Silver Lake Resources Shares Plunge on Quarterly Update (ASX:SLR)
The Silver Lake Resources Ltd [ASX:SLR] shares plunged today on cost and labour shortage worries flagged in its June quarterly.
SLR shares fell as much as 11% in early trade. At time of writing, they were trading at $1.605 a share, down 9%.
Silver Lake’s June quarterly
The gold miner produced 62,126 ounces of gold in the June quarter and sold 60,617 ounces.
Silver Lake fetched $2,275/oz at an all-in sustaining cost (AISC) of $1,478/oz.
Additionally, SLR managed to sell 248,781 ounces of gold in FY21 — which was at the top end of its guidance range.
This came despite ‘challenging operational conditions in Western Australia throughout FY21.’
The company’s FY21 average sales price was $2,315/oz at an AISC cost of $1,484.
The miner’s activities were enough for Silver Lake to grow its cash and bullion by $10 million at quarter end, totalling $330.2 million.
Source: Company presentation
Labour resourcing issues
In a potential explanation for the market’s sharp reaction to the company’s June quarterly, SLR pointed to problems sourcing labour.
Silver Lake admitted FY21 COVID-19 restrictions had an ‘adverse effect on Silver Lake’s access to interstate and overseas labour resources on which it relies.’
The impeded access to this labour led to ‘higher turnover, lower productivity, and higher costs.’
This echoes recent comments from the CEO of the world’s leading multinational gold company, Newmont.
Newmont Chief Executive Tom Palmer said the labour market in Australia was heating up. Newmont expects labour and materials costs to rise by up to 5%.
The labour shortages caused by COVID-related border closures and travel restrictions have even led the Chamber of Minerals and Energy WA — with members like Rio Tinto, BHP, Fortescue Metals Group, Chevron, and Woodside Petroleum — to push for a special visa permitting miners to bring thousands of workers to Western Australia.
What next for Silver Lake’s share price?
While the SLR stock was sold off today, the company believes it is still strongly positioned for FY22.
Silver Lake ended FY21 with no debt, and cash and bullion totalling $330 million.
The miner said it would fund all its exploration through operating cash flow.
In that regard, SLR expects ‘increased free cashflow’ in FY23 based on anticipated production growth from its key mining sites.
Silver Lake provided FY22 group gold sales guidance of 235,000 to 255,000 ounces of gold and 600 to 1,000 tonnes of copper at an AISC range of $1,550 to $1,650 per ounce.
And what’s the outlook for gold as a whole?
Source: Van Eck
The above graph charts the recent performance of the VanEck Vectors Gold Miners ETF, which tracks the NYSE Arca Gold Miners Index.
The index, in turn, tracks publicly traded companies worldwide involved in gold mining — from small-cap to large-cap miners.
As you can see, the global index has been somewhat volatile and is trending downwards in the last few weeks.
But gold is a defensive asset.
And with more than half of Australia in lockdown, vaccination rates at a crawl, and the Delta variant posing problems overseas, market sentiment may sour.
And if that happens, a risk-off environment usually favours defensive assets — like gold.
As our Editorial Director Greg Canavan said this week:
‘It might take a few months, but I think gold stocks are getting ready to make a major move.
‘The fact that there is very little interest in the sector is a great sign. The best moves occur in an environment of scepticism and apathy.’
With this in mind, I recommend reading this report on why Australia could be set to become the ‘epicentre’ of the next gold bull run.
Check out some of the reasons why here.
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