Brokers Keep The Faith In St Barbara
FN Arena News - February 19 2008
By Chris Shaw
Sometimes results just don't matter, as evidenced by a number of reactions in the market to the St Barbara Mines (SBM) profit result announced yesterday. While GSJB Were saw it as a weak result others chose to largely ignore the numbers to focus more on the company's longer-term upside.
The upside comes partly from the Gwalia Deeps project, which the company pointed out remains on track for first ore to be produced early in FY09. The second area of upside is exploration, with Citi noting the upcoming March quarterly production report should contain a reserve increase at Southern Cross and initial reserves at Tower Hill, which it sees as a promising project.
This upside is enough for the broker to retain its Buy rating, even though the loss for the half year was a little larger than it had anticipated. The broker does point out the bigger than expected loss was largely due to exploration expenses being capitalised versus expensed, which explains its lack of concern as to why the numbers fell short of its estimates.
It was a similar story at Deutsche Bank, the broker suggesting while the loss was greater than it had forecast it was due primarily to non-cash items such as higher deprecation and amortisation (D&A) charges.
With additional reserves expected to be announced in the March quarterly the broker expects the D&A rate to come down, while it remains attracted to the fact the company will be unhedged at a time when gold prices are strong and production will be increasing.
Macquarie also remains positive and has lifted its price target to $1.10 from $0.70 while noting the likelihood of exploration success is good given the company has allocated around $25 million for its exploration budget this year. It sees any reserve or resource upgrades in coming months as positive catalysts for the share price and like Deutsche the broker is attracted to the unhedged exposure to gold prices the stock offers.
GSJB Were preferred to focus on the fact cash flow may be something of a problem as on its numbers the company's cash flow for the year was not enough to cover the development costs at Marvel Loch, let alone at Gwalia Deeps.
But on Macquarie's numbers the company has the cash available to fund its developments so it doesn't see this as being a major issue, though it noted there is some risk if the Southern Cross project encounters any operating issues that slow down its development.
Overall the FNArena database shows the stock is rated as Buy three times and Hold once (GSJB Were) with an average price target of $1.04, up from $0.94 prior to the result thanks to Macquarie's increase in its target.
Shares in St Barbara today are slightly weaker and as at 11.05am were down 3.5c at $0.87, which compares with a range over the past 12 months of 37c-95.5c.