it (between 56.3% and 56.6%) as per below:
While SBM actually closed at 56 cents/share yesterday (Wednesday 5th July 2023), the graph now shows that close to be 24.4 cents/share, being 56.4% lower. On June 23rd through to June 28th, the SBM share price closed at 46 or 47 cents on each day. Those days are now shown on the graph as either 20 or 20.5 cents. The prices on the graph - except for today's closing price - are all now around 56.5% lower than they were yesterday. I've explained the rationale behind the adjustment a little further in that commentary to the right of the share price graph above. If you can't read it, it should get bigger if you click on it - in the PC version at least, not sure about the App.
In summary, around 56.5% of SBM yesterday was made up of the GMD shares that they held (based on GMD's share price vs SBM's market cap), and those GMD shares are now no longer part of SBM - they now belong to SBM's shareholders to do with as they please, so the reality is that the other 43.5% of SBM, being the part that is left, should be trading at around 43.5% of yesterday's closing price - which was 56 cents/share (the actual closing price - not the one on the graph which has been adjusted), and 43.5% of 56 cents is 24.4 cents (24.36c), and SBM closed at 27 cents, so they have actually gone up, as shown on the graph, after also rising yesterday and on the previous 3 trading days.
That said, I still intend to sell my SBM shares at some point in the next month or two, and I'll likely keep my GMD shares (the ones I'll receive next week) for the timebeing, and may add to them and build that holding into a decent position relative to my other holdings.
I like Genesis Minerals from here, and I'm not nearly so keen on St Barbara now that all of their gold-producing assets and the vast majority of their non-producing assets are overseas (in PNG and in Nova Scotia, Canada) rather than here in Australia. I'm bullish on the Leonora area of WA, therefore I'm bullish on Genesis Minerals, who have all of their assets around Leonora -and I'm expecting them to buy even more assets in that area over the next few years. Having watched Raleigh Finlayson build up Saracen Minerals, then merge Saracen with Northern Star (NST) and then start again with Genesis, I wouldn't bet against the man.
Image Source: https://stockhead.com.au/resources/diggers-and-dealers-will-raleigh-finlaysons-genesis-dance-the-devils-tango-with-st-barbara/ [August 2022]
12-Dec-2022: GMD-Merger-of-St-Barbara-and-Genesis-to-form-Hoover-House.PDF
Presentation: Creating a leading Australian gold house
Reporting-on-Dacian-Projects.PDF
Not entirely unexpected. Both St Barbara and Genesis have confirmed they were in M&A discussions for a number of months, even prior to Genesis launching their bid to acquire Dacian Gold (DCN) which is almost complete now.
The merger is being done by SBM acquiring GMD and is obviously unanimously recommended by both company's boards. It will be interesting to see if any other bids emerge, and also how the SBM CR goes to fund the acquisition.
Disclosure: I hold SBM shares.
08-July-2022: I explained in my recent update to my valuation (price target) for SBM and in my straw about St Barbara's recent "Strategic Review" announcement concerning Simberi in PNG that I thought that they were paving the way for a far bigger spend at Leonora particularly with these new (recently acquired) Bardoc Gold assets, even though they weren't really coming out and saying that. Well today, in their SBM-FY22-production-update---guidance-achieved.PDF announcement, they have said that. They are highlighting the potential of Zoroastrian and Aphrodite in particular.
I may be becoming too cynical in my old age, but it seems that the new boss man at SBM, Craig Jetson, enjoys releasing bad news with zero spin, causing the share price to drop sharply, then following it up shortly afterwards with much more positive news, which causes a rebound in the share price. This is making SBM a particularly volatile company to hold - in share price terms - since Craig took over from Bob Vassie. OK for those of us who can handle large share price falls in our stride, however it would have shaken a few people out I imagine. It also creates buying opportunities. Not so much today though, because SBM is leading the gold sector up today, having risen over +6% at midday. Of course, to put that in some perspective, they're now coming off a VERY low base.
Disclosure: I hold SBM shares.
22-June-2022: Simberi Operations under strategic review
The headline news is that despite having their Simberi expansion and upgrade approved by the relevant PNG Minister (for Environment and Conservation and Climate Change) and that approval being in the final stage of being formally issued to St Barbara (SBM), SBM have decided to defer the FID (Final Investment Decision) on the "Simberi Sulphide" project and conduct a strategic review, because the costs are going to exceed those estimated in the feasibility study. Interestingly, they have said, "St Barbara has received unsolicited enquiries from potential investors in Simberi and anticipates the Sulphide Expansion project to proceed either under St Barbara or different ownership."
They also said, "St Barbara faces capital investments at each of its three operations in the next two years. This strategic review will assess the best allocation of capital for risk and return compared with the Company’s other projects."
