Production on target; costs a touch higher: Gruyere’s June quarter gold production was 71,865oz, in line with our forecast. GOR’s share was 35,933oz, with its sales totalling 28,700oz at an AISC of A$1,233/oz – costs were 5% above our forecast. On the cost front, the positive surprises were improvements in unit mining and processing costs, as the operators start looking at improving operating efficiencies. The increase in costs came at the sustaining cost line, which was A$309/oz, due to the tailings dam lift and more stripping.
Production guidance unchanged; costs up in 3Q20 and for the year: On a 100% basis, the 2020 production guidance is for 250-285,000oz, with GOR’s costs range now expected to be A$50/oz higher at A$1,150-1,250/oz. The company noted that the $50/oz increase was because of increased maintenance, a higher royalty payment (driven by higher gold price) and COVID-19-related costs. Costs are expected to peak in the September quarter at $1,250-1,350/oz, when the tailings dam lift is completed. We had previously forecast costs for the quarter of A$1,179/oz, and have lifted these estimates in line with guidance.
Bullion holdings up and debt gone: GOR finished the quarter with debt of $25m and cash & equivalents of $109.1m (net cash & equiv. ~$85m). Since the end of the quarter, GOR has repaid the outstanding debt and it now has just over 5,000oz of bullion and doré which it can use to service forward sales or deliver into high spot prices. GOR’s hedge position, which was put in place as part of its project financing, is still largely in place, although part of the 2H20 deliveries have been rolled to 2022.
Investment view: Our earnings estimates have changed by less than +/-5% in the forecast years, with increased costs being offset by higher spot prices. Our valuation has increased 7c to $1.60ps (at spot it would be $2.01ps). Now that the project has operated for 12 months, we have moved to using a 5% discount rate, as we have with the other gold stocks, to derive our price target, which has increased from $1.53 to $1.97. We retain our HOLD recommendation and look to the new reserve statement driving a production increase at Gruyere and exploration success in the Yamarna belt as future price drivers. Click here to read full report