Target price of $3.39 by September 2016

St. Barbara July 10,2015
St. Barbara just released their June quarter and 2015 year end results which were very impressive. What is more important is how SBM can now leverage the very tangible improvements of 2015 into 2016, and project where this could possibly take company valuations.
For 2016, assuming Gwalia production of 250,000 oz at a cash cost of $650 per oz., Simberi production of 110,000 oz at a cash cost of $1035 per oz., and an average gold price of $1600, the following cash flows are possible:
Gwalia $1600 - $650 equals $950 cash margin times 250,000 oz equals $237.5 million
Simberi $1600 - $1035 equals $565 cash margin times 110,000 oz equals $62.15 million
Total gross profit of $299.65 million. Now assuming capex costs of $40 million for Gwalia, $10 million for Simberi, and admin and exploration costs of $40 million, net cash flow prior to interest is a healthy $209.65 million
$209.65 million capitalised at 8 times implies a market cap. of $1,677.2 million or $3.39 per share. I have not deducted the net debt owing, on the assumption that the projected price of $3.39 per share will not be achieved until September 2016, by which time net debt should be minimal.
At SBM’s present price of $.60, it offers both extreme leverage to a rising gold price, as well as protection to a falling gold price. An increase in the gold price of US $100 will increase free cash flow by AUS $48.2 million. Capitalised at 8 times, this is worth $.78 per share, implying a share price of $4.95 at a gold price of about US $1400. A fall in the US gold price will have similar effects, with a US $100 fall implying a share price of about $2.61, which is still multiples above the present share price.