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Superior Gold 'not for the faint of heart'

Shares in Canada’s Superior Gold fell more than 35% this week after the company announced a board shakeup on the heels of a disappointing production quarter at its Plutonic mine, in Western Australia.
Superior Gold 'not for the faint of heart' Superior Gold 'not for the faint of heart' Superior Gold 'not for the faint of heart' Superior Gold 'not for the faint of heart' Superior Gold 'not for the faint of heart'

Superior Gold has reported disappointing production results from Plutonic, WA

Compared with the prior period, gold production halved in the June quarter to 15,177oz, as stope grades from the underground mine averaged a lower 2.41 grams per tonne.

The company last week released a resource update for Plutonic, slashing the underground reserve grade by 15% to 4g/t.

Laurentian Bank Securities equity research analyst Ryan Hanley said he hoped management now had a better understanding of the mineralisation and grade distribution. Hanley expects dilution to be an ongoing issue, since the company ramped up stope mining during the past quarter by 51% while grades dropped 28%, suggesting it appeared as if the company was mining "to fill the mill", resulting in total cash cost and AISC to respectively rise 5% to $1,426/oz and $1,547/oz.

Superior revised its production guidance downwards to 60,000-70,000oz from prior guidance of 80,000-90,000oz, at AISC of $1,075-$1,350/oz.

Given a weaker than expected quarter and continued challenges related to stope grades, Superior announced that effective at the close of business on Friday, president and CEO Chris Bradbrook would step down as well as resign as a director.

Tamara Brown, who has been an independent director since 2017, will assume the role of interim CEO, while a special committee comprising independent directors Mark Wellings and Rene Marion will initiate a search for a permanent CEO as well as initiate a strategic review process to explore and evaluate ways to maximise shareholder value.

"We continue to be of the belief that there is underlying value in Plutonic, not just from the existing underground operation and associated infrastructure, but also from the sizable land package and exploration potential," said Hanley.

"Unfortunately given ongoing operating challenges, Superior Gold is not for the faint of heart and a more substantial degree of operating risk remains. However, some comfort can be taken from the company's exposure to a strong gold price of over A$2,700/oz, which should provide some support."

The analyst maintains a 'buy' rating with a lowered target share price of C1.25. 

At 95c, company shares (TSXV:SGI) took it on the nose Thursday, lowering year-to-date gains to 61% after its recent doubling to C$1.53. The company has a market value of $92 million (US$68.5 million).