Why is the Silver Lake (ASX:SLR) share price plunging 13% today?

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Key points

  • Silver Lake shares are struggling today after its quarterly update
  • Shares are down 13% at the time of writing
  • Despite a strong quarter of production, operations were marred by the effects of lockdowns
  • Company expects FY22 gold production of 235,000 to 255,000 ounces and 600–1,000 tonnes of copper.

The Silver Lake Resources Ltd (ASX: SLR) share price is struggling today after releasing its quarterly update for the 3 months ended December 2021.

At the time of writing, the Silver Lake share price is down 12.69% on the day at $1.46 apiece, down from its intraday high of $1.62 at the open.

Silver Lake share price slips on ‘lower productivity and higher costs’

The company came in with a robust set of results, including:

  • Group production for the quarter was 65,148 ounces gold equivalent
  • Sales of 62,549 ounces gold and 239 tonnes copper at a gold sales price of A$2,436/oz and AISC of A$1,633/oz
  • First half group production of 131,274 ounces gold equivalent
  • Restricted mobility of skilled labour is resulting in lower productivity and higher costs
  • Record quarterly gold production at Deflector of 31,838 ounces and 243 tonnes of copper for year to date production of 62,871 ounces and 494 tonnes copper
  • Cash and bullion of $274 million at quarter end.

What happened this quarter for Silver Lake?

Silver Lake says it was the second consecutive quarter of record production at the Deflector site, underscoring “the returns expected to be generated over the coming years from the significant capital investment in FY21”.

Total production for the three months was 65,148 ounces gold equivalent, comprised by sales of 62,549 ounces gold and 239 tonnes copper. The company booked these sales at a realised gold sales price of $2,436 per ounce and an all-in sustaining cost (AISC) of $1,633/oz.

Silver Lake certainly wasn’t immune to the impacts of COVID-19 lockdowns on production, noting that “restricted mobility of skilled labour is resulting in lower productivity and higher costs”.

The company also notes that “community and industry uncertainty exists in relation to COVID-19 related definitions and treatment protocols for COVID-19 cases in Western Australia”, so much so that it has modified its operating
strategy at Mount Monger for H2 FY22 in response.

Aside from this, Silver Lake also executed multiple transactions in the acquisition of Harte Gold Corp, owner and operator of the Sugar Zone mine in Ontario, Canada.

The company attained the sale with an associated 81,287 hectare land package for approximately US$128 million. Further to this, Silver Lake purchased “an existing aggregate 2% NSR royalty over the Sugar Zone mine and entire Sugar Zone property for US$22 million, payable in Silver Lake shares”.

Finally, Silver Lake invested $5.5 million in exploration during the quarter as part of “a record $25 million
investment in exploration” set for completion in FY22.

Management commentary

Speaking on the release, Silver Lake’s directorship said:

Silver Lake will continue to prioritise its highest returning projects in the prevailing operating environment,
whilst retaining project scheduling flexibility should prevailing uncertainty and restricted labour market
return to more normalised conditions. The two most advanced projects which will be considered for
approval in H2 FY22 are the Tank South underground mine and the Santa project area (which includes open
pit and underground production opportunities).

What’s the outlook for Silver Lake Resources?

The company is well on track to deliver FY22 guidance according to the release today. It had previously outlined FY22 earnings estimates back in July 2021.

Specifically, Silver Lake estimates FY22 gold sales of 235,000–255,000 ounces of gold, and FY22 copper sales of 600–1,000 tonnes, hoping for an AISC range of $1,550 to $1,650 per ounce.

Silver Lake will also cease open-pit mining at its Aldiss side for H2 FY22 and will instead “utilise stockpiles to supplement underground mining throughout H2 FY22”.

Silver Lake share price snapshot

In the last 12 months, the Silver Lake share price has fallen hard and is now 10% in the red.

Across the previous month of trading, the downward momentum has continued and shares have plunged 15% in that time.

This year to date, shares have slipped further and are now down 18% since January 1 and are lagging the benchmark S&P/ASX 200 Index (ASX: XJO).

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