That is interesting because we all knew that the "Simberi Sulphide" project was going to cost money - the plan was to upgrade the processing plant there to efficiently handle the gold-bearing sulphide ore that they know exists below their currently mined-out oxide ore pits on Simberi Island in PNG - and we also knew that the other gold mines along Moose River in Nova Scotia (Canada) were going to cost a fair chunk of cash to build and get into production. They only have one mine there in operation already and producing gold - Touquoy. There are three other projects along Moose River (collectively known as their Atlantic assets because they were acquired by SBM via the acquisition of a company called Atlantic Gold) and they were all supposed to come online within a few years of each other, but there have been significant delays with the permitting process and SBM have just alerted us to the news that things haven't got any better - they appear to have got worse there in terms of permitting delays.
BUT, their flagship operation, the Gwalia underground gold mine, was supposed to be free of capex for a while, because they've just spent hundreds of millions upgrading the ventilation and cooling systems to allow the mine to proceed to 2km (vertical depth) and beyond. They are almost at 2km now in fact, but they have another decade or more of gold left at Gwalia still to mine - they are just going to go deeper and wider.
SBM WERE previously considering pumping water down to an underground plant within the Gwalia mine (a plant that they would have to build) where the ore would be mixed with water to turn it into a slurry, and then pumped to surface for treatment to remove the gold within their existing above-ground treatment plant. They scrapped that plan last year because they weren't comfortable with the expenditure required and the risks that it possibly wouldn't work. If it did work, it would be the first time a gold plant would have successfully managed to pump ore to surface from that far down at the volumes required (to keep the above-ground plant running at planned capacity).
For those interested in this idea check out slides 15 and 16 of this 2018 Presentation: https://stbarbara.com.au/wp-content/uploads/2018/09/2018.09.20-presentation-to-2018-precious-metals-summit-colorado.pdf
It may have required a lot of fine tuning to get the viscosity right, etc., so that the slurry could be pumped up that far. When you think about it, pumping what is basically mud containing heavy metal (like gold) straight up for 2km at significant volume and basically around the clock as well (24/7) would not be easy to accomplish, and the problem was, they would be the first gold producer globally to do it, which is the risk. There are probably a few companies that have tried, and failed. And in the end, St Barbara's management and board opted to continue their current process of trucking the ore to surface with an expanded fleet of trucks. They did say they would have to invest in more trucks, but otherwise I don't know what the big ticket expenditure at Gwalia is in the next few years.
OK, so that was a surprise, that they are saying the need to spend more money at Gwalia. But then the penny dropped - they actually said at their "Leonora Operations", not Gwalia specifically. So they're talking about the expenditure required to develop their recently acquired "Bardoc Gold" assets at Leonora - so not money they need to spend on their Gwalia mine. More about SBM's "Bardoc Gold" assets in a minute.
Back to the the Moose River (Atlantic Gold) operations for a sec. Touquoy is almost mined out and the plan was to start using the open pit as a tailings dam to store the tailings from both the stockpiled ore they have above ground to process (from that open pit) as well as the ore from their next two gold mines on Moose River, Beaver Dam and Fifteen Mile Stream, when they get built (they are both being held up by permitting delays), however despite commencing the provincial permitting process to allow for the pit to be converted to a Tailings Management Facility (TMF) back in 2020, St Barbara have announced today that, "Late in the process the Nova Scotia Department of Environment and Climate Change (NSECC) has sought further clarification on aspects of the in-pit tailings deposition application to which the Company is promptly responding. This request for further information has impacted the implementation timeframes for the in-pit tailings solution placing business continuity at risk. The current TMF has capacity only until mid-September 2022 and construction work on the in-pit tailings infrastructure will be unable to be completed in time.
"The Company has therefore elected to make an application to raise the existing TMF wall as an interim solution while the in-pit deposition matter is progressed to conclusion. A permit application to lift the wall has been submitted and the Company is working closely with provincial regulators, with the timeframe for a decision on this permit expected to be early August 2022. The capital cost for the tailings lift is ~A$6m and will extend the life of the Touquoy operation until the end of FY23.
"Should the TMF lift permit not be approved in early August 2022 there will be insufficient time to allow for the construction of the raise before the current tailings capacity is exhausted in mid-September 2022. This would lead to the operation being suspended and placed in care and maintenance.
