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St Barbara’s Outlook Loses Its Lustre

Australia | May 19 2021

This story features ST. BARBARA LIMITED, and other companies. For more info SHARE ANALYSIS: SBM

St Barbara has disappointed the market with another downgrade to gold production guidance, although some believe this will be the low point

-Extent of reduction to Gwalia outlook surprising
-Changeover at Gwalia taking longer than expected
-Pandemic risk prevails at Simberi


By Eva Brocklehurst

Gold guidance is lower and costs are up, as St Barbara ((SBM)) disappoints the market with another downgrade to production. The miner's growth trajectory is lagging peers and Shaw and Partners suspects the stock will now be banished to the outer rim until the issues are dealt with.

St Barbara has reduced FY21 production guidance to 330-360,000 ounces and lifted cost guidance (AISC) to $1547-1695/oz. Grade issues and a contractor change at Gwalia (WA) and low mining rates at Simberi (PNG) are the cause.

On a positive note, guidance at Atlantic (Nova Scotia) is unchanged at 100-110,000 ounces with costs between $958-1050/oz. Throughput and recovery in April were on par with the record in March, although Ord Minnett flags an increasing pandemic risk as lockdowns are now occurring in Nova Scotia.

Macquarie expected a revision to guidance but the extent of the reduction was surprising and, as the outlook for Gwalia over the short term is key to re-setting the base case, downgrades to Underperform from Neutral.

Reductions to assumptions at Gwalia for the first half and Simberi from FY22-24 mean the broker's estimates for earnings per share are cut by -17% and -40% for FY22 and FY23, respectively. After several downgrades in a row, Ord Minnett, too, believes it will now take some time for the market to regain confidence in the potential and growth story, cutting its rating to Hold from Buy.

The June quarter was always going to prove challenging, in Citi's view, and Simberi is likely to miss guidance, although the magnitude of the downgrade at Gwalia was not expected. The broker notes FY21 will be that project's highest cost year yet and the main concern centres on the difficulty of making realistic forecasts, even as the quarter nears its end.

Nevertheless, while acknowledging its Buy/High Risk rating requires a certain stoicism from investors Citi believes now FY21 expectations are reset this could be an operating low for the company.

Morgan Stanley is of a similar persuasion and, while operating improvements at Gwalia will still need to be demonstrated, remains bullish and finds there is compelling value in the stock.


Negative grade reconciliation in both stope ore and stockpiles will affect the fourth quarter at Gwalia and the transition in mining contractors has been slower than the company anticipated.

Gold guidance at Gwalia is down -11% 150-160,000 ounces and Ord Minnett points out this is at half the level of FY18 and at twice the cost.

The company made a weak start to the third quarter and the guidance downgrade then left a "somewhat ambitious" fourth quarter. Hence, Morgan Stanley finds the new numbers are more reasonable and still signal rising production at Gwalia.

Significantly, Gwalia is yet to demonstrate the benefit of the developments that should open up more mining areas and lift tonnage from FY22. The company expects the new contractor, MacMahon Holdings ((MAH)), will be key to lifting the operation.


At Simberi, low recoveries have been attributed to ore variability, further aggravated by the impacts of the pandemic on the workforce in PNG while the extension to the mining licence is also a catalyst for the sulphide project.

Shaw and Partners, which does not rate the stock, believes improvement in the covid-19 status in PNG along with stability at Gwalia are essential for outperformance.

FNArena's database has three Buy ratings, one Hold (Ord Minnett) and one Sell (Macquarie). The consensus target is $2.38, suggesting 33.7% upside to the last share price.

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