Silver Lake Resources: Result 2012

Higher gold prices and higher production resulted in soaring full year profits for Silver Lake Resources. Gold sales rose 29% to 83,000 ounces, almost exclusively from the Mt Monger camp. Production from Murchison will start next year along with output from soon-to-be acquired Integra Mining. Silver Lake will soon be operating several mines in Western Australia.

Net profit rose 97% to $31m, translating to earnings per share of 15 cents. No dividend was declared but, as output climbs towards 400,000 ounces over the next 3 years, dividend payments should follow. Managing director Les Davis has hinted at a preference for dividends, no doubt cognisant of the vocal demands of investors across the industry.

Operating cashflow rose 89% to $63m and, once the Integra merger is complete, Silver Lake will emerge with $100m of cash and no debt. The miner’s production plans are optimistic, but appear well supported by gold resources and cash.

It has been a busy year for Silver Lake, completing two significant takeovers, increasing gold resources and also announcing impressive copper strikes at Hollandaire. Although drill hits are impressive, it’s too early to confer any value to copper yet. Silver Lake’s processing facilities are set up to process gold. Just how copper will be processed and sold is unclear so any copper resources aren’t reflected in our valuation.

At today’s gold price, Silver Lake is fairly valued. Resource expansion from here is highly likely and Silver Lake remains one of the few gold miners in the land with expanding output and stable costs. We’re in no hurry to sell yet. We’ve adjusted our recommendation guide to reflect further progress and new shares on issue. With the share price up 25% since Silver Lake's integral takeover on 08 Aug 12 (Hold - $2.61), we’re sticking with HOLD.

Note: The Growth portfolio owns shares in Silver Lake Resources.