"In parallel, the Company will continue to work with the Provincial government to resolve NSECC’s outstanding queries on the permit for the in-pit tailings deposition. Once the in-pit tailings deposition permit is issued the Touquoy site will have sufficient tailings capacity to support the longer term Atlantic Province Plan, including Beaver Dam and Fifteen Mile Stream. If the in-pit tailings deposition permit is not issued by Q3 FY23 then the operations will have to be suspended from Q1 FY24 and placed in care and maintenance. "
So - bottom line now is that they need this new application to lift the wall on the existing Tailings Dam (TMF) to be approved in August or else Touquoy will be shut down in mid-September (in just under 3 months' time) because they won't have anywhere to pump their tailings (which is the ore after it has been processed and the gold has been removed from it).
Also, even if they do get that "wall lift" permit, but then do not get the in-pit tailings deposition permit (to use the Touquoy open pit to store tailings from the stockpiled ore from Touquoy as well as from the two mines they haven't built yet: Beaver Dam and Fifteen Mile Stream) by the third quarter of FY23, meaning the quarter ending March 30, 2023, then Touquoy will be placed on C&M (care and maintenance, i.e. shut down) in the first quarter of FY24, meaning the quarter ending September 30, 2023, and obviously Beaver Dam and Fifteen Mile Stream would not be able to proceed. Their 4th Gold Project along Moose River in Nova Scotia, Cochrane Hill, is further away and was not relying on the Touquoy open pit for its tailings storage. Cochrane Hill has its own permitting issues however, and some strong community concerns also - see here (from December 2018): Atlantic Gold presses for environmental permit | SaltWire
So, to summarise, SBM have flagged today that they face significant capex (capital expenditure, money they need to spend) on all three of their operations - Leonora in WA, Simberi in PNG and Atlantic Gold (along Moose River) in Nova Scotia, Canada. And they are conducting a strategic review to work out where they are going to get the best bang for their bucks, coz they might not want to spend the money required at all three sites. I'm guessing they'll sell off Simberi, which has the highest costs, and focus on the other two. Hence mentioning today that they have, "received unsolicited enquiries from potential investors in Simberi..."
Additionally, they are having further permitting delays in Nova Scotia and while previously that had meant that their next couple of mines along Moose River would be delayed, it now also puts production from Touquoy at risk and may mean that they have to shut down their entire Canadian operations possibly as early as mid-September (less than 3 months from now) - which at this stage is just the one producing gold mine, Touquoy, which is almost mined out, but was going to be up to four gold mines over time, so Touquoy, Beaver Dam, Fifteen Mile Stream and Cochrane Hill.
So, in that light, I can understand SBM's share price dropping -18% today to close at 92.5 cps. They closed at $1.13/share yesterday and were at $1.21 last Friday, so they're -23.6% below Friday's close now. Probably an overreaction, but that's what sharemarkets routinely do. SBM closed on their lows today, and they might bounce back a bit tomorrow, or they might fall further. I certainly don't know. I looked at all of that info this morning and made a call to hold my SBM shares at this point rather than to sell today. And I'm comfortable with that decision.
This news from St Barbara is not welcome, but also not entirely unexpected. In fact I recently highlighted (in the "Gold as an Investment" forum thread) that despite SBM and RRL (Regis) both looking particularly cheap, both could get cheaper if things don't go their way. I pointed out that in SBM's case, one of the things that could go against them was further permitting delays in Nova Scotia, which is what has happened. And yeah, they certainly have got cheaper.
My reasoning for holding rather than selling now is that while they could certainly go even lower from here - as sentiment is well and truly against them now - I feel that at the current price you are getting their Leonora operations, so Gwalia, a world class underground gold mine with plenty of life left in it, along with their above-ground processing plant and surrounding tenements - for under $1/share - and everything else is a bonus, and paying sub-$1/share for Gwalia looks like a reasonable price to me. That said, I have sufficient exposure to SBM already so I'm not buying more at this point.
Source: Commsec.
Everything else (other than Leonora) as a bonus - might not be much - if they don't get a good price for Simberi - which I'm assuming they will sell - and if they also don't get those permits issued in Nova Scotia and the gold they own there becomes un-mine-able (not able to be mined for a profit), and that's the risk.
Regis (RRL) have a similar risk, in that if McPhillamys in rural NSW doesn't ultimately get approved, there's certainly downside for the RRL share price. McPhillamys is Regis' big growth project. In SBM's case, their growth was going to come from that series of new mines along Moose River in Nova Scotia, so if they do NOT get to build those, that's not good. And that's what the market was fretting about today I think.
It's worth pointing out however that SBM have recently purchased another growth option in the Kalgoorlie/Leonora area, not too far from Gwalia - Acquisition of Bardoc Gold Limited – St Barbara Limited
St Barbara completed the acquisition of Bardoc Gold Limited via a Scheme of Arrangement on 13 April 2022.
