St Barbara Ltd (ASX:SBM) has entered into forward gold contracts totalling 90,000 ounces to be delivered in monthly instalments from July 2018 to December 2019.
These have been negotiated at a forward price of A$1,750 per ounce which compares with the current Australian dollar gold price of circa $1,680.
The forward contracts are assigned to secure a reliable cash margin on a portion of anticipated future gold production from the Simberi project in Papua New Guinea.
Simberi expected to produce circa 120,000 ounces of gold in 2018
In fiscal 2018 Simberi is expected to produce between 115,000 and 125,000 ounces of gold, at an all-in sustaining cost (AISC) of between A$1,130 and A$1,230 per ounce.
There is a substantial difference in AISC’s between Simberi and the group’s Leonora operations in Australia.
Gwalia costs circa $320 per ounce lower than Simberi
The Gwalia underground mine at Leonora is forecast to produce circa 255,000 ounces in fiscal 2018 at an AISC of circa $860 per ounce.
A substantially higher cost of production at Simberi leaves the project heavily exposed to gold price volatility.
Consequently, management’s decision appears well founded in terms of protecting shareholder value.
St Barbara’s 16% interest in Peel Mining provides diversification options
St Barbara increased its stake in Peel Mining (ASX:PEX) from 10.8% to 16.3% in November.
READ: Peel Mining receives support in recent placement from major shareholder
The company’s interest may revolve around the fact that Peel has large tenements totalling more than 4000 square kilometres in the Cobar Basin of New South Wales.
This area is prospective for precious and base metals.
Apollo Hill could appeal to St Barbara
Perhaps of more interest given its gold focus would be the Apollo Hill project located in the north-east goldfields of Western Australia.
The Apollo Hill gold project is located 60 kilometres south-east of Leonora.
It comprises more than 1000 square kilometres of granted tenure and applications within the highly mineralised north-eastern goldfields of Western Australia.
The project contains two significant gold deposits, being the Apollo Hill Main Zone and the Ra Zone, both of which exhibit the hallmarks of a major Archean gold system.