RE:RE:St. Andrew Analysis - Please DistributeCurvature, I hear you on a couple of those points but will disagree on most others. I know LSG relatively well so will try to stick to that as a comparison. Yamana not so much but I think other than the Malartic JV, most of the ops are in South America? Barrick is a totally different beast (size and leverage) plus I’m not so sure on whether it trades at a discount.
On the big ownership stake, yes that has to be an impediment to valuation. Liquidity, already limited as a nano-cap, is limited b/c of it and it obviously prevents a third-party from lobbing in a takeover bid at a premium. They have to go through the big owner. However, as I think you’ve seen in every other industry, there are worse things than having a significant owner at the helm. Incentives are aligned with shareholders. You’re not going to see SAS go out and pull a Timmins and do a bunch of dilutive M&A for growth’s stake.
On royalties, I’ve never really understood why these are discussed in a vacuum rather than in the context of total cost to get an ounce of gold out of the ground and sold. I’ll go back to it in a sec when I look at AISC, but if that really is an issue, I’d point out that it will become less of a % of total production in future quarters. Taylor has minimal royalties and, if it ever does get put into production, a lot of the Zone 4 West Extension will be subject to the lower Holloway royalties.
First off, I do like LSG. It’s done a nice job deleveraging and the Timmins West Mine and the Bell Creek Mill are really nice assets. I just think SAS has better qualities on most accounts + is much more undervalued. I’d be incredibly happy if SAS achieved the valuation LSG is trading at. LSG benefits from a pretty strong amount of institutional coverage.
Takeaway the royalties from SAS and it’s producing at $850/ounce. I’d never use that metric on its own, but if you were going to compare SAS to LSG on an apples-to-apples basis, it seems as though SAS has done a pretty good job at bringing costs down.
I also have a lot more faith in SAS’s AISC calculation at the company-level. I haven’t seen LSG’s calculation anywhere but it looks like they are not including interest (I could be wrong, did my own calcs). Obviously it’s a non-standard metric but it’s a cash expense and will affect FCF. Given their $100MM of debt, it looks like cash interest expense is adding another US$50/oz.
I also expect LSG’s AISC to creep up over the course of the year as CAPEX increases in 2H (just look at their full-year guidance). I have them finishing the year at ~$925/ounce (excluding interest). I bet SAS’s AISC is pretty comparable to LSG’s when we finish the year, even excluding LSG’s interest expense.
Finally, I just think SAS has so many other qualities that are superior to someone like a LSG. Longer mine life at their flagship asset, more exciting at-mine exploration opportunities, SAS’s sizeable cash position vs. LSG’s net debt, to name a few.
Sorry to ramble on there but you brought up LSG as a comparison. Again, I like LSG, especially its FCF. However, I think SAS is superior in most ways. It’s disappointing it doesn’t get the coverage. LSG’s 4Q14 bought deal probably didn’t hurt :)