"The acquisition accelerates the delivery of our Leonora Province Plan and unlocks the value in the region. With the additional ore and upgrades to the Leonora Processing Plant, we are now positioned as a significant processing hub in the Western Australian goldfields.
"About the Bardoc Gold Project
"The Bardoc Gold Project, located 40km north of Kalgoorlie in the Eastern Goldfields, hosts a Total Mineral Resource Estimate of 3.07Moz of contained gold. The project is made up of a number of deposits including the advanced Zoroastrian and Aphrodite underground deposits as well as Excelsior, Aphrodite, Bulletin South, El Dorado, Mayday / North Kanowna Star and Mulwarrie.
"Along with planned projects, the Bardoc Gold Project contains a large tenement package located approximately 180km south of Leonora. Due to the proximity to road and rail infrastructure, the deposits are expected to become additional ore sources to support filling the mill and the expansion of the Leonora Processing Plant to 2.1Mtpa and adding the capability to process refractory, as well as free-milling ore.
"We anticipate the first ore from the Zoroastrian mine to be delivered to the Leonora Operations in Q1 FY24, followed by first ore from Aphrodite mine in the first half of FY25."
--- ends --- Source: https://stbarbara.com.au/our-operations/acquisition-of-bardoc-gold-limited/
That may seem too far away for some people, or else people might not be considering it, as those Bardoc Gold assets were not mentioned in today's announcement, they were just lumped in with Gwalia as the "Leonora Operations". It's the Atlantic issues that I believe are the biggest downside today in the market's view. It is worth noting however that permitting delays aren't the same thing as rejection. They haven't had any of their permit applications refused or rejected at this point. The relevant department has just asked for further information. This is not unusual.
Over the past few decades there have been quite a few tailings dam walls that have either collapsed or developed serious structural issues that have resulted in devastating consequences for everything downstream or downhill from those tailings dams. The dams contain slurry, basically mud, and over time the mud tends to dry out and become solid and pose much less risk, but when it's still quite fresh and liquid, you want those dam walls to hold it.
There are also issues with chemicals such as arsenic or cyanide remaining in the slurry from the processing, or heavy metals or other metals such as mercury, selenium, cadmium, chromium and lead, or acids such as sulfuric or nitric acid that may have been used in the extraction process. Modern gold processing plants normally remove most of this stuff from their tailings, if indeed it was there in the first place, however the sort of thing that government departments want to know when it comes to issuing these sort of environmental permits is what chemicals will be used in the gold extraction process, and what chemicals and metals will the tailings contain, and in what quantities (concentrations). This could be particularly important if a company is planning to fill up an old mining pit with tailings and there is any concern that any of those chemicals or metals could leach into ground water beneath or alongside the pit. By all accounts, the Moose River region is a wilderness area with enormous natural beauty and while the local government is not opposed to mining, they want the waste contained within the mining lease, not contaminating local rivers and waterways and affecting the surrounding wildlife and the environment.
This is the way things are heading these days. Environmental permits like these are not just rubber stamped any more, permitting processes are becoming far more rigorous and much more information is required than was previously, and I believe that's a good thing for the planet. Not so good from a shareholders POV, but completely understandable from the POV of a resident-of-planet-Earth. So - it is what it is. I do NOT think these delays necessarily mean that SBM will NOT get these permits approved, I just think they are going to take longer to get approved than what St Barbara had anticipated or provided previous guidance around. And, of course, there IS a chance that one or both permits are ultimately rejected or refused. I wouldn't want to try to predict the odds of that occurring, but it could indeed happen. And that's why I'm now looking at SBM as Leonora (including Gwalia) alone, and everything else (Simberi/Atlantic) as a possible bonus. And Leonora looked good to me with just Gwalia, and now Leonora includes Gwalia plus the Bardoc Gold assets - which include Zoroastrian and Aphrodite.
Our operations – St Barbara Limited
I think it is reasonably likely from here that SBM will announce that they are selling Simberi, and then in due course they will receive their permits for their Atlantic mines and tailings dams (TSFs). It is possible however that those approvals will come too late to avoid them having to close down Touquoy either in September this year or in the September quarter next year (2023) as explained at the top of this straw (and in their announcement today). It's important to note that Touquoy is virtually mined out now, with mostly just stockpiled ore left to process. So shutting it down is far from a company killing decision. It's the other three mines along Moose River that the market is worried about - that they might not get built at all now.
And of course there are no guarantees that my assumptions or expectations are correct or will prove to be correct. I do however think they (SBM) would almost certainly now prefer to develop the recently acquired Bardoc Gold assets at Leonora than continue with the expenditure at Simberi in PNG. And I think that's what today's announcement was really paving the way for. I'm not sure that the market is viewing it that way though.