The future is looking golden
Silver Lake Resources delivered a record level of gold production in the June quarter, up 42 per cent on the corresponding quarter last year, to 55,600 ounces of gold.
Importantly, in the current low gold price environment, the higher level of gold production and the implementation of cost savings drove down Silver Lake's cost profile over the quarter. The miner's all-in sustainable cash costs for Mount Monger recorded an 18 per cent decline for the nine months from September last year, to $1090 an ounce - a trend that management expects to maintain in 2014.
To reflect the lower gold price, Silver Lake's balance sheet suffered $321 million in impairment charges. Despite the hit, net assets as at the end of June grew to $361 million, from $194 million a year earlier. In addition, the recent $48 million capital raising and the pending share-purchase-plan offering to shareholders of $15 million will allow the company to repay all debts - a major de-risking measure.
For 2014, Silver Lake has provided production guidance in the range of 180,000 to 200,000 ounces of gold. This is up from 151,296 ounces of gold produced last year. Furthermore, the company expects to drive further costs out of its operations to sustain positive cash flows and operating margins. Other initiatives under way to maintain positive cash flow include reducing capital expenditure.
Silver Lake's price has not been spared in the goldmining sector share price capitulation from March this year. The price falls were a result of the long-running rally in the gold price coming to an end. Silver Lake's share price has come under added pressure because of a downgrade in its production guidance during the year, due to operational issues.
Silver Lake has significantly improved its gold production profile and has also taken a major stride in lowering cash costs. Consequently, we see Silver Lake as offering a low-risk entry into the gold sector, and believe the stock is worth buying about the current level.
Greg Smith is managing director at Fat Prophets sharemarket research. To receive a recent Fat Prophets Report, phone 1300 881 177 or email firstname.lastname@example.org.