The embattled St Barbara Ltd (ASX: SBM) share price is catching a break after Citigroup upgraded the gold miner following its devastating sell-off yesterday.
The St Barbara share price jumped 2.7% to $1.92 in early trade when the S&P/ASX 200 Index (Index:^AXJO) advanced 0.2%.
The bounce isn’t enough for St Barbara to reclaim most Wednesday’s losses due to a soft production report.
St Barbara share price tumbling into the “buy” zone
But the dip is a buying opportunity for those with a stronger stomach, according to Citi.
“On a risk-reward basis SBM now looks attractive following yesterday’s 8% selloff—for those willing to look through a likely narrow FY21e production miss and the reality that mining at depth at Gwalia comes with unique operational challenges,” said the broker.
“SBM is now trading on a P/NAV of 0.9x even with a 40% risk-weighting at Simberi and we view the outlook for Gwalia, Australia’s deepest trucking mine, as improving.”
Weak quarter production update
The miner’s March quarter gold output of 82,300 ounces fell short of Citi’s estimates by 19%. Adding insult to injury, all-in sustaining costs (AISC) of A$1649/oz was 17% higher.
Little wonder why the St Barbara share price tanked yesterday!
Gold production from its Gwalia mine was steady in the quarter at 42,700 ounces, which wouldn’t be so bad if the broker hadn’t pencilled in a 10% increase.
“Covid impacts saw Simberi burn cash as production fell to a 5yr low of 19koz with ASIC lifting to an eye-watering A$2426/oz,” added Citi.
“Atlantic also delivered below expectations (-24% Citi/consensus) with 20.6koz Au @ A$1128/oz (+9% vs CitiE).”
Full year guidance at lower end of range
At least management didn’t downgrade its full year production guidance, although it did warn that it would come in at the bottom of its 370,000 to 410,000 ounces forecast.
Meanwhile, the miner changed its ASIC estimate to between $1,440 and $1,520 an ounce for the year. This compares to its previous guidance of $1,360 to $1,510 an ounce.
What is the St Barbara share price worth?
But it looks like the bad news is more than baked into the St Barbara share price. Citi upgraded the shares to “buy” from “neutral” but slapped a “high risk” warning on its bullish call.
The broker also increased its price target on St Barbara by 10 cents to $2.40 a share.
Gold miners haven’t been performing well over the past year as the gold price eased from record highs at over US$2,000 an ounce.
But St Barabra is lagging many of its peers with a loss of around 22%. In contrast, the Evolution Mining Ltd (ASX: EVN) share price and Newcrest Mining Ltd (ASX: NCM) share price have shed 13% and 5%, respectively.