Silver Lake Resources

Transcription

1 AUSTRALIA SLR AU Price (at 12:42, 27 Jan 215 GMT) Neutral A$.25 Valuation - DCF (WACC 1.%) A$ month target A$ month TSR % -8. Volatility Index Very High GICS sector Materials Market cap A$m day avg turnover A$m 1.6 Number shares on issue m 53.2 Investment fundamentals Year end 3 Jun 214A 215E 216E 217E Revenue m EBIT m Reported profit m Adjusted profit m Gross cashflow m CFPS CFPS growth % nmf nmf PGCFPS x nmf PGCFPS rel x nmf EPS adj EPS adj growth % nmf PER adj x nmf nmf PER rel x nmf nmf Total DPS.... Total div yield %.... ROA % ROE % EV/EBITDA x Net debt/equity % P/BV x SLR AU vs Small Ordinaries, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, January 215 (all figures in AUD unless noted) 28 January 215 Macquarie Securities (Australia) Limited In need of a plan Event SLR has released its December quarter production data. Impact Costs blow out. Gold production at 29,19oz came in 1% ahead of our expectations primarily due to a higher mill head grade. The increased grade was a function of better grade at Cock-Eyed Bob (CEB) and higher mined volumes from Wombola Dam which displaced lower grade stockpiled tonnes. C1 costs and AISC for the quarter jumped to $1,16/oz and $1,413/oz, 19% and 22% ahead of our forecasts and 15% and 19% higher than the previous quarter respectively. SLR attributed to cost blowout to stockpiling of Wombola ore, increased underground development costs and corporate costs which are now full allocated to the Mount Monger operations. This accounts for the increase in AISC but underlying mining cost rose $97/oz Q-on-Q to $67/oz. Care and maintenance cost off-set with lease agreement. Care and maintenance costs and site restructuring costs for the Murchison project were completed in the quarter. SLR has finalised a 1-month dry hire lease agreement for the Murchison plant for $7.9m. Guidance reduced capex deferred. Guidance for FY15 has been cut to 12koz down from koz. No cost guidance has been provided. SLR has chosen to defer development expenditure at Daisy Milano and CEB in favour of providing pre-development funding for open pit sources in 216. Cash flow negative before gold prepayment. SLR received a $1m gold prepayment in the quarter after agreeing to sell 7,56oz between January 215 and July 216 at an implied price of A$1,417/oz. The company also extended its hedge position to 32,944oz at an average price of A$1,486/oz. Regional development options. SLR continues to evaluate a range of options to bring open pit deposits at Majestic, Imperial, Rumbles, Lucky Bay and Santa/Flycamp into the mine plan. Offsetting low grade stockpiles with higher grade open pit feed would appear to be a necessary focus. Earnings and target price revision After incorporating the quarterly result and rebuilding our model of SLR we have made a number of changes to our earnings forecasts. We have cut our target price to $.23/sh from $.3/sh. Price catalyst 12-month price target: A$.23 based on a DCF methodology. Catalyst: Regaining control of its costs and increasing confidence in its long term mine plan will be key catalysts for SLR. Action and recommendation Upgrade to Neutral. The deferral of capital development at Daisy and CEB should provide some near term cost relief but key to achieving longer term improvement will be a mine plan incorporating higher grade open pit feed. We have cut our TP substantially but upgrade our recommendation to Neutral after the 2% share price decline post the quarterly result. Please refer to page 5 for important disclosures and analyst certification, or on our website

2 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Macquarie Wealth Management Fig 1 Actual and forecast production and costs Fig 2 Modelled production and costs by ore source ,6 1,4 1,2 1, ,6 1,4 1,2 1, FY13 FY14 FY15e FY16e FY17e FY18e FY19e FY2e Daisy Complex UG (koz) Maxwells OP (koz) Cock-Eyed Bob UG (koz) Wombola Dam OP (koz) Mount Monger Cash costs - AISC (A$/oz) Stockpiles (koz) C1 C1 Cash cost (A$/oz) AISC Source: Company data, Macquarie Research, January 215 Source: Company data, Macquarie Research, January 215 Fig 3 Cumulative cash generation Fig 4 Operating and free cash flow Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun FY13 FY14 FY15e FY16e FY17e FY18e FY19e FY2e FY21e FY22e Net cash (A$M) Market cap (A$m) Operating cash flow (A$m) Free cash flow (A$m) Source: Company data, Macquarie Research, January 215 Source: Company data, Macquarie Research, January 215 Fig 5 SLR valuation breakdown Net cash (debt) 9% Fig 6 SLR reserves and resources Reserves Project Mt Au (g/t) Au (koz) UG & OP (JORC 214) Mount Monger (JORC 24) Total ,68 Forwards -2% Corporate -2% Undeveloped Resources 16% Murchison 2% Mount Monger 51% Resources Project Mt Au (g/t) Au (koz) Mount Monger ,356 Randalls Aldiss Tuckabianna Comet Moyagee Eelya Gt Southern ,2 Total ,72 Source: Company data, Macquarie Research, January 215 Source: Company data, Macquarie Research, January January 215 2

