If there is one gold producer that has ridden the ups and downs of the gold price, it’s St Barbara Ltd [ASX:SBM].
Trading at just a handful of cents as it entered 2015, there was a chance SBM might not have survived. However, after coming through that near-death experience, SBM put on one of the greatest stock market performances over the next few years.
In both 2018, and again in 2019, The St Barbara share price traded at over $5.25 per share. For those investors who had the stomach for the ride, it was a truly majestic recovery.
Why did St Barbara share price fall?
In 2014, SBM was fighting on many fronts. Gold stocks in general were trading at massive discounts to their book values. At the time, the sector was out in the cold. Big multinational conglomerates were trying to offload assets.
On top of that, SBM had another problem to deal with. In 2014, its Gold Ridge mine in the Solomon Islands — a site it spent a reported $500 million to acquire, and another $150 million refurbishing — was closed when torrential rains flooded the site and its tailing dams.
Local authorities stepped in, ordering the site to be closed. Those working for SBM were sent home, with their access to the mine site completely shut off.
Only when SBM settled the dispute, after terse negotiations, did work once again get under way. Months without any production ripped a hole in the company’s finances.
What’s happened since then?
After the Gold Ridge settlement, SBM was able to get production back up and running. A rising gold price also put some wind in its sails. All the while, SBM was increasing the productivity of its flagship Gwalia mine site in Australia.
However, since hitting a peak of $5.31 early this year, SBM has again come under pressure. Just as the gold price ran out of momentum, SBM went into a trading halt, announcing a rights issue to help fund the bulk of its $768 million acquisition of Canadian gold producer, Atlantic Gold Corporation.
On that news alone, the share price fell over 20% after coming out of the trading halt. And more recently, SBM put its shareholders’ noses even more out of joint, when its Gwalia site went offline for a month to make repairs. In a trading update, SBM announced lower production and higher costs, once again putting the SBM share price under pressure.
What’s next for SBM?
After a string of bad news, SBM shareholders might be wondering if they held onto their shares too long, with the share price halving in less than a year.
However, SBM’s purchase of Atlantic Gold could help turn around its fortunes. All in sustaining costs (AISC) for Atlantic came in far less than Gwalia, as of SBM’s latest trading update.
For SBM’s share price to turn around, investors will be closely watching for any guidance on Gwalia. If that situation improves, and the gold price once again regains momentum, SBM shareholders could once again be on the up.
For The Rum Rebellion
PS: Greg Canavan recently caught up with US gold expert Jim Rickards to talk about the truth behind the recent rise of the gold price in Australia. Click here to watch.