Today we’re going to be taking a look at Silver Lake Resources Ltd’s [ASX:SLR] share price and where it could be heading.
The SLR share price was on a huge tear following the market crash in March thanks to a record setting gold price.
June, however, saw SLR give up some of it gains, nearly shedding 18% at its lowest point.
The share price has since recovered on the back of renewed interest in gold.
At time of writing, the share price is 2.10% higher to trade at $2.19 per share.
With some analysts tipping gold could reach US$2,000 per ounce by the end of the year, now could be a good time to take stock of SLR.
SLR sells off projects and hedges its gold
At a time where we are seeing record-high gold prices, you would think you’d want to be increasing your gold resource and selling gold at the highest price.
SLR seems to be charting its own course.
Last week, SLR handed its Fingals and Rowe’s Find gold projects off to Black Cat Syndicate Ltd [ASX:BC8].
The two projects combined have a resource of 5.2 million tonnes at 2.5 grams per tonne (g/t) gold.
Which is about 425,000 ounces of total gold.
So, maybe not the type of target SLR would usually go after.
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In exchange, SLR received $50,000 in cash and more than 8.4 million in BC8, making SLR a substantial shareholder owning about 8.7% of the company.
SLR is also looking to offload its high-grade Santa Teresa project in Baja California in Mexico to Comet Resources Ltd [ASX:CRL].
Comet will acquire an initial 50% in the project and can decide to acquire the other 50% if it decides to mine the area.
Why offload potential gold?
It could be SLR is not interested in developing these smaller targets.
In the case of Black Cat, if the resource turns out to be more substantial, then SLR will share in the profits of the project.
That’s not the only conservative play SLR has made either.
The miner has more than 155,000oz of its future gold production hedged at an average AU$2,100/oz over the next two years.
At a time when the gold price in AUD terms in hovering close to the $2,600/oz mark, some might think it’s a bit of a strange move.
But hedging is an important part of many gold producers’ approach.
It means you’ve got locked in cash flows.
And that you’re somewhat protected in adverse swings in the gold price.
What does this mean for the share price?
SLR achieved an average gold sale price of AU$2,170/oz in the March quarter.
So it hasn’t lost too much of an opportunity to sell at higher prices.
SLR also spent $6.1 million on exploration and $12.9 million of capital expenditure to develop its projects.
Its hedge book helps ensure there is adequate cash flow for these kinds of activities.
With the price of gold on the rise again, the SLR share price could be set to follow this trend.
The company has zero debt and been delivering on record sales.
Following strong 3Q FY2020 sales, SLR further upgraded FY20 sales guidance to 250,000 to 260,000oz gold.
SLR appears to be in a strong position. But picking a winning gold stock is not always as simple as a high gold price and good production, there can be many other factors that you need to consider.
If you’re interested in knowing about what makes a winning gold stock check out our free report where we show you how. You can get it for free here.
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