Company Overview: Ramelius Resources Limited is engaged in exploration, mine development, mine operations, the sale of gold and milling services. The Company's segments include Mt Magnet, Burbanks and Exploration. The Company's operational projects include Mt Magnet Mine, Kathleen Valley Mine and Vivien Mine. Its development projects include Blackmans and Water Tank Hill. Its exploration projects include Milkyway, Boorgardie Basin and Tanami Joint Venture Gold Project. The Mt Magnet gold project is located adjacent to the town of Mt Magnet, approximately 500 kilometers north-east of Perth in the Murchison Goldfield of the Western Australian Yilgarn Craton. The Blackmans gold project is located approximately 30 kilometers north of Mt Magnet, in Western Australia. The Water Tank Hill project lies over 1.5 kilometers west of Mt Magnet, in Western Australia. The Milkyway gold project is located approximately 3.6 kilometers southwest of the processing plant at Mt Magnet, Western Australia.


RMS Details

Post-acquisition of Edna May Gold, Ramelius Resources Limited (ASX: RMS) was particularly encouraged by the potential of Edna and will increase both its Ore Reserves and annual production via further extensions which will represent huge optionality for RMS in the future. During the year 2017, Ramelius had exploration success at Mt Magnet and the Company was also able to largely maintain its Mineral resource and Ore Reserve gold ounces. Gold production from Mt Magnet and Vivien of 36.5kozs in the December 2017 quarter showcases the best return since September quarter of 2016, while first quarter performance of Edna May resulted in 21.4kozs, which confirmed the trend of good head grades. Further, opportunity is expected from current open pit Reserves & underground Resources at Morning Star targets.
 

Group’s Operations (Source: Company Reports)
 
Record Production in December 2017 Quarter: RMS has exceeded the guidance range and produced record global production of 58,012 ounces in December 2017 Quarter from the Company’s operations in Western Australia. AISC is being finalised but is expected to be below guidance that is A$1,250/oz.  Cash and gold on hand was A$61.8 million at the end of the Quarter and the balance of $38.0 million was paid for the acquisition of Edna May Operations from Evolution Mining Ltd. Total of A$13.2 million of expenditure was incurred on capital developments in the quarter with A$3.8 million spent in exploration. As at 31 December 2017, forward gold sales consisted of 142,500 ounces of gold at an average price of A$1,713/oz over the period of October 2019.

Updates on Mine Life Extensions: Major drilling program is underway since late October 2017 and is below the Stage 2 open pit for Edna May. 45 drill holes were completed in December 17 Quarter and included 6.2m at 5.99 g/t Au from 113.4m in AUD005 (hole ID). Gold mineralisation is unusual for Boogardie and is being associated with quartz healer shear and is hosted within felsic porphyry, cf and has more typical stock work of gold which is not seen elsewhere. If we talk about Hill 60, Band Iron (BIF) hosted lode with good continuity. It has excellent potential for access from St George decline. Hill 50 (Galaxy) was mined to ~1,500 mbs, while at Vivien, 4000m of diamond drilling was completed. For Jupiter Farm-in & JV, 7 RC holes were completed for 1,195m with open gold anomalism.

Successful completion of Edna May Operation’s sale: Evolution sold Edna May gold mine to Ramelius Operations Pty Ltd (owned subsidiary of Ramelius Resources Limited) and the sale was successfully completed last year. The sale agreement included up to A$50 million of contingent payments and comprised of royalty and cash and/or Ramelius shares. The A$40 million of upfront of the cash payment was directed to pay down Evolution’s Term Facility B which is now fully repaid. Royalty payments of up to maximum of A$30M were payable at A$60/oz from gold production of 200,000 ounces. As a result of the sale, Evolution had revised its FY18 gold production guidance to 750,000-805,000 ounces from 820,000-880,000 ounces. This asset is now expected to add significantly to RMS’ production profile in FY18 and beyond, while the cash position recovery from the acquisition impact has been quick.

 
FY18 Production Profile (Source: Company Reports)
 
Financial Performance for 2017: RMS reported a Net Pre-Tax Profit of A$25.1 million for FY17 down 1% against FY16 result. Sales revenue increased by 13% over FY 16 and amounted to A$197.4 million, driven by greater gold sales. EBITDA rose by 12% and amounted to A$84.6m on the back of increased gold production and All-in Sustaining Costs was A$1,169/oz as compared to A$1,157/oz in FY16.  During the year, the Company increased cash and gold to A$89.9 million after raising a net additional capital amount of A$23.4 million and expended A$22.4 million on capital development and rehabilitation (including A$12.9 million at Water Tank Hill) and A$16.5 million on exploration. The Group recently sold an additional 15,000oz of gold at an average price of A$1,722/oz for the period from July 2018 to June 2019; and at 30 June 2017, the Group had a total of 102,000 oz of forward gold sales at an average price of A$1,711/oz for the two-year period through to June 2019. 
 

RMS an undervalued Gold Producer (Source: Company Reports)
 
Outlook for 2018: The group plans to proceed with extensional drilling at Mt Magnet, Vivien & Edna May (A$14M), and Greenfields exploration will be followed up in Qld and Nevada (A$1M) under the terms of mine-life extensions for 2018. Drilling results are also awaited from RC drilling at the Jupiter JV project. With respect to accelerating project commencement, RMS expects that drilling at Shannon will step out RC and beyond the Mineral Resources while potential might expand the resources once the results are received. It is targeted to complete Prefeasibility Study by mid-2018. Further, deeper drilling is planned from surface with more favourable angles at its Vivien Exploration. Mining study is also going to commence that will be based on accessing underground followed by open pit activities. A record production of 200-210,000 oz and AISC of A$1,100-1,200/oz is forecasted for FY 2018, while the group is building a strong capital position and aims to have cash of A$100M till October 2019 in view of the nil corporate debt. The group has thus slated FY18 overall production to be up 64%.

Potential for the down-plunge of the Western Queen Gold deposit: For Western Queen Gold Project, Mineral Resource estimate was commissioned, and the work was completed by Payne Geological Services Pty Ltd, an external and independent mining consultancy. The Project included the two previously mined deposits, namely, Western Queen South and Western Queen Central which had combined previous production of 881,000t at 7.6g/t for 214,000 ounces of gold. Monax (who is earning a 60% interest in the Western Queen project from Ramelius Resources by expenditure of $2 million over three years) recognised the potential for the down-plunge continuation of the deposits and the Company’s first drilling program at the project confirmed an extension to the WQS deposits. Monax is planning to complete further drilling at Western Queen Central over the next six months with testing the depth extension of the high -grade resources of 130,000t @ 9g/t Au.
 

Gold Deposits Drilling Results (Source: Company Reports)
 
Drilling at the Western Queen project has occurred over multiple campaigns from 1992 to 2017. A total of 32 reverse circulation (RC) holes and 16 Diamond (DD) holes defined the remaining Mineral Resource. Many holes were drilled by previous operators, however, five of the holes were drilled by Monax in 2017. A very large number of RC and DD holes were noted within the previously mined portions of the deposit, but these holes were outside the limits of the current Mineral Resources. The majority of the remaining resources have been drilled at 40-60 m of hole spacing on 50m spaced E-W cross sections. The upper portion of the WQS deposit has been drilled at 25m of hole spacing. All resource hole collars were accurately surveyed using required electronic equipment.

Stock Performance: RMS share price has been up 8.75% in the past six months (as at February 22, 2018), but in the past one week the price dipped by 7.45% on volatility before surging back about 3.5% on February 23, 2018. The Return on Equity was 11.9% in 2017 though below 24.5% that was delivered in 2016; however, the 2017 ROE is still above the industry median. On the other hand, the Company’s assets are growing significantly and there is immense potential that is expected from its development and exploration activities. We recommend a “Speculative Buy” on the stock at the current market price of $0.45
 

RMS Daily Chart (Source: Thomson Reuters)

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