Silver Lake growing gold production

Interviews

Transcription of Finance News Network Interview with Silver Lake Resources Limited (ASX:SLR) Managing Director, Les Davis

Lelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me today from Silver Lake Resources Limited (ASX:SLR) is Managing Director, Les Davis. Les welcome to the Gold Investments Symposium here at Luna Park in Sydney.

Les Davis: It’s a pleasure to be here.

Lelde Smits: Contrary to what your name suggests, Silver Lake Resources is focused on gold mining and processing in Western Australia. Les, could you introduce us to your mines both operating and under development?

Les Davis: Sure. At Mount Monger we have our Mount Monger Operations and we’re currently producing from four underground mines. And we’re on schedule to do 120,000 to 150,000 ounces of gold from the Mount Monger Operations this year. And in the Murchison it’s quite exciting; it’s a $70 million capital project and we are on target to pour our first gold bar in the first quarter of calendar 2013. And we’re really excited about that, so that really diversifies the Company’s risk. So we go away from having a single production centre to two production centres, which is great.

Lelde Smits: So what is your total resource base and production target for fiscal 2013?

Les Davis: We currently have 4.5 million ounces of gold and that’s without talking about the Integra Mining Limited ASX:IGR) transaction, which no doubt we’ll talk about further on in the conversation. So yes, 4.5 million ounces of gold of which 1.2 million ounces of that is in reserve. As I’ve mentioned, Mount Monger production target is 120,000 to 150,000 ounces of gold, the Murchison coming on stream. So we only get the ramp up production this year. So we’ll do 35,000 to 45,000 ounces out of the Murchison project, ramping up to 100,000 ounces in the Murchison in the following year.

Lelde Smits: OK Les, let’s get to your financials. Silver Lake doubled its net profit to $31 million dollars in fiscal 2012. What expectations have you put on next year’s result?

Les Davis: Certainly given our production profile - we will certainly at least double that number, that’s our budgeted prediction to do that. And that’s driven off a relatively soft gold price. So we’ve done our budget of $US1,600 per ounce for gold and currently gold is trading around $US1,700 per ounce. So given the first six months of the Murchison, the unit costs up there will be a lot higher because you’re actually in ramp up mode. But after that everything settles down and in FY14 and when we get to talk about Integra, our forecast EBIT [earnings before interest & tax] is around $300 million. So the Company’s certainly growing at a rapid rate.

Lelde Smits: And how has this forecast been impacted by your recent purchase of Integra Mining?

Les Davis: When we announced the transaction at the Diggers and Dealers Mining Forum this year on 6, August 2012, is that when I presented the transaction and I said to the audience at the time, is that the market was being irrational on the day that we announced it. So our share price went down to $2.50. Since then I’ve carried out a global road show and during my speech at Diggers, I did say that the market would value this transaction over the longer term. And our share price has gone from $2.50 to almost $4 since then, so it’s been great. So the global investment community can clearly see the benefits of putting these two mining companies together.

Lelde Smits: So when will the transaction be finalised. And Les, what do you believe will be the biggest benefits to shareholders?

Les Davis: Yes, we’re well on track to close out by the end of this calendar year, which is great. And the attraction for both sets of shareholders is we’ve really diversified the risk. So we have multiple mines now and multiple mills, with a forecast production target of 400,000 ounces per annum in 2014. So you bring in a lot of scale to the business and you’re de-risking and getting away from a single producing centre, which sometimes can unfortunately bring a lot of companies unstuck. So we’ve really diversified the risk profile and underwritten our growth profile going forward.

Lelde Smits: Now as you mentioned growth, what is your long term strategy to deliver returns to shareholders?

Les Davis: Obviously we’re not challenged deficient at the moment, we have a lot on. So we just want to get Mount Monger integrated with the Integra assets as well, bed down the Murchison. Then we’ll focus on bringing our Great Southern Project into production in about two years’ time. So organically we’re in a very, very good position and we’re coming from a position of strength, which is very good for our shareholders.

Lelde Smits: To your stock now, National Australia Bank Limited (ASX:NAB) has just come on board as a substantial shareholder. How much has the bank purchased and what does this backing mean for Silver Lake?

Les Davis: Yes, NAB purchased 6.7 per cent of the Silver Lake stock. And having a large Australian bank as a cornerstone investor like NAB certainly puts us in a position of strength. And they’re obviously buying up the stock on behalf of their clients. So from an Australian domestic point of view, people are buying into the integrated Silver Lake/Integra story.

Lelde Smits: Silver Lake’s stock has been one of the standout performers of the past few years, up 35 per cent over the last quarter. Les, what do you believe are the main drivers behind the gains?

Les Davis: I think it’s the scale now, like the market can clearly see that you’re getting out of the junior end of town where there is a lot of, sort of 100,000 ounce-ish producers, and you’re breaking out of that mould now. So when you take away Newcrest Mining Limited (ASX:NCM), you’ve basically got four large mining companies that are similar size as Silver Lake. So you’ve got St. Barbara Limited (ASX:SBM), Atlas Iron Limited (ASX:AGO), Evolution (ASX:EVN) and Silver Lake, and of course you’ve also got Regis Resources Limited (ASX:RRL) as well. So we’re starting to fit into that mould now. So we’ve broken out of the pack on the right hand side, so to speak and we’re travelling along now with the four other large mining companies, which is compelling.

Lelde Smits: And finally Les, what developments do you expect will be Silver Lake’s biggest share price drivers in the coming year?

Les Davis: I think once the market sees that we’ve integrated all of our plans with Integra, I think we’ll be rewarded for that. And furthermore, when we get the first gold bar out of the Murchison, . Because, up until the point of the first gold bar, it’s always a bit stressful. And once you’ve done that then you have multiple mines online, multiple mills and then 400,000 ounces of production in 2014. That’ll be the biggest reward for our shareholders.

Lelde Smits: Les Davis, thank you for the update on Silver Lake Resources.

Les Davis: It’s a pleasure, thank you.


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