Why the St Barbara (ASX:SBM) share price will be on watch today

The St Barbara Ltd (ASX: SBM) share price will be on watch this morning following the appointment of an underground mining services contract.

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The St Barbara Ltd (ASX: SBM) share price will be on watch this morning following the appointment of an underground mining services contract. It could be a positive day for the company, especially as the gold spot price rose 0.77% higher overnight to US$1,738.17 an ounce.

At market close yesterday, the gold miner's shares finished the day down 2.2% to $1.985. Let's take a look at the announcement and what it might mean for the St Barbara share price.

Contractor agreement

The St Barbara share price could be on the move following the company's latest announcement.

According to this morning's release, St Barbara advised that it has selected Macmahon Holdings Limited(ASX: MAH) as its underground mining contractor at the Gwalia mine at Leonora Operations in Western Australia. This new deal replaces outgoing internationally renowned underground mining specialist, Byrnecut, who ran operations for 7 years.

St Barbara stated that Macmahon brings a fresh perspective to further develop the Gwalia mine. It is projected that mining performance and productivity will improve. This will be due to operating costs being driven down. St Barbara says that the change fits in with its 'Building Brilliance' transformation strategy.

The initial contract will run for a period of 5 years. An option to renew the agreement for another 3 years will also be available.

Both St Barbara and Macmahon are expected to formally sign the underground mining deal this month.

Quick take on the Gwalia mine

Acquired in 2005, Gwalia is Australia's deepest gold mine, holding 2.1 million ounces of gold in reserves. So far, St Barbara has extracted more than 4 million tonnes from open cut and underground operations.

St Barbara Management commentary

Managing director and CEO Craig Jetson welcomed its new partner, saying:

St Barbara is delighted to appoint Macmahon as a key partner in our commitment to instill a performance-led-culture at Gwalia.

This change is indicative of St Barbara's determination to enliven Gwalia's future, to safely and sustainably rebuild operational performance and to secure future investment by delivering predictable and strong financial returns.

We would like to thank Byrnecut for their service over the past seven years and look forward to an orderly and effective transition. During the handover period management will be focused on the well- being of our people and continuity of operations.

St Barbara share price review

The St Barbara share price has lost around 20% over the past 12 months. Although most of the fall could be attributed to this year's steep spot gold price decline. The company's shares are not too far off from their March 2020 lows of $1.615.

Based on the current share price, St Barbara has a market capitalisation of roughly $1.4 billion.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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