Solid end to the year: SAR’s production for the June quarter was 146,896oz at an AISC of A$1,152/oz, which were both within 2% of our forecasts. Group production for the year was 520,414oz at an AISC of A$1,101/oz, with the average price received for the year of A$2,142/oz. SAR provided additional detail on the sales revenue going through the P&L versus the sales receipts, which showed sales receipts being $60m higher than the P&L revenue due to the inclusion of gold sales from pre-commercial production. Gross revenue was $1,132.4m for FY20.
Changes to earnings: SAR announced an unaudited net profit after tax of $190-200m, which needs to be adjusted for the transaction costs and KCGM stamp duty of $34m after tax. After adjusting for the capitalised sales over the year and other changes in assumptions, our FY20 attributable earnings have fallen from $248.1m to $194.2m, and to $160.2m after accounting for one-off costs. Our FY21 and FY22 earnings have increased 4% and 3% respectively.
The usual wait for the update: The management team has carried out its usual comprehensive annual review of all the assets, and is planning to provide additional detail on the longer-term outlook rather than just 600,000+oz. The review will include updated reserves and resources, and guidance on mine plans, production and costs. Carouse Dam and Thunderbox will be discussed in August after the annual results and KCGM will be done in September in conjunction with Northern Star.
Investment view: After updating our gold price forecasts, including the additional hedging SAR has entered into over the last quarter and today’s quarterly report, our valuation has increased from $3.81 to $4.22 and our price target from $4.25 to $4.71. To get to a price target anywhere near the current share price, we would need to completely reset our production and cost assumptions. At spot gold and FX, our valuation would be $5.27 and price target $5.90 using a 5% discount rate. Sticking to our recommendation methodology, we downgrade from a Hold to a SELL; however, we are mindful of the announcements to be made over coming months, and investors may wish to retain their holdings in a well-run and growing business. Click here to read full report