Yes it is bearish. The problem is that the company has just come out of a major study looking into the future of Gwalia and significant doubt has been cast over the long term future of the mine. If the MEP is not a goer the mine life drops from 12 years to about 5 years. The market has every right to discount the share price on that basis alone as it did yesterday.
The mine life prior to this announcement was about 5 years with the $100 million expansion plan but mining costs for Gwalia beyond 2019 have not been guided. Given they have just finished a major review of the future of the mine, disclosing production but not costs for 2020 to 2022 is not very transparent and creates investor uncertainty. They have also pointed to ventialtion constraints that won't be rectified until 2nd half 2020 and then they have the problem of rising costs as the mine gets ever deeper. They are better to release some guidance on costs if they have any IMO as that would give the market something to work with. Production guidance without cost guidance is practically useless. My valuation tries to factor in the holes in the information by risking them, ie applying discounts which I think is fair enough. I'm not an investor here so can look at it from an external basis.
From a trading perspective the share price will probably recover as they print their profit result for 2019 which I estimated could be around $262M. The market is very fickle and it will quickly forget the long term risks when presented with a number like this but I'm looking at the company from a long term risked value perspective, not a trading perspective and until they remove the risk by coming clean on costs I remain bearish.
The other arguement in the companies favour is that having the cash they could reapply it towards acquistions if the medium term future at Gwalia doesn't turn out to be fantastic. The cash they hold is a longer term risk mitigator but acquistions in Australia are just getting harder and harder to find. Basically we dropped the ball a long time ago on greenfields exploration and we will pay for it with declining production into the future. Many of our aging mines are being milked for all they are worth currently but few investors and companies care about the future as exploration is viewed as too risky and places where you can still find bigger deposits, like Africa, are also viewed in the same way. The Australian gold industry better start knuckling down with exploration or eventually we won't have a gold mining industry. At the moment all that is happening in the Australian gold exploration scene is that when a small explorer is almost finished going through the torturous process of risking money, finding a deposit and moving towards development of that deposit a large player comes in with their financial muscle and steals the project for a song because the shareholders of the small company have smaller financial miscle and have often been beaten down by the process of investing in that company in the first place. The big companies are shooting themselves in the feet by not assisting the smaller players in the search for mew deposits and by not doing win win deals with the explorers, as eventually speculators in the exploration sector just throw in the towel as the risk is not worth the reward. The big companies are responisble for this and should be responsible for helping or doing exploration so the gold industry can survive and prosper. SBM has been particulary poor in the area of exploration and development of its surrouding regions and might end up paying for its sin because when it turns around with its cash pile to go shopping it will find that the shelves are practically bare. Esh
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