The St Barbara shares were the worst performed among ASX 200 stocks yesterday after the company produced what amounted to a negative downgrade of its outlook.
Yes, there was a forecast for a small rise in annual gold production for the year to June 30 and yes there was good news that obstacles in the way of mining in its Eastern Canadian operations had been removed, at a cost of $6 million for now. But there was also news of a sharp rise in estimated costs for the coming year, which investors focused on and sent the shares down more than 17% to $1.07.
But every resource company is being hit with higher costs and in the case of St Barbara there are some reasonable explanations about what is happening in WA and Canada where higher costs seem impossible to avoid for the moment.
At the same time gold miner will postpone its full-year results presentation from August 25 to August 31 to give Canadian authorities time to make a further decision concerning its mining operations in Nova Scotia.
St Barbara told the ASX on Wednesday that it had issued its 2022-23 guidance after receiving final approval conditions for work to lift a retaining wall at a tailings dam at its Atlantic Operations in Nova Scotia.
This, St Barbara said, provided “certainty of business continuity” for the financial year.
As a result the company issued guidance for gold production of between 280,000 and 315,000 ounces in 2022-23, a small improvement on actual 2022 production of 280,746 (which was within guidance for the year to last June 30).
But this improvement will come with higher costs in the year
St Barbara forecasts an all-in sustaining cost (AISC) of between $A2,050 and $A2,150 an ounce in for the year to June, 2023. This would be a sharp increase on its 2021-22 AISC of $A1,848 an ounce as reported in its June quarterly report late in July.
The rise will be between 11% and 16% and will squeeze the margin with the $A price of gold around $A2,556 (at $US1,800 an ounce for Comex gold futures).
Higher costs in Australia (in WA) and in Canada are responsible for the sharp rise in projected costs for the year
St Barbara explained in the statement that increased costs at Leonora in WA were related to “rising energy, labour and consumables costs, coupled with a 23% increase in material mined”.
According St Barbara, the decisions in Canada will help it keep producing at its Touquay plant in Nova Scotia. It will process stockpiled material which results in an elevated AISC forecast as the cost of building the stockpiles was incurred in prior years and accounted for on the accounts (ie, already paid for)
The Atlantic operation is forecast to be cash flow positive, as the cash cost of moving stockpiles to the processing plant is significantly less than the current cost of open pit mining at the operation.
The Simberi mine in PNG (which could be sold) is returning to full production which has resulted in higher production and lower AISC.
The $6 million tailings lift will enable construction to extend the life of the Touquoy mine until June 2023. Touquoy will cease open pit mining at the end of 2023. St Barbara says it has sufficient stockpiles at Touquoy to ensure continued gold production from the Atlantic Operations until December 2024.
The company said it “will continue to deploy the ‘Province Plan Thinking’ used at Leonora to the Atlantic Operations”. It said this “will focus the Company on value add growth in two provinces”.
The longer-term Atlantic Province Plan will include Beaver Dam and Fifteen Mile Stream. St Barbara expects final permits for Beaver Dam prior to December 2024.
St Barbara said in Wednesday’s statement that it is expecting some regulatory determinations in relation to the Beaver Dam and Fifteen Mile Stream this month. The gold miner says they will have “an implication on the non-cash impairment charge in the 2021-22 results due to the impact on project timelines”.
That’s why St Barbara has decided to postpone its full-year results presentation to August 31.
This will “ensure that the best opportunity is provided for all relevant information to be available and considered, assuming that this assessment is made known before 31 August”, St Barbara said.
Unsaid in Wednesday’s report was any mention of the merger idea with Genesis after it completed the takeover of struggling Dacian Gold in a move to concentrate ownership of part of the Laverton area of the WA gold fields.
