Motley Fool Australia

Motley Fool Australia

Since 1993, millions of investors have trusted The Motley Fool for simple, down-to-earth investing research.

One gold stock on my radar: Silver Lake Resources

Some pundits, including Roger Montgomery, are proclaiming the mining boom over. But, we’re seeing some interesting opportunities in the beaten-down resources sector, even including gold mining stocks.

Mining bust or not, gold bugs are unperturbed, with a least two pundits recently saying in The Australian Financial Review they wouldn’t be surprised to see gold push to $US2,000 an ounce in the coming months.

That follows multi-millionaire businessman Graeme Tuckwell tipping $US3,000 gold in the same newspaper.

Are they right?

Who knows, but you certainly won’t see us recommend you pile into gold bars. Besides being heavy, they don’t pay a dividend, and any gain depends on whether someone else, in the future, is willing to pay you more for your gold than you paid for it today.

But, we are seeing some value in gold miners. Their share prices have been smashed, as witnessed by Newcrest Mining’s (ASX: NCM) 33% fall in the past few months.

Below, Motley Fool Analyst Mike King highlights one gold miner on his radar. He may be biased, as he already owns the stock, but don’t hold that against him, or the investment case. There’s nothing like having your own skin in the game. Enjoy.

One gold stock on my radar
by Mike King

Silver Lake Resources (ASX: SLR) is a debt-free, profitable, growing gold producer and explorer trading at an attractive valuation.

The company has four underground mines and two open pit mines at Mount Monger, and is starting to ramp up its Murchison Project, with production expected to start around January to March 2013.

Both projects are in Western Australia. The company also purchased some additional gold projects from Phillips River Mining (ASX: TTR) in WA in March this year.

Full year revenues for 2012 are expected to come in at $135m, 51% higher than 2011, while full year profit before tax for 2012 is expected to be around $46m – 103% higher than 2011.

Silver Lake produced 102,598 ounces of gold in the 2012 financial year, 33% higher than the previous year. Cash operating costs were $640 an ounce, but in the last quarter, cash costs fell to $602 per ounce.

Forecast production
Silver Lake is forecasting production for the 2013 financial year of between 120,000 to 150,000 ounces from Mt Monger and between 35,000 to 45,000 ounces from its Murchison operations, for a total production of between 155,000 to 195,000 ounces.

The company is aiming to produce 200,000 ounces per annum by 2014 from Mount Monger, and 100,000 each year from Murchison. Expected mine life is greater than 10 years for Mount Monger and 8-10 years for Murchison.

High grade copper deposit
Silver Lake has a gold resource inventory of 4.5 million ounces, and recently also discovered what looks to be a significant high grade copper deposit at its Murchison project, which can be processed through the existing mill.

They have cash and bullion on hand of $79.7m as at end of June 2012, no debt and no hedging. The directors own 11.4% of the company, always a positive.

In the last six months the share price has fallen 28%, which looks to be in response to the falling gold price. As far as the company is concerned, it’s producing gold as expected and ramping up production. In other words, nothing has changed since six months ago that I can see.

Today the shares trade around $2.80, giving Silver Lake a market capitalisation of around $620 million. Should the company meet its goals, its share price looks to have substantial upside potential.

Footnote: Since this article was originally published, Silver Lake announced it was acquiring Integra Mining (ASX: IGR) for around $425m, promptly sending its shares down 10% on the day of the announcement.

Still, Mike thinks the deal makes sense, with the combined company emerging with a number of potentially lucrative mining projects to go with its existing producing gold mines. The ‘new’ Silver Lake will also have no debt and cash of $107 million.

If you’re in the market for some high yielding ASX shares, look no further than our ”Secure Your Future with 3 Rock-Solid Dividend Stocks” report. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).

The One ASX Pick You MUST Add to Your Portfolio

Top Motley Fool analysts just identified their #1 ASX pick for 2014, a small-cap stock that could be poised for big gains (and offers a fat, fully franked dividend!).

Discover all the details now, including the name and code, in this FREE investment report, "The Motley Fool’s Top Stock for 2014."

See all posts by Bruce Jackson
The Motley Fool