Company: Silver Lake Resources Limited
ASX Code: SLR
Share Price: $0.655
Market cap: $100.5m
The gold rushes of the nineteenth century and the lives of those who worked the Australian goldfields – the ‘diggers’ – are forever etched into our national folklore. We have an esteemed history in the yellow metal, and during the peak of the 1850s rush Australia produced one third of the world’s gold output! These days, our nation consistently produces roughly 10% of the world’s gold and has a significant list of small to mid cap producers on the books. One of the latest companies to enter this rich tradition is Silver Lake Resources which successfully commenced its first gold pour in February this year.
Operating out of the goldfields of Western Australia, Silver Lake is a company largely still in an exploration and stgelopment stage. However, in its debut year, the company’s Mt Monger project is on track to produce 50,000 oz of gold but is currently the sole source of income. Since the first shovel was turned at Mt Monger, production has been following a steady upward path with the company’s Lakewood Mill being primarily fed by the Daisy Milano mine. The Christmas Flats open pit project, also at Mt Monger, has just come online but its contribution to revenues will not rival Daisy Milano.
With several other mine sites still in stgelopment at Mt Monger in the coming years, the initial target is for 60,000 ozpa from the Lakewood Mill by the end of this year with a longer term goal of over 100,000 ozpa in the next 2 to 3 years. Going by current resource estimates total ‘mine life’ for Mt Monger stands at around 5 years but there is still exploration potential for the area.
Cashflows from Mt Monger are expected to fund the company’s ‘next big project’ at Mt Murchison, also in WA. Current resource estimates indicate that Murchison is double the Monger find and its commercialisation in the medium term provides substantial upside to this stock. Feasibility studies have been completed and results are expected shortly. Murchison’s current resource estimates stand at 1m oz and is still undergoing promising exploration stgelopment. Its commercialisation, combined with Mt Monger could make Silver Lake a 200 – 300,000 ozpa producer in the next 3 to 5 years.
With $18.5m cash, $1.5m worth of gold bullion, no debt and operating cashflows of close to $30mpa, the company’s funding proposition is healthy for anticipated future expansion plans. Furthermore, no hedging arrangements are in place leaving Silver Lake freely exposed to any appreciations in gold. However, with cash costs of approximately A$650/oz and gold hovering above A$1,150, the yellow metal only needs to maintain current levels for Silver Lake to continue reaping handsome rewards. The key risk facing the Aussie gold price at this stage remains the dollar but even if currency fears did take shape, the company’s cash cost of production provides a comfortable buffer.
Silver Lake is still a junior producer in relative terms but it is quickly establishing a good track record for production growth and delivering on its intended plans. Following its listing in late 2007, management has lead the company to producer status within 1 ½ years. This is no mean feat, as it is commonplace for some resource companies to take what seems an eternity to kick off operations. Management’s extensive experience in the resource industry is largely to thank for this achievement. Confidence in the company has been demonstrated at the high end of town with Sprott Asset Management becoming a major shareholder (7.80%) in April.
So with the gold price showing signs of stabilisation above US$900/oz and the recent quarterly report demonstrating that Silver Lake is on track to keep delivering on its production growth intentions, consolidation in the share price appears to be offering an attractive entry point for investors. But will the company carry on Australia’s royal lineage of gold producers, and maintain Australia’s proud heritage that began in the fields of Ballarat? It’s still early days for Silver Lake but we suspect the best is yet to come. ‘Buy’.
Joshua Terlich is an analyst at wise-owl.com. Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.
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