3 Macquarie Wealth Management ASX: SLR.25 Year end: Jun Rating: Neutral Up/dn TSR 126 Diluted shares (m) 53.2 Target:.23-8% -8% ASSUMPTIONS FY13 FY14 FY15e FY16e FY17e FY18e ATTRIBUTABLE MINE OUTPUT FY13 FY14 FY15e FY16e FY17e FY18e Exchange Rate A$/US$ Mount Monger Spot Gold (US$/oz) 1,64 1,295 1,231 1,314 1,48 1,459 Gold producton (koz) C1 Cash cost (A$/oz) ,27 1,82 1,17 1,139 RATIO ANALYSIS FY13 FY14 FY15e FY16e FY17e FY18e Cash costs - AISC (A$/oz) 1,94 1,43 1,227 1,294 1,321 1,354 Diluted share capital m EPS (diluted and pre sig. items) A P/E x 65.9x -1.4x -26.7x 6.5x 8.6x 15.2x OPERATIONAL OUTLOOK CFPS A (3.6) (2.2) (2.3) P/CF x -7.x -11.4x 3.9x 2.8x 2.x -11.x DPS A #DIV/!..... Dividend yield % #DIV/!.%.%.%.%.% Franking Level % % % % % % % Book value per share x P/Book value x.3x.5x.5x.4x.4x nmf R.O.E. (pre sig items) % % -29% -2% 7% 5% nmf R.O.A. (pre sig items) % -9% -8% -2% 7% 5% 1% Interest Cover x -1.9x 18.7x 18.3x -44.5x -12.3x -4.1x EBITDA per share A$ps EV/EBITDA x 13.8x 6.2x 2.5x 1.1x.7x 5.8x EARNINGS FY13 FY14 FY15e FY16e FY17e FY18e Sales Revenue A$m Other Revenue A$m Total Revenue A$m Operating Costs A$m (196) (284) (128) (18) (155) (74) Operational EBITDA A$m Exploration Expense/Write-offs A$m Corporate & Other Costs A$m (18) (7) (11) (12) (12) (12) EBITDA A$m D&A A$m (47) (48) (48) (49) (5) (12) EBIT A$m (46) (29) (7) Net Interest A$m (4) Profit Before Tax A$m (5) (28) (7) Tax Expense A$m 52 (53) 2 (8) (6) (4) Minorities A$m 25 1,6 Mount Monger Cash costs - AISC (A$/oz) C1 Cash cost (A$/oz) 1,4 2 1,2 15 1, FY13 FY14 FY15e FY16e FY17e FY18e FY19e FY2e 2 Net cash (A$M) Market cap (A$m) Jun 14 Jun 15 Jun 16 Jun 17 Jun 18 Jun 19 Jun 2 Adjusted NPAT A$m 2 (81) (5) RESERVES AND RESOURCES (ATTRIBUTABLE) Significant Items (post tax) A$m (321) (9) Reserves Reported NPAT A$m (319) (17) (5) Project Mt Au (g/t) Au (koz) UG & OP (JORC 214) CASHFLOW FY13 FY14 FY15e FY16e FY17e FY18e Mount Monger (JORC 24) Net Profit A$m Total ,68 Interest/Tax/D&A A$m (73) (4) Working Capital/other A$m (7) 14 Resources Net Operating Cashflow A$m (14) (11) Project Mt Au (g/t) Au (koz) Capex A$m (11) (8) (35) (28) (24) (11) Mount Monger ,356 Investments A$m 12 Randalls Sale of PPE and Other A$m Aldiss Free cash flow A$m (12) (19) (2) (7) Tuckabianna Dividends Paid A$m Comet Debt A$m 46 (56) 7 (7) Moyagee Equity Issuance A$m 1 86 Eelya Other A$m 1 Gt Southern ,2 Net Financing Cashflow A$m (7) 1 Total ,72 Net change in cash A$m (56) (6) EV/Reserve (A$/oz) 1 EV/Resource (A$/oz) 19 BALANCE SHEET FY13 FY14 FY15e FY16e FY17e FY18e Cash A$m EQUITY DCF VALUATION Macquarie forecasts Spot prices PP&E & Mine Development A$m Projects A$m A$ps A$m A$ps Exploration A$m Mount Monger Total Assets A$m Murchison Debt A$m Undeveloped Resources Total Liabilities A$m Forwards (5) (.1) (12) (.2) Total Net Assets / Equity A$m Corporate (42) (.8) (49) (.1) Net Debt / (Cash) A$m 5 (11) (22) (39) (78) (71) Net cash (debt) Gearing (net debt/(nd + equity)) % 12% (4%) (9%) (16%) (34%) (29%) Net Equity Value (@ 1% WACC) Gearing (net debt/equity) % 14% (4%) (8%) (14%) (26%) (23%) Price Target.23 Source: Company data, Macquarie Research, January January 215 3

