Gold

Silver Lake exceeds previous guidance and upgrades FY23 expectations

Wed 27 Jul 22, 12:33pm (AEST)
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Key Points

  • Sliver Lake announced fresh sales guidance of 260,000 ounces of gold production for FY23 at an all-in cost of $1850 to $2050 per ounce
  • FY22 result includes the maiden contribution from the Sugar Zone
  • Gold sales in FY23 are expected to increase to 260,000 to 290,000 ounces and 900 to 1,200 tonnes copper at an all-in cost range of $1,850 to $2,050 per ounce

Silver Lake Resources (ASX: SLR) was up around 5% in early morning trading after the large-cap WA-based gold producer announced fresh sales guidance of 260,000 ounces of gold production for FY23 at an all-in cost of $1850 to $2050 per ounce.

At the midpoint, FY23 sales guidance represents an 8% year-on-year (YoY) sales growth on an absolute basis and 7% growth on a sales per share basis.

Today’s update follows the withdrawal of its previous quarterly guidance in April - following doubts over costs and labour issues – which the miner incidentally managed to beat.

Resilient management

Management attributes FY22 production of 251,887 ounces of gold and 991 tonnes of copper to the resilient management of ongoing and evolving challenges related to covid, and supply and labour shortages.

Sales of 251,686 ounces gold and 907 tonnes of copper were at an average sales price of $2462/ounce and all-in cost of $1756/ounce.

Highlights within today’s update included:

  • Cash and bullion at the end of June 30 was $313.8m

  • Quarterly production of 65,844 ounces of gold

  • Quarterly production of 235 tonnes of copper

  • $4.2m investment in exploration

Record production at Deflector

Management notes the FY22 result was underpinned by record production and sales from the Deflector operation, which delivered 20% YoY sales growth, in the first full year following the addition of the CIP circuit to the processing facility and introduction of a secondary high grade feed source.

The FY22 result also includes the maiden contribution from the Sugar Zone, with sales of 14,712 ounces post completion of the acquisition of Harte Gold on 18 February 2022.

“The strong cash position allowed Silver Lake to take advantage of market volatility during the quarter with the purchase of 778,164 of its shares at an average price of $1.37 per share under the on-market buyback, a capital management strategy to balance growth with shareholder returns," the company noted.

Outlook

Gold sales in FY23 are expected to increase to 260,000 to 290,000 ounces and 900 to 1,200 tonnes copper at an all-in cost range of $1,850 to $2,050 per ounce.

The company offers the following guidance while acknowledging the heightened risk posed by the ongoing response to covid and macroeconomic volatility:

  • FY23 Deflector sales guidance 130,000 to 140,000 ounces gold and 900 to 1,200 tonnes copper at an all-in cost range of $1,500 to $1,650 per ounce.

  • FY23 Mount Monger sales guidance 80,000 to 90,000 ounces gold at an all-in cost of $2,150 to $2,350 per ounce.

  • FY23 Sugar Zone sales guidance 50,000 to 60,000 ounces gold at an all-in cost of $2,250 to $2,550 per ounce.

The FY23 exploration budget of $27m is the largest exploration investment in the company’s history.

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Silver Lake Resources share price over one year.

 

What brokers think

Silver Lake’s share price is down around -6% over one year and since 20 April has fallen from $2.15 to $1.38.

Consensus on Sliver Lake is Strong Buy.

Based on Morningstar’s fair value of $2.00 the stock appears to be undervalued.

Based on the three brokers that cover the stock (as reported on by FN Arena) Silver Lake is trading with 51.5% upside to the target price of $2.075.

Macquarie retains an Outperform rating after nominating Silver Lake as the broker’s top pick from among mid-cap names on a strong production outlook.

The target is reduced to $1.90 from $2.10 on a multiple de-rating and after the broker factors in a higher weighted average cost of capital. (23/06/22).

Late April Ord Minnett maintained a Buy rating and reduced the target to $2.25 from $2.35.

Expect further broker updates later this week.

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Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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