IKN Flash UpdatePremium

A quick, chart-led analysis of Starcore
International’s (SAM.to) quarter ended July’13
October 28, 2013
There was good and bad in the SAM 4q13 (the company year end is July 31st) period. The
company looks in fair shape to see out this rough patch in the markets over a longer-term, but
overall it was a disappointment to our near-term trade plans.
Here’s how gold production and ounce sales look and the quarter was a good one for
prodcution, but it’s notable that SAM sold some inventoried gold as well. In total it produced
5,816 oz Au and sold 6,556 oz, which brought in an IKN calc $8.8m. Silver sales came to
around $0.85. Total revenues were booked at $9.66m, which sounds correct
Oz Au SAM.to: Gold produced vs sold
7000
6000 gold prod
gold sold
5000
4000
3000
2000
1000
0
july.12 oct.12 jan.13 apr.13 july.13
source: company filings
That revenues number was around $1m more than we’d forecast, thanks to the extra sales over
production. That’s good, but as this chart shows the bad news was a much higher than
expected costs column for the July quarter, with COGS coming in at $7.304m. We’d budgeted
for around $5.
SAM.to: Quarterly Earnings overview
$m
10
9 revenues COGS mine op earnings
8
7
6
5
4
3
2
1
0
oct.12 jan.13 apr.13 july.13
source: company filings
On closer inspection, costs looks really high. The next chart below shows the difference
between filed COGS per quarter and a calculation done via tonnes milled X cash cost per tonne
declared. Even though cash costs per tonne came in higher than expected at $59/t (we’d looked
for $53/t), that sort of number would still normally point to a $5m COGS.
The company makes mention of capital goods purchases in the MD&A and that’s the likely
reason behind this cost hike. It’s a pity, because it wiped out maybe 1.6c from the EPS number
and scuppered your author’s theory for a great looking bottom line this quarter. However, it’s the
type of thing that can hit a small cap company very easily and part of the risk we take. In the
end, purchasing capital goods makes for a smart longer-term policy and bodes well for the
company’s future, but as ours (well, mine) is a near-term trade, the plans are hit by this
unexpected cost bump.

SAM: calculated cash cost versus COGS figure as filed
$m
(calc = tonnes mined X cash cost per tonne)
8
7 tonnes X cost/tonne
COGS
6
5
4
3
2
1
0
oct.12 jan.13 apr.13 july.13
source: company filings, IKN calcs
So here’s how pre-tax and net profits show for the last four quarters, with SAM posting a net of
$1.212m for the quarter ended, or 0.85 cents per share. That’s not a big score and unlikely to
grab anyone’s attention in this market.
SAM.to: Pre-tax Earnings and Net Earnings
3
2.5
2
1.5
1
0.5
0
-0.5
oct.12 jan.13 apr.13 july.13
source: company filings
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pre-tax earnings
net earnings
Finally, one chart from the balance sheet, as working capital came in slightly lower than the
April quarter but is still healthy enough at $7.03m.
SAM.to: Working Capital per qtr
9
6
3
0
-3
-6
-9
-12
11.yluj 11.tco 21.naj 21.rpa 21.yluj 21.tco 31.naj 31.rpa 31.yluj
source: company filings
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snoillim
The bottom line to SAM today is that it’s worth the current range of 22c to 24c prices at which
it’s been trading, but not much more (unless gold suddenly zooms on us, of course). I’m going
to sell my shares, bought at 23.5c and if lucky might get out evens but the chances are a small
scale loss will be booked. However, it’s important to note that there’s no point at all in dumping
at the first price offered, because even if SAM drops to perhaps 20c tomorrow, there’s more
than enough asset and fundamental backbone in this stock to see it return to its current price
range. Therefore I sell my near-term trading position, but not any any old price.