How The Downturn In Gold Prices Likely To Affect St Barbara?

  • May 01, 2019 AEST
  • Team Kalkine
How The Downturn In Gold Prices Likely To Affect St Barbara?

Gold prices plunged as consumers expressed greater confidence in the United States domestic economic conditions. The Spot Gold fell from the level of $1286.26 (Day’s high on 30th April) to the current low of $1277.88.

Gold prices plunged previously over the improved figures of the United States Advance GDP for the March 2019 quarter.

However, the weak economic data from China coupled with a dip in dollar price supported the gold prices, and it rebounded slightly.

In the recent event, the prices again dropped amid improved consumer sentiments data. As per the data, the United States CB Consumer Confidence stood at 129.2 for April 2019 against the market expectation of 126.2.

The increased confidence of the domestic consumers despite a drop in Purchasing Manager Index jolted the bullion investors, and the bullion market noticed a price drop.

As per the data, the Chicago PMI stood at 52.6 for April 2019, as compared to the forecast of 59.1.

Apart from the greater consumer confidence in the domestic economic condition, pending home sales also increased substantially. As per the market data, the United States Pending Home Sales for March stood at 3.8%, as compared to the market consensus of 1.1%. The significant purchase of homes coupled with high confidence in the domestic economy exerted pressure on gold prices.

Gold prices are moving in a continuous downtrend from the level of $1346.79 (Day’s high on 20th February 2019) as the figures for March quarter improves in the global economy.

At such a time of falling gold prices, it is worth noticing the presentation of management, who step up and express their forward-looking view. One such presentation was given by the management of the St Barbara Limited (ASX: SBM), on 1st May 2019.

The Presentation to the investors was given by the company Managing Director and CEO, Bob Vassie.

The company mentioned that it produced 403-kilo ounces of gold with an AISC of A$891 per ounce in FY18A. Out of the total production, the Gwalia prospect of the company accounted for 268-kilo ounces with an AISC of A$802 per ounce, and Simberi accounted for 135-kilo ounces with an AISC of A$1,068 per ounce.

The company recently presented its Q3 FY19 update.

St Barbara expressed a strategy for the next five years in which the company included, diversification production, sustainable long-life operations, quality growth pipeline (exploration, feasibility, construction, production) as a pivotal factor to thrive in the global market.

The company mentioned that the strong margins and liquidity are growing and is well positioned. St Barbara generated $226 million year to date and realized A$797 cash contribution per ounce year to date. The company is a debt-free company with cash at bank of A$382 million. However, the company claims that the operational cash flow will fund all anticipated growth projects, Albeit, a fall in gold prices could exert pressure on such ambitions forward thinking, and investors should keep a close eye on global conditions and gold prices.

The company distributed a fully franked interim dividend of A$0.04 per share in FY19 on 27th March 2019, which accounted for a cumulative dividend of A$0.22 per share since FY17.

It can be depicted from above that the fall in gold prices since the beginning of the year 2019 reduced the operational cash flow of the company.

Gwalia Prospect:

In a nutshell, the fall in gold prices hampered the company’s operational cash flow and profitability. However, the company is debt free and have cash reserves to support the operations if any further downturn in gold prices emerge in the global market.

The stock of the company closed at A$3.170 (as on 1st May 2019), down by 0.938% as compared to its previous close.


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