Company Overview - Silver Lake Resources Limited is an Australia-based gold producing and exploration company. The Company operates in the Eastern goldfields district of Western Australia. The Company's projects include Mount Monger operation, Murchison operation and Great Southern Gold project. The Mount Monger operation is located over 50 kilometers southeast of Kalgoorlie, Western Australia. The Mount Monger's operations include Daisy Milano Complex, which is located in Western Australia, and Cock-eyed Bob, which is located over 13 kilometers east of the Randalls Gold processing facility. The Murchison operation is located over 20 kilometers east of the town of Cue. The Murchison operation consists of the Tuckabianna, Comet, Moyagee and Eelya projects, which are located in Western Australia. The Great Southern Gold project has two exploration projects, Kundip and Munglinup, which covers approximately 2,500 square kilometers of tenements located in the southeast of Western Australia.


SLR Details

Positive Cue project prospects: Silver Lake Resources Limited’s (ASX: SLR) Cue Project is a Farm-In and Joint Venture Agreement with Musgrave which has a potential to earn up to an 80% interest. Recently, Musgrave reported that high grade gold has been intersected in follow-up reverse circulation drilling at the Break of Day prospects for the Cue project which is located in the Moyagee area at the Murchison region of Western Australia. Assay results from the first drill hole delivered 6m @ 12.8g/t gold from 158m to 164m down hole comprising 3m @ 24.3g/t gold from 158m. The drill hole which was aimed at prolonging high grade gold intersected in MORC001 (2m @ 22g/t) reported an ongoing mineralization. The cue project also witnessed a major surface gold-copper anomaly at Lady Stardust as well as identified copper-zinc anomaly at Mt Eelya which would be protracted 700m along strike. Musgrave identified two major new targets while performing a selected Infill soil geochemical sampling on versatile time domain electromagnetic targets to support drilling prioritization.
 

Break of Day position (Source: Company Reports)
 
Solid final results from Maxwells exploration program: Silver Lake Resources witnessed a strong final result comprising 2.75 meters at 11.7 g/t Au and 1.58 meters at 22.2 g/t Au returned from augmented Maxwells exploration drill program. After this program, Maxwells has a Mineral Resource of 1.685 million tonnes at 5.67 g/t Au for an overall 307,000 ounces of gold (rise of 400%) and indicated 891,000 tonnes at 6.01 g/t Au for 172,000 ounces of gold in the specified category, signifying 56% of the overall Mineral Resource. This Maxwells Mineral Resource is a 246,000 ounce or 400% rise as compared to the earlier Mineral Resource. The group is making efforts to start an underground development at Maxwells in first quarter of fiscal year of 2017 with low capital. For the present quarter, the group is planning a drilling aiming depth extensions and recurrences along with a strike with 2,500 meters diamond drilling. Consequently, the group expects that this positive performance of the Maxwells underground development would fulfil its aim to generate new ore sources in order to sustain and improve margins for delivering value to its shareholder.
 

Expanding resource base (Source: Company Reports)
 
March quarter performance highlights: The group’s Mount Monger Operation delivered gold of 34,495 ounces at an average realized price of A$1,601/oz to generate A$55.2 million revenue during the March quarter. The group reported that their gold production was on track with finished high grade mining at Lucky Bay during January 2016 and started the lower grade Santa Area pits. The group estimates that its Santa contribution to the mill feed blend would enhance its fourth quarter production as they intend to mine low grade and high grade ore stocks and process, till its production from Imperial/Majestic would start in the second quarter of fiscal year of 2017. Meanwhile, the group reported an unaudited all in sustaining cost (AISC) of A$1,254/oz during the March quarter as compared to A$1,250/oz in the second quarter of 2016. Year to date AISC would continue to decrease to A$1,272/oz as of March 2016, on the back of better grade material from the open pits substituting lower grade stockpiles fed in fiscal year of 2015. SLR even cut an overall cost expenditure by 7% to A$43.4 million as they finished the Lucky Bay open pit at the quarter beginning. For Imperial/Majestic project, Watpac Limited got the mining services contract for the Imperial/Majestic open pits while pre-production activities for the Project started in the March quarter and incurred A$0.6 million till date.
 

