My concern back in 2015 was in regards to the cashburn on turning the Pacific Island operations around - they really did come close to a bad end. "Fortunately" Gold Ridge closed due to the weather intervening so that stemmed a lot of the bleeding and then it took another 6-8 months for them to finally get Simberi net cashflow neutral, having made many promises in the past to do this.
Bob Vassie is very capable technically but we need to recognise he comes from the big end of town, Rio Tinto, which means he likes to work with tier 1 assets. Simberi is not a tier 1 asset, but it could be a mid-cost operation relative to other mines overseas. In a world of rising gold prices this is the sort of operation that is useful to own as it becomes increasingly more valuable. This fact is often not appreciated by some, especially by those would rather not operate in a third world environment with its country risks and red tape issues.
The operational improvements that Bob Vassie saw finalised where started by his predecessor who failed to get them sorted out in a timely and economically manner. While most of the asset acquisitions and divestments were not made under Vassie's watch, the sale of Kailis and King of the Hill were made after he arrived.
They decided not to mine the Kailis deposit which had some useful higher grade open pit ore but to sell it and simply reduce the amount of ore milled. Their Leanora mill is now underutilised as only around 800-900k tonnes pa of ore is processed despite the milling capacity being around 1.3m tonnes. What they seem to be planning to do is to eventually increase Gwalia ore production to meet the mill's capacity - which is great as they could produce some 320k+ ounces pa from Gwalia, but in the long term it will deplete the ore much faster and reduce the mine life.
The remaining borrowings are now relatively insubstantial and one does not need to worry about them as at the current rate of cash generation the company will become net cash positive in November 2016, while the remaining debt is only due to be repaid in April 2018. That means there is scope to now fund a much larger exploration program to ensure the company has a future beyond Gwalia.
I am not concerned about the drop in the share price - been through this many times with SBM since late 2015. I think a dividend would only have a marginal impact on the share price, and I am not pushing for this at present. I agree that some of the fall in the share price is due to the general pullback of the mid tier goldies, but I also think that the market has concerns about SBM's future post-Gwalia and fundies/investors are looking for growth stories, which SBM seems to lack.
loki (I like to bite the hand that feeds me.)
SBM Price at posting:
$2.85 Sentiment: None Disclosure: Held
(20min delay)
