Some Reasons to BUY St Andrews right now....
St Andrew Goldfields (SAS – TSX: $0.32)
Gold bullion bear market appears to be ending
Gold prices remain unsustainably low since half of producers globally have all-in sustaining costs above $1150
Gold prices just gave a buy signal in our TRAC
TM work—since 1990, comparable TRACTM buy signals on 14 occasions have provided ~25% average returns from the gold trough price (gain from recent trough ~13%) with only one decline
At CA$1600, gold is near a 2-year high in Canadian dollars
Gold has been in a bear market since peaking in 2011, depressing virtually all producers’ share prices
SAS management’s guidance in early 2014 for annual production was 75-85k oz, down from a 100k/yr in 2013, though production recovered to 91k ounces for the year
SAS has exhibited little growth and had limited earnings in the last 2 years
Lack of analytical coverage and a relatively small float has kept trading volumes low at about 300k shares per day
SAS, whose mines are in a low risk mining jurisdiction, is operated by an experienced, highly regarded management team
Owns a highly efficient, modern mill and a large land package with significant potential for organic growth
Cash-rich balance sheet, with approx. $21 million of cash on hand
Below-average all-in costs
Last 13 consecutive quarters have been cash flow positive through Q3 ‘14
Production has lifted back near record levels
Holt mine has performed well, all-in costs (including royalties and sustaining capital expenditures) below US$1,000 per oz.
Holt drill results have been significant and should considerably expand SAS’s resources and reserves (recent highlights included 21.4 g/t over 21.7m)
From SAS’s Oct 14, 2014 press release:
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"…ecent results targeting the Zone 4 mineralization are potentially the most significant discovery SAS has generated on the Holt property. The mineral potential remains open in all directions and the original intercept is 600 metres west of 1075m level drift (nearest mine opening) and 440 metres west of historical surface diamond drill intercepts. The location is approximately mid-way between Zone 4 and the Tousignant Zone, which is located 3 km west of the Holt shaft...Holt has a very robust mine life…nd these recent results may add significantly to the resource base at Holt."
Toll milling for others has commenced which should add to profitability
Holloway mine continues to provide production
Taylor project’s results have been impressive—bulk sample delivered 9 g/t and 97.4% mill recovery—a production decision is expected this quarter (recent highlights included 20.2 g/t over 9.2m)
Taylor production should commence later in 2015 once the final mine closure plan is approved; there appear to be no major hurdles
Taylor, a high grade project, should have lower costs than Holt and Holloway, and Taylor royalty is negligible
Taylor production should lift overall expected production to 105,000 ounces in 2015 from last year’s 91,000 ounces; and 2016 production should be above 110,000 and 2017 above 120,000 ounces
All-in sustaining costs are expected to be around US$1,000 (in Q3 2014 all-in costs were US$1,060)
SAS continues to focus on lowering costs—G&A and operating expenses
CA$120 million market cap
Net of $21 million of cash, ~$100 million Enterprise Value (~$0.27/shr)
At today’s $1290 gold price, SAS should deliver free cash flow of $25 million in 2015
Cash earnings—after-tax cash flow less sustaining capital spending—are much higher (note: SAS has $200 million of net operating losses to carry forward)
Growth capital spending in 2015 is about $20 million, mostly associated with Taylor, falling to about $15 million in 2016 related to other growth areas
At today’s gold price and CAD exchange rate, cash earnings in 2016 (first full year of Taylor production) should be over $30 million
Net of $16 million of sustaining CAPX (which we increase by 10% per year) and 30% tax (though SAS won’t pay tax for years to come), SAS should have cash earnings per share of $0.08 in 2015 and $0.09 in 2016 (CF per share would be ~$0.17 in 2015 and 2016)
At $0.32 share price, SAS trades at 4x cash earnings (only ~3x excluding net cash on hand)
SAS is likely the cheapest amongst its peers on an EV/ounce and P/Cash earnings basis—at ~1.5x, its EV/ 2015e EBITDA is less than one-third the peer median of ~6x EV/EBITDA (source: Trapeze/Bloomberg)
By the end of this year SAS should have net cash on hand of ~$0.13 of per share
Potential value is over $0.75 per share at mere 7x 2016 cash earnings of $0.09/share plus net cash on hand
Most gold companies trade between their project NAV (excluding corporate overhead, maintenance capital spending and financing structure) and corporate NAV
SAS’s project NAV is ~$1.20/share and corporate NAV is ~$0.65/share (assuming a 5% discount rate and today’s gold price and exchange rate)
Reserves expected to be above 700,000 ounces with a total resource of around 3 million ounces (excluding low-grade Aquarius)
SAS’s land position is remarkable as it controls the largest land package in the Timmins mine camp, offering significant exploration potential from the 120 km package of claims straddling the Porcupine-Destor Fault Zone
Gold prices overshoot to the downside depressing earnings
Taylor mine commencement delayed