St Barbara rallies as gold sector comes under pressure

By Trevor Hoey. Published at Jan 20, 2017, in Features

As the S&P/ASX 200 gold index (XGD) shed 2% on the back of a decline in the gold price, shares in multi-mine gold producer, St Barbara (ASX: SBM) rallied more than 2%, perhaps spurred on by a positive review of the company’s operations by analysts at Macquarie.

The broker was impressed with the group’s performance from its Gwalia and Simberi gold projects where December quarter production of circa 70,900 ounces and 28,000 ounces respectively compared favourably with the broker’s estimates of 63,900 ounces and 23,000 ounces.

It should be noted that broker projections and price targets are only estimates and may not be met. Also, historical data in terms of earnings performance and/or share trading patterns should not be used as the basis for an investment as they may or may not be replicated. Those considering this stock should seek independent financial advice.

The Gwalia mine is in Western Australia, while Simberi is located in New Ireland, Papua New Guinea.

In providing its quarterly update St Barbara lifted the lower end of its full-year production guidance for Gwalia by 10,000 ounces to 255,000 ounces, and the group is expecting annual production from Simberi to be in a range between 95,000 ounces and 105,000 ounces.

Macquarie’s production forecasts at top end of guidance

Macquarie’s production forecasts for fiscal 2017 sits at the top end of guidance with the broker’s projections based on combined output of 364,700 ounces.

Apart from the exceeding Macquarie’s production guidance, the broker also said that the company had outperformed on the costs front with Simberi approximately 10% below expectations.

This prompted the broker to upgrade its fiscal 2017 earnings forecast by 6%, resulting in a 12% increase in its price target which now stands at $2.90 per share.

This implies further upside from Thursday’s high of $2.41. However, Macquarie also sees St Barbara as a possible takeover target, or perhaps a suitor given it is expected to generate annual free cash flow in a range between $150 million and $200 million over the next five years.

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