Deflector delivers to produce a record year: Group production in the June quarter was 71,291oz, 4koz higher than our forecast, while sales were 64,593oz at an AISC of $1,344/oz. SLR’s FY20 production was 255,533oz of gold and 2,175t of copper, with an AISC after copper credits of $1,295/oz and a margin of $837/oz on the sales price. Mt Monger’s performance in the quarter was in line with our forecasts – 42,331oz produced, and sales of 38,017oz at an AISC of $1,471/oz. Deflector’s quarterly gold production of 28,960oz was 17% higher than our estimate, while copper production at 416t was 13% lower than our forecast and sales were 26,576oz at an AISC of $1,167/oz.
Guidance for FY21: SLR expects group sales to be 240-250,000oz of gold and 1,100t of copper at an AISC of $1,400-1,500/oz. The sales split is 145-150,000oz for Mt Monger @ $1,500-1,600/oz and for Deflector 95-100,000oz of gold and 1,100t of copper @ $1,300-1,350/oz. The major difference with our forecasts was the level of copper production going forward, as we had been factoring in too high a head grade and have brought this back to be in line with the latest reserve statement; the offset over the year may be the gold grade, which we believe may have the potential to surprise on the upside.
Changes to forecasts: We have updated our forecasts for the latest gold, copper and FX forecasts as well as factoring in yesterday’s quarterly, the guidance and other revisions to assumptions like costs and RC/TC charges. The impact was to lower our FY20 estimates by 6% and increase FY21 and FY22 by just over 15%. Our valuation has increased by 4cps to $1.61ps.
Investment view: SLR, like many gold stocks in the market, appears to be pricing spot prices into perpetuity. Using spot gold, copper and FX, we generate a valuation of $2.12ps and a price target at a 5% discount rate of $2.46ps. Perhaps investors are factoring in additional growth delivered through the successful investment of SLR’s almost $270m net cash balance. We have factored in a preliminary version of the Rothsay integration, but adding future investments is difficult. We increase our price target from $1.81ps to $1.83ps and downgrade our recommendation from Hold to SELL. Click here to read full report