Third quarter performance (Source: Company Reports)
 
Guidance: Silver Lake issued a gold sales guidance of 130,000 to 135,000 oz during fiscal year of 2016. Cash drawdown on the Imperial/Majestic Project is estimated to rise in the fourth quarter of 2016 as more capital expenditure is needed to fund mining activities. Mining is arranged for 28 months with the first ore delivery expected to be in the first quarter of FY17. Imperial/Majestic Project is estimated to offer high grade open pit feed to the Randalls Mill in FY17, FY18 and FY19 having a target mine grade of about 3 g/t and the recovery is forecasted to be in the range of 90,000 to 100,000 ounces of gold. Meanwhile, the group finished a Cock-eyed Bob diamond drilling program in the September 2015 quarter that aimed 175 vertical meters among the 350RL and 175RL levels, while planning three more phases of underground diamond drilling to infill the Inferred resource to Indicated status. Meanwhile, the group would start the Phase 1 of the program in the fourth quarter of fiscal year of 2016 that encompasses 10 holes for 1,157 meters which would be drilled from the 345RL level offering 20m x 20m drill spacing from the 330RL to the 280RL. The development of Cock-eyed Bob after first quarter of FY17, would happen based on the results of the Phase 1 drilling program which would be assessed in combination with the likely development of a new Maxwells underground mine. On the other side, the Milling rates at the Randalls processing facility are forecasted to maintain the present levels of over 300,000 tonnes per quarter having a possible 60% of the first quarter of FY17 mill feed sourced from Santa stockpiles through the Daisy Complex and Imperial/Majestic mines. For the facility, the higher grade feed would gradually be launched into the mill blend from second quarter of FY17 driven by increasing production from new project. Hence, the AISC for first quarter of FY17 might be more than the present levels but reduced from the second quarter driven by the better grade material mined from Imperial/Majestic and Maxwells underground.
 
Balance sheet highlights: The group enhanced its cash & bullion of A$42.4 million during March quarter which is a 24% rise as compared to the December 2015 levels. The Mount Monger contribution delivered A$16.0 million of cash in the March quarter which is less than the A$17.4 million in the second quarter of FY16. Having a strong cash in hand, the group was able to internally fund its FY16 exploration program, having A$11.3 million spent on exploration year to date. Moreover, the group repaid A$5.0 million of its gold prepay facility in fiscal year of 2016 while the rest of the debt is planned to be fully repaid by June 2016. Apart from this, the group is also leveraging its capital position to develop its Imperial/Majestic open pits and Maxwells Underground Development proposals for the coming six months (as of March quarter reports). These two projects are estimated to have an overall maximum cash drawdown of about A$15 million. Meanwhile, the group hedged more 40,000 ounces of gold at an average price of A$1,606/oz in the March quarter. As a result, the group has an overall forward gold hedging program of 71,181 ounces in the coming 14 months at an average forward price of A$1,600/oz. SLR also finished the sale of its Comet tenement package for A$3 million in February 2016.
 

Third quarter balance sheet position (Source: Company Reports)
 
Great Southern Project Farm-in and Joint Venture: The group made a Farm-In and Joint Venture Agreement with ACH Minerals in December with regards to its Great Southern project. Recently, they reported that they are satisfied with the agreement and got most of third party approvals. Accordingly, ACH would start earning a 51% joint venture interest in the Project by spending a minimum of $3 million on exploration within three years. Meanwhile, ACH might even select to enhance its joint venture interest in the Project to 80% via a further $3 million within an additional three-year period.
 
Stock performance: The shares of Silver Lake delivered outstanding returns this year to date and generated over 188.6% (as of June 14, 2016). This increase in the stock is mainly due to the ongoing gold prices rally coupled with the group’s better high grade gold at Break of Day in the Cue project, major gold-copper anomaly identified at Lady Stardust and the copper-zinc anomaly at Mt Eelya. The group has a strong balance sheet and is even well positioned to fund its exploration prospects. We believe that the group’s positive exploration results and expanding resource base would continue to drive the stock in the coming months. Moreover, gold prices have been improving while there is ongoing uncertainty in the markets ahead of FOMC and Brexit outcome. Based on the foregoing, we give a “Buy” on SLR at the current price of  $0.505
 

SLR Daily Chart (Source: Thomson Reuters)

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