At time of writing, the share price of St Barbara Limited [ASX:SBM] is up 0.28%, trading at $3.56.
The SBM share price has staged a recovery over the last month, with a crossover of its 20- and 50- day moving averages taking place on the 9 July:
St Barbara today announced that has completed its acquisition of Atlantic Gold, and intriguingly, revealed it is considering further North American ‘growth opportunities’ when the time is right. We look at two factors which could mean the SBM share price is cheap.
Some background on why the St Barbara share price went down…
The 22 March announcement lead to a 30% one-day drop down to $3.25.
The shares continued their slide throughout May, as the company had difficulties with an entitlement offer underwritten by Deutsche Bank.
The equity raising was interrupted by a downgraded production guidance and retail shareholders abandoned the offer with only $4 million of the $131 million taken up.
Combined with institutional investors, the total amount of money from the equity raising was $490 million.
This money was then used to purchase Atlantic Gold Corporation, which had a mine in Nova Scotia Canada, which as of today is operating under the St Barbara name.
Investors were not particularly impressed with the acquisition and the downtrend for SBM shares continued until mid-June.
So things during this period went about as badly as conceivably possible.
Today’s announcement outlines some of the main benefits from the acquisition which include:
- A 12-year mine life
- Diversification of SBM’s production base
- Significant growth potential in ‘a very favourable and prospective region.’
In an unexpected twist, the company said it was considering making additional moves in North America at the end of the announcement.
Two reasons why St Barbara shares could be worth a look
Although it is a blunt instrument, the current P/E ratio of about 9.4, despite the decrease in production, makes the St Barbara share price look attractive.
Compared with other mid-tier peers like Saracen Mineral Holdings Limited [ASX:SAR] (P/E of 47) and Regis Resources Limited [ASX:RRL] (P/E of 19), there are hints in these numbers that St Barbara may have room to run.
The other thing to consider is the current macro picture.
Jerome Powell of the Federal Reserve and Mario Draghi of the European Central Bank have both been signalling their intention to cut rates.
Regardless of the merits of the return to quantitative easing (QE) policy, low interest rates and falling bond yields are now poised to grow the appeal of gold.
Our editor, Greg Canavan studies gold and provides great analysis and three reasons why he believes gold could be pivotal to your portfolio in this free report. It is valuable primer on the topic and may change the way you think about the yellow metal.
For Money Morning