to put these comments into perspective here's a table of relevant mining comps on EV/gross operating margin
ie. it measures each Company's share's value - net of cash - as a ratio against gross mine earnings (ie operating margin above aisc) . (nb i havent incorporated minority interests)
ie it tells you relative price you are paying for $1 of gross earnings. the lower the number the cheaper the price
Current SLR 4.0
Future SLR 2.9 @180koz @1200 aisc target 200k @1150
Current MOY 5.7
Future MOY 3.5 @90koz @ 1200 aisc target 100k @ 1100
RRL 11.9
SBM 8.0
SAR 10.0
NST 11.0 st target 600koz @1025 aisc lt target 750koz+ but undefined
So - as you can see there's massive discount on leverage to gold earnings in SLR and MOY vs their larger competitors. Some of that is because of
- higher vs lower aiscs,
- size of output(ie leverage),
- nta of asset infrastructure (ie balance sheet)
But that said on a relative basis SLR and MOY appear to standout as offering very attractive discount - but discount by itself is never a reeason to buy a stock - discounts can remain in place for years
what's needed is a reason - a catalyst - that will cause enough investors to consider shifting into the discount
I've just bought both SLR and MOY because both are planning near term
- increase in production ounces
- decrease in aisc
MOY is precisely defined and near to hand - its 100koz mine plan should be hit late this year and be in full swing in produced ounces from Jan 2019
SLR is less defined in precisely when and how Aldiss will add its ~30-50kpa or 130-150k fy19-21 - so the catalyst is sloppy outside knowing the haul road construction and infrastructure will commence in Dec qtr
The sooner SLR can put some real granularity on Aldiss - the sooner and sharper the chance of a rerate
The positive in both cases is that there's plenty of cash on hand to deal with any conceivable overuns in pre-capex - so neither poses a dilution risk
neither stock will be likely to hit 8.0x or better EV/gross margin until they can get aisc down to 1000aud or lower - and thats tough on relatively smaller scale operations
But a 5-6x ratio is eminently plausible and what I expect to see for both stocks once they prove they;ve hit their plans
For SLR that suggests around $1.20+ - will be higher given cash will continue to accumulate reducing the EV
IF audpog can break above the 1600-1850 range its tended toward in past ~4years - then SLR would likely be my No 1 'spec stock' of aud producers i;ve looked at assuming its ~200koz@ 1150aisc or lower
but equally if aud gold breaks hard below 1600 then slr may struggle to make headway because of the margin compression
SLR Price at posting:
59.5¢ Sentiment: Hold Disclosure: Held
