Ground Breakers: St Barbara gets cheaper as PNG and Canadian issues bite
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Mid-tier gold miner St Barbara (ASX:SBM) has added to its woes, with issues piling up at its Simberi and Atlantic gold operations.
The gold producer is best known as the operator of the historic Gwalia gold mine near Leonora in WA, a high grade underground mine which was once run by US President Herbert Hoover in the late 1890s.
But of greater concern in recent times have been Simberi and Atlantic, where issues along with a weak market for gold stocks have seen numerous downgrades in recent times.
This morning St Barbs announced it has started a strategic review and indefinitely suspended a decision on developing a sulphide expansion at Simberi, which saw major production issues earlier this financial year during a Covid outbreak in Papua New Guinea.
Inflation has seen capital costs increase on a feasibility study last year, which put a US$170m price tag on developing a 160,000ozpa operation with an 11-year mine life.
St Barbara says it has received “unsolicited inquiries from potential investors in Simberi” and expects the sulphide expansion will still take place either through St Barbs or different owners.
Permitting issues at the Touquoy pit at Atlantic Gold meanwhile could force the company to place that mine into temporary care and maintenance, with the company still waiting on the outcome of a permitting process started in 2020 to use the pit as a tailings management facility once open pit mining wrapped up.
It has now made an application to complete a $6m tailings lift as a back-up to extend the life of the mine to the end of FY23, but needs approval early next month with the current capacity set to fill up in September.
If the in-pit tailings solution at the Nova Scotia mine is not settled by the third quarter of the next financial year, the operations will be suspended from the first quarter of FY24.
The news, which also includes plans to consolidate the Melbourne-based company’s corporate offices in Perth, sent St Barbara shares 11.1% lower to $1.005.
One of the top mid-tier gold miners a few years ago after a turnaround at Gwalia saw it pay of hundreds of millions of dollars in debt and resume dividend payments, its value has now dropped to $811 million.
RBC Capital Markets analyst Alex Barkley said it was a “substantially negative announcement”, with the share price dropping further away from the bank’s $1.75 target price.
“Without an interim solution, permitting delays to Atlantic tailings storage could bring site closure as soon as September 2022, and closure from FY24 without the permanent in-pit storage option,” he said in a note.
“Separately, permitting delays at the next Atlantic mine Beaver Dam will require more site processing of lower-grade stockpile in FY23 and FY24.
“The persistent lack of permitting coordination with regulators at Atlantic is a concern to us. Rising capital costs have put Simberi sulphide expansion at risk. Further delays to its approval could lead to a production hiatus in two years’ time.”
But Barkley said with the issues at Simberi and Atlantic better understood, focus could turn to the Leonora district, where RBC estimates 72% of SBM’s NAV is based.
SBM shares have now fallen ~45% over the past 12 months and are off ~80% since hitting an all-time high of $5 in July 2018.
The announcement came amid a day of consolidation in the local market, with materials stocks down slightly by 0.26% and the energy index 1.74% higher.
Gold miners Evolution (ASX:EVN) and Northern Star (ASX:NST) were up by more than 1% while coal stocks rebounded after yesterday’s news that Queensland would levy massively higher royalties on the industry to bankroll spending in its new budget, with Stanmore (ASX:SMR) up 10.08%.