Update: St. Andrew Goldfields' Earnings

Aug.16.14 | About: St Andrew (STADF)

Summary

St. Andrew Goldfields reported a small profit as the company's higher cost operations produce less.

The company's main driver going forward is its low-cost Taylor Project, which should be in production next year.

Production costs were in line with my estimates but below my estimates ex-Taylor.

The company is still highly undervalued and gold bulls should consider taking a position at the current price.

St. Andrew Goldfields (OTCQX:STADF) just reported its second quarter earnings results. The company generated $550,000 in income with operating cash-flow of $5.5 million. Gold production for the quarter fell to 22,500 oz. from 25,300 oz. as production at the company's two smaller, higher cost mines - Holloway and Hislop - declined from 5,900 to 4,900 oz. and from 5,800 oz. to 2,500 oz., respectively. Production at the company's Holt Mine mine rose from 13,700 oz. to 15,100 oz. Because this is the company's lowest cost producing mine the company's overall production costs fell from $1,198/oz. to $1,098/oz.

This is more or less in line with my estimate last August, but the company is actually outperforming seeing that I included the company's Taylor Project - which is set to produce next year - in my average production cost estimate of $1,100, and this will be the company's lowest cost producing mine by far. I had anticipated that the mine would begin production this year although this has been delayed. The company is going to do a bulk sampling of the ore at Taylor and assuming that the economics look compelling the company will go ahead with production. Given that the company had expected this project to produce at $300/oz. operating costs, the mine will almost certainly go into production at around 40,000 oz. per year.

St. Andrew Goldfields' shares have done essentially nothing since I recommended them. As a high risk, high reward stock with a tremendous amount of value in a non-producing asset, this is understandable. However, I think this means that there is significant opportunity in this name. The company is worth just $101 million and it has the potential to produce 120,000 ounces of gold. The company is currently treading water, which isn't the end of the world, but this should change substantially once the Taylor Project goes into production.

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