4 Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a strong negative view on Silver Lake Resources. The strongest style exposure is Earnings Momentum, indicating this stock has received earnings upgrades and is well liked by sell side analysts. The weakest style exposure is Price Momentum, indicating this stock has had weak medium to long term returns which often persist into the future. 241/247 Global Alpha Model Sector Rank % of BUY recommendations 5% (4/8) Number of Price Target downgrades 1 Number of Price Target upgrades 2 Attractive Quant Rank within Country Rank within Sector Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. The rankings are displayed relative to the sector and country. Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score % -8% -6% -4% -2% % 2% 4% 6% 8% 1% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple % -5% % 5% 1% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Asset Turnover FCF Yield FY Profit Margin NTM IRR Dividend Disc. Model Turnover (USD) 25 Day Non-current Assets Inc. Turnover(USD) 125 Day Number of Shares Increase -34% -37% -32% -32% Negatives Positives 34% 33% 32% 38% -4% -2% % 2% 4% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and country. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score Percentile relative to sector(/247) Percentile relative to country(/241) For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 28 January 215 4

5 Macquarie Wealth Management Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie First South - South Africa Outperform expected return >+1% Neutral expected return from -1% to +1% Underperform expected return <-1% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3 index return Neutral (Hold) return within 5% of Russell 3 index return Underperform (Sell) return >5% below Russell 3 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 6 1% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 4 6% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 3 4% in a year. Low medium stock should be expected to move up or down at least 25 3% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 31 December 214 AU/NZ Asia RSA USA CA EUR Outperform 51.8% 58.6% 45.7% 44.42% 6.54% 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients) Neutral 31.8% 27.37% 3.99% 5.1% 35.37% 33.51% (for US coverage by MCUSA, 3.8% of stocks followed are investment banking clients) Underperform 16.39% 14.57% 23.94% 5.48% 4.8% 19.68% (for US coverage by MCUSA,.44% of stocks followed are investment banking clients) SLR AU vs Small Ordinaries, & rec history (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, January month target price methodology SLR AU: A$.23 based on a DCF methodology Company-specific disclosures: Important disclosure information regarding the subject companies covered in this report is available at Date Stock Code (BBG code) Recommendation Target Price 15-Jan-215 SLR AU Underperform A$.3 28-Oct-214 SLR AU Underperform A$.27 3-Mar-214 SLR AU Underperform A$.3 16-Jan-214 SLR AU Underperform A$.6 4-Nov-213 SLR AU Underperform A$.7 26-Sep-213 SLR AU Underperform A$.8 2-Sep-213 SLR AU Underperform A$.7 31-Jul-213 SLR AU Neutral A$.8 23-Jul-213 SLR AU Neutral A$1.2 3-Jun-213 SLR AU Outperform A$ Apr-213 SLR AU Outperform A$2. 22-Apr-213 SLR AU Outperform A$2.5 6-Mar-213 SLR AU Outperform A$2.6 7-Feb-213 SLR AU Outperform A$3.2 Target price risk disclosures: SLR AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: The views expressed in this research reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this 28 January 215 5

6 Macquarie Wealth Management research. The analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd (ABN , AFSL No ) ( MGL ) and its related entities (the Macquarie Group ) and has taken reasonable care to achieve and maintain independence and objectivity in making any recommendations. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited (ABN , AFSL No ) a Participant of the Australian Securities Exchange (ASX) and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Equities Limited (ABN , AFSL No ) ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN , AFSL No ) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act Any MGL subsidiary noted in this research, apart from MBL, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. MBL does not guarantee or otherwise provide assurance in respect of the obligations of that subsidiary, unless noted otherwise. This research is general advice and does not take account of your objectives, financial situation or needs. Before acting on this general advice, you should consider the appropriateness of the advice having regard to your situation. We recommend you obtain financial, legal and taxation advice before making any financial investment decision. This research has been prepared for the use of the clients of the Macquarie Group and must not be copied, either in whole or in part, or distributed to any other person. If you are not the intended recipient, you must not use or disclose this research in any way. If you received it in error, please tell us immediately by return and delete the document. We do not guarantee the integrity of any s or attached files and are not responsible for any changes made to them by any other person. Nothing in this research shall be construed as a solicitation to buy or sell any security or product, or to engage in or refrain from engaging in any transaction. This research is based on information obtained from sources believed to be reliable, but the Macquarie Group does not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. The Macquarie Group accepts no liability whatsoever for any direct, indirect, consequential or other loss arising from any use of this research and/or further communication in relation to this research. The Macquarie Group produces a variety of research products, recommendations contained in one type of research product may differ from recommendations contained in other types of research. The Macquarie Group has established and implemented a conflicts policy at group level, which may be revised and updated from time to time, pursuant to regulatory requirements; which sets out how we must seek to identify and manage all material conflicts of interest. The Macquarie Group, its officers and employees may have conflicting roles in the financial products referred to in this research and, as such, may effect transactions which are not consistent with the recommendations (if any) in this research. The Macquarie Group may receive fees, brokerage or commissions for acting in those capacities and the reader should assume that this is the case. The Macquarie Group s employees or officers may provide oral or written opinions to its clients which are contrary to the opinions expressed in this research. Important disclosure information regarding the subject companies covered in this report is available at 28 January 215 6