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

Ramelius Resources Limited (ASX: RMS) along with its subsidiaries, is engaged in the exploration, mine development and operation, and production and sale of gold in Australia; and has a stake in the Mt Magnet gold project and the Vivien gold deposit in Western Australia. Ramelius has achieved its production guidance for the September quarter in view of producing 51,428 ounces of gold from its Western Australia operations. RMS has also reported decent cash and gold balance at record levels of $102.4 million as at the quarter end. The group has been looking at strategic moves and acquisitions for expansion of operations; and some of these have been related to be value accretive projects. The group has now transformed the outlook for Edna May and has opened longer term options. It is worth noting that Edna May pit ore, Greenfinch and stockpiles in reserves make for Edna May’s full 2.7 Mtpa capacity until about June 2020.


Financial Performance (Source: Company Reports and Thomson Reuters)

Extension of the Takeover Offer for Explaurum Limited: RMS shares fell by 2.13% on October 18, 2018 after the company extended the takeover offer by approximately one month till 23 November 2018 until 5.00 pm, so that Explaurum’s shareholders who have not yet accepted the offer can get the opportunity to go for it. Currently, none of the conditions given in the takeover offer have been fulfilled.

Meanwhile, the Board of Explaurum Limited have unanimously recommended that Explaurum shareholders should Reject the RMS Offer. The directors of Explaurum Limited have personally planned to reject the Ramelius Offer for all of the Explaurum Shares that they are holding. Further, Explaurum has asked their shareholders to simply ignore all correspondence and acceptance forms sent by Ramelius. Explaurum has considered Target's Statement to reject the Ramelius Offer. The reasons for rejecting the Ramelius Offer includes - Explaurum considers the RMS Offer to be inadequate as it does not reflect the true value of Explaurum's Tampia Gold Project and its potential exploration upside. Explaurum holds 90% interest in the Tampia Gold Project and the Offer is below Explaurum’s share of Tampia Gold Project set out in the latest Tampia Feasibility Study released in May 2018. As per Explaurum's Feasibility Study it is confirmed that Tampia is one of the highest margin undeveloped gold projects in Australia. Further, the offer does not include the Tampia infill drilling results, the assessment of the Mace Discovery, optimisations planned for the reduction of operating costs and capital costs in the Feasibility Study and the prospectivity of the Anomaly 8 exploration target. The offer also does not include the potential exploration upside of the Tampia province, an unexplored greenstone belt having multiple, highly-prospective gravity and soil anomaly confirmed drill targets. Moreover, Explaurum considers the timing of the Offer to be highly opportunistic and given at a time to the shareholders when not all potentially material information is available to them like due diligence on Ramelius and its underlying assets. If Explaurum Shareholders take the decision, then the company will not be able to accept a superior offer from another bidder apart from RMS, if such an offer is made. Explaurum considers that RMS’ strategy  for the future development and operation of the Tampia Project and the Mace Discovery is not certain whereas Explaurum has an existing clear strategy and plan to develop the Tampia Project. Additionally, Explaurum Shareholders in the offer were asked to heavily dilute their exposure to Tampia Project and in exchange, Explaurum Shareholders will get predominant exposure to a more mature portfolio of assets with a higher cost production profile and a shorter reserve life. As a response to this, Ramelius has highlighted that Explaurum is relying on various undervalue statements.


Takeover Offer of Explaurum Limited (Source: Company Reports)

Production Guidance Achieved in September 2018 Quarter: RMS in the September 2018 quarter has achieved Guidance for the production to be between 50-54,000 ounces, and delivered 51,428 ounces of gold. For the September 2018 quarter production, Mt Magnet produced 17,432 ounces of gold, Vivien produced 9,341 ounces of gold and Edna May produced 24,655 ounces of gold. Moreover, during the September quarter, the company’s Edna May underground got approved and the development is expected to start in the March 2019 Quarter. Edna May stage 2 open pit is expected to be completed in mid-October. Greenfinch open pit approvals process is undergoing and the company is working with both Federal and State processes to get the approvals. Greenfinch open pit’s commencement target is during the December 2018 quarter. The remainder of Stage 2 Greenfinch and Stockpiles is expected to provide mill feed until early 2020. Additionally, at the end of the September 2018 quarter, cash and gold on hand was of record A$102.4M compared to A$95.5M in June 2018 quarter. The company during the quarter has also incurred the