Uncertainties cloud St Barbara's cash flow projections amid aspirational vision

St Barbara Ltd. launched an aspirational vision to be a 600,000-ounce-per-year gold producer this decade, but COVID-19 in Papua New Guinea and permitting issues in Nova Scotia are impacting two of its key growth projects.

With a third of the workforce at its Simberi gold mine in Papua New Guinea isolating in camp and a significant portion of senior management affected by COVID-19, there is an increasing backlog of maintenance issues that will "take some time to work through," CEO Craig Jetson said on a Feb. 23 call with analysts.

"The mining team has also been hard hit, resulting in a mining ramp-up rate being phased far slower than we expected," the CEO said. "At this stage, we do not know when we can get back to full production, full workforce healthily on the ground ... It's too early to update [the] Simberi guidance that we withdrew."

St Barbara withdrew its fiscal 2022 guidance on Feb. 18 as infection rates across the Tabar Island group soared. While most of the 139 cases reported at Simberi on Feb. 18 are asymptomatic, the mine and processing plant were operating at a reduced rate as a reduction in commercial flights across Papua New Guinea hindered St Barbara's ability to source additional supplies and rotate staff.

Severe headwinds

While the strong operating performance of Leonora in Western Australia yielded a A$68 million profit increase in the first half of fiscal 2022, it was "more than offset" by the significant drop in profit at Simberi and the Atlantic gold operations in Nova Scotia, CFO Lucas Welsh told analysts.

Gold production fell 18% to 132,524 ounces during the half ended December 2021, with no production from Simberi following a mine fatality as well as lower output at Atlantic due to lower grades and rainfall events. Earnings per share also fell year over year to 2 Australian cents for the first half of fiscal 2022 from 5 cents.

"The timing [of dividend payments] still remains a bit of a question" as Simberi deals with COVID-19 and a delayed restart in January, and as Atlantic grapples with permitting challenges, Jetson said when asked whether the future cash profile will include dividends.

"It certainly would be in our best interest to get the bottom line and performance [to a point] where dividends can be in the affordability of the business," Jetson said.

Though Welsh said underlying EBITDA for the half remained "solid" at A$103 million, it was still 32% below the year-ago period amid "fairly severe headwinds."

"One of the major unknowns at this stage is the permitting for Atlantic," Jetson said when asked about when peak capex would be. "The situation at the moment is certainly improving ... but the timing of those permits will determine when we forecast accurate cash flows in the right year."

Vision for fiscal 2025 'or sooner'

St Barbara is targeting an average production of 600,000 ounces of gold per year from fiscal 2025 "or sooner," Jetson said. About 270,000 ounces will come from Leonora, aided by a mill capacity expansion to at least 2.1 million tonnes per year, while Simberi will contribute about 180,000 ounces upon completion of its sulfide project, and Atlantic will contribute about 150,000 ounces yearly once its growth projects come online.

The miner has yet to decide when to start the construction of the Simberi sulfide project, Jetson said.

Despite supply disruptions from the pandemic, the CEO said St Barbara's A$42 million cash contribution after sustaining capital and growth capital in its fiscal first half was particularly impressive, given the capital works for the tailings facility and the completion of a deep-sea tailings placement pipeline at Simberi, enabling the mine to restart in January.

The balance sheet is "in good condition," with a gearing of 13%, which puts the miner in a strong position to maximize its current debt facilities; this in turn will "fund all proposed projects with sufficient headroom," Welsh said. St Barbara also recorded a $19 million cash inflow to the business from operating activities after corporate tax and exploration expenses.

St Barbara's statutory profit for the first half of its fiscal 2022 dropped 62% year over year to A$14 million, and cash flow from operating activities fell 80% to A$19 million. All-in sustaining costs decreased 4% to A$1,539 per ounce on a 13% higher realized gold price of A$2,417/ounce.