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.
Outlook
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.
Price
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.
Worth buying?
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 info@fatprophets.com.au.
Frequently Asked Questions about this Article…
Silver Lake Resources delivered a record June quarter, producing 55,600 ounces of gold — up 42% on the same quarter a year earlier, according to the company report.
Silver Lake reduced its all-in sustainable cash costs at Mount Monger by 18% for the nine months from September last year, bringing costs to $1,090 an ounce, a trend management expects to maintain in 2014.
To reflect the lower gold price, Silver Lake recorded $321 million in impairment charges. Despite that hit, net assets at the end of June grew to $361 million from $194 million a year earlier.
Yes. A recent $48 million capital raising plus a pending $15 million share-purchase-plan were expected to allow Silver Lake to repay all debts, a significant de-risking step for the company.
Silver Lake guided 2014 production to 180,000–200,000 ounces of gold, up from 151,296 ounces produced in the prior year.
Silver Lake plans to drive further costs out of operations, maintain the lower cash-cost profile, and reduce capital expenditure — all aimed at sustaining positive cash flows and operating margins.
Silver Lake’s share price fell as part of a broader gold-mining sector capitulation from March, and it faced added pressure after a mid-year downgrade in production guidance due to operational issues. The article notes analysts view the company’s improved production and lower costs as reducing risk.
According to the article’s commentary from Greg Smith of Fat Prophets, Silver Lake’s stronger production profile and lower cash costs make it a lower-risk entry into the gold sector, and he believes the stock is worth buying around current levels.
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