St Barbara in third downgrade on slow Gwalia progress

24th January 2020
Resources Rising Stars

St Barbara has confirmed its third downgrade of gold production volumes in the space of eight months, with its Australian and Papua New Guinea mines both falling short of expectations (reports The Australian Financial Review).

The $2 billion company's gold output in fiscal 2020 will be up to 5 per cent lower than was suggested in October, and that October guidance was itself trimmed from the expectations that were set in May 2019.

St Barbara's biggest problem has been delays on work to improve ventilation at its best mine; Gwalia in Western Australia.

The company said on Wednesday there had been further delays because of ''challenging ground conditions", and the works would now be complete in April rather than March.

The works were originally hoped to be finished in January 2020.

The delays mean a section of the Gwalia mine with high gold grades will not be extracted until the end of the financial year, and that will put a dent in fiscal 2020 gold production.

Gwalia was originally expected to produce as much as 210,000 ounces in fiscal 2020, but will now produce between 170,000 and 180,000 ounces.

St Barbara's Simberi mine in PNG also struggled with low volumes, and will produce about 6 per cent less gold than previously expected.

The lower volumes will translate into higher unit costs, with both mines now set to produce gold for about $1500 per ounce.

Fortunately for St Barbara, the troubles have occurred at a time of near record gold prices in Australian dollar terms; the yellow metal was fetching $2276 on Wednesday morning.

The downgrades mean the Canadian gold mine that St Barbara acquired in May 2019 will be its most profitable operation this year, with unit costs below $1000 per ounce.

That acquisition was also the source of controversy, as St Barbara announced the first of its three downgrades in the middle of an equity raising designed to fund the acquisition of the Canadian assets.

The troublesome year for St Barbara is an unfortunate way for managing director Bob Vassie to end his mostly successful six year term at the company, which was rated by Moody's as the Australian miner most likely to default on its debt when Mr Vassie took the helm in 2014.

Mr Vassie led St Barbara shares from less than 10¢ in 2014 to more than $5 in February 2019, helped by an rising gold price, a successful divestment of troublesome assets in the Solomon Islands and good exploration results in the deeper geology at Gwalia.

Mr Vassie will be replaced by former Newcrest executive Craig Jetson next month.


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