We have finally started the second quarter earnings season for the Gold Miners Index (GDX), as most ASX-listed gold producers report their fourth quarter and full year 2020 results. Silver Lake Resources (OTCPK:SVLKF) is one of the first gold producers to report earnings, and the company released an explosive report with a huge overshoot at some of the highest costs in the industry. While the miner’s position in a country relatively untouched by COVID-19 certainly helped the results while other miners suffered from shutdowns, the results were nonetheless exceptional. These strong results, coupled with a near-record gold price (GLD), allowed Silver Lake to add an additional A$42 million to its balance sheet, ending the quarter with A$269 million in cash and bullion. . Based on the company’s high margins, healthy balance sheet, and ability to continually under-promise and over-deliver, I continue to consider the stock a top 10 gold producer in the industry.
(Source: company report)
Silver Lake Resources released its fourth quarter and full year 2020 results on Tuesday, and the results were nothing short of outstanding. The company’s annual gold sales were 263,200 gold equivalent ounces [GEOs], a 17% overrun of the midpoint production forecast of 223,000 GEO, and costs were nearly 10% lower than forecast at $1,295 A/oz [US$907/oz]. The good results were driven by higher grades at Mount Monger and increased throughput, as well as strong results from the new Deflector mine which saw record tonnes milled at higher grades. While the company previously predicted 27% annual gold sales growth based on its midterm forecast, the massive beat led to 54% year-over-year growth, the one of the best growth rates in the sector. Let’s take a closer look at the quarter below:
(Source: author’s table)
Starting with the company’s largest contributor to gold production, Mount Monger, the company had a strong quarter with mill throughput of 310,000 tonnes at an average head grade of 4.6 grams per ton of gold. This head grade is at the upper end of the trailing twelve month average of 4.20 grams of gold per tonne and contributed to fourth quarter gold production of 38,000 ounces. In terms of operating statistics for fiscal 2020, the company milled 1.23 million tonnes, which was roughly flat year-over-year, but Silver Lake benefited from much higher grades. year over year, with head grades increasing from 3.7 grams per tonne gold to 4.4 grams. per ton of gold. These higher grades boosted gold production by more than 17%, increasing from 136,800 ounces to 160,200 ounces. Meanwhile, all-in sustaining costs for the quarter fell slightly to AU$1,414/oz. [US$990/oz], down from AU$1,434/oz [US$1,004/oz] Last year. Silver Lake has now commenced open pit operations at Karonie South, now that mining has been completed in the high-grade French Kiss and Harry’s Hill pits.
(Source: company report)
Moving on to the company’s low-cost Deflector mine, we also had an incredible quarter, with a new record high of 30,700 GEOs produced in the fiscal fourth quarter at $1,167 A/oz. [US$817/oz]. The company’s fiscal 2020 results also reached a new high, with production of 112,800 GEOs at costs well below industry average, with all-in sustaining costs for Deflector at $1 $115 A/oz. [US$781/oz]. A significant increase in annual throughput to 659,300 tonnes resulted in strong results and higher average gold grades, which increased 10% year-on-year to 5.5 grams per tonne gold. While copper grades fell slightly to 0.4% from 0.5% last year, recoveries remained strong at the lower grades, as they stood at 96.7% for fiscal 2020. Overall GEO production increased 16% year over year, although costs increased slightly to $1,048 A/oz [US$734/oz]. Overall, it was an outstanding quarter for the company at the high-grade Deflector mine, with the significant resource upgrade being a bonus by further increasing mine life.
(Source: company report, company website)
Looking back to fiscal year 2021, Silver Lake led sales of 250,000 GEOs, which would translate to a 5% year-over-year decline from the 263,200 GEOs sold in the fiscal year. 2020. However, given the company’s track record of under-promising and over-delivering, I don’t think that matters at all. For investors who took advice in fiscal 2020, the company beat more than 40,000 GEO mid-term, suggesting it’s probably best to take their conservative advice with a grain of salt. However, even if Silver Lake were to see a single-digit year-over-year GEO sales decline, it wouldn’t be the end of the world after a year that only saw 54% growth. .
(Source: Company presentation)
Based on the exceptional results, Silver Lake has further added to its balance sheet, with a cash increase of A$42 million since the third quarter of the financial year. This pushed the company’s total cash and bullion position to A$269m, giving Silver Lake one of the most attractive balance sheets in the industry today, with over 10% of its market capitalization in cash. without debt. As the chart below shows, this is an anomaly in the Australian gold sector, with few names having net cash, let alone over A$250 million. This improving balance sheet gives Silver Lake plenty of room to continue growing through acquisitions and organically, and I wouldn’t be surprised if the company takes a step at some point over the next twelve months. if the price was right. To date, the company has proven it can grow responsibly through acquisitions without significant dilution, with two deals completed in the past 20 months (Doray Minerals and Egan Street Resources). Let’s take a look at the technical picture:
(Source: Company Presentation)
From a technical standpoint, it’s clear that Silver Lake is a leader as the title continued to hit new highs and barely budged in the turmoil of mid-March. However, the stock has now had a very nice run, which is why I just see it as a Hold at current levels as we are now approaching potential resistance near $A2.70. This does not mean rushing to sell your entire position as it is never wise to lose a position in one of the top 10 companies in a bull market, but this suggests that investors are better off waiting for pullbacks before adding any exposure. . Any correction below AU$2.15 would provide a much lower risk zone to complete his position.
In an industry plagued by management teams that overpromise and massively underdeliver, Silver Lake is a breath of fresh air, finding a way to smash its forecast in a year that couldn’t be trickier for the area. While costs are expected to rise slightly next year to AU$1,450/oz [US$1,015/oz], I don’t see that as a big deal because the company is aggressively funding the growth of its projects. Based on Tier 1 operating jurisdictions and the company’s operational excellence, I continue to view the stock as a Hold. However, if we were to see the stock break above AU$2.65 before September, I believe this would provide an opportunity to book some earnings as the valuation would start to get a bit expensive.