ASX:SBM
St Barbara Ltd
Investment Summary
The fund managers believe that St Barbara Ltd presents a compelling investment opportunity, highlighting several key catalysts for growth. Firstly, they appreciate the strategic merger with Genesis Minerals, forming Hoover House Limited, which is expected to generate significant synergy benefits of around $200 million NPV. Secondly, the demerger of assets into Phoenician Metals could unlock further shareholder value. Despite setbacks including a -26% stock correction due to an unexpected capital raise, the managers maintain that St Barbara has deep value with assets valued around $350 million against a market cap of roughly $200 million. They identify the Simberi mine’s expansion as a focal point for future cash generation, projecting a potential output of ~250,000oz per year. Furthermore, they foresee acquisition interest from larger gold companies given the strong metrics associated with Simberi’s resources, currently valued conservatively at ~$250 million. Overall, they are optimistic about management’s capacity to realize value from the company's remaining assets.
Commentary From The Managers
Paragon Funds
30 Nov 2024
$0.33
- Paragon Funds notes St Barbara's recent correction of -26%
- Correction attributed to a $100m discounted 38c capital raise that surprised the market
- Paragon Funds did not participate in the capital raise but increased their position at 30c
- Current market cap of St Barbara is approximately $350m
- St Barbara holds ~$180m in cash and 7moz gold resources
- Also has ~$25m in listed investments, indicating deep value
- The capital raise aims to fund long lead time items for Simberi's US$250m expansion
- Simberi is projected to produce ~250koz pa for over 10 years
- Payback period for Simberi is expected to be ~12 months
Paragon Funds
31 Aug 2024
$0.24
- Paragon Funds continues to monitor St Barbara Ltd after five challenging years marked by significant operational issues.
- St Barbara faced problematic, producing assets like Gwalia and Atlantic.
- They undertook materially overpriced M&A, leading to excessive debt and a failed asset sale process for Simberi.
- The company experienced permitting delays in Canada and poor leadership, contributing to a significant stock decline.
- Gwalia's sale cleared the company’s debt, currently leaving a market cap around $200m.
- St Barbara is no longer burning cash and presents deep value in its remaining assets.
- Asset breakdown includes:
- Unrestricted cash of $125m and $130m in franking credits.
- An investment portfolio valued at $25m.
- Atlantic, with substantial mineable resources and infrastructure, valued conservatively at $50m.
- Simberi, producing ~70koz p.a. and breaking even, potentially worth multiples of its market-assigned value of $50m.
- Andrew Strelein has a clear mandate to realise value and an aligned equity incentive structure.
- Simberi's expansion focus has led to upgraded resources and reserves, and feasibility studies indicate strong investment metrics.
- Simberi is expected to attract interest from larger gold mining companies, notably those with Pacific operations.
- The market may soon re-rate St Barbara's share price or the management might pursue a sale of Simberi or the entire company.
L1 Capital
31 Dec 2022
$0.34
- St Barbara shares have increased by 28% following a merger announcement with Genesis Minerals.
- The merger will combine their Leonora gold operations into a new entity named Hoover House Limited.
- The remaining assets of St Barbara, including Atlantic and Simberi, will be spun off into Phoenician Metals.
- L1 Capital has identified the consolidation of the Leonora gold district as a significant catalyst for St Barbara.
- The merger is expected to create synergy benefits of approximately $200m NPV.
- It aims to achieve capital expenditure reductions of around $400m.
- The new management team is regarded highly and is believed to be capable of executing the proposed benefits.
- The separation of assets in Phoenician Metals could unlock additional shareholder value through better operational execution.
- A streamlined asset base may facilitate further consolidation opportunities.
L1 Capital
31 July 2022
$0.50
- St Barbara shares rallied in July following strong Q4 FY22 results, showing positive cashflow generation and solid mining production.
- Gwalia mine is positioned for improved performance after recent reinvestment, with further efficiencies expected from its expanded mill.
- Simberi mine has resolved operational issues and is now poised for a potential sale, which may reduce capex and provide additional cash flow.
- Several catalysts could unlock value within the next 12 months, such as asset streamlining and consolidation in the Leonora gold district.
- St Barbara is among the cheapest gold names globally based on price per ounce of resources and reserves, indicating significant upside potential.
- L1 Capital continues to hold because they believe in the long-term growth prospects associated with operational improvements.
Please note: The completeness, accuracy or current status of the investments referenced are not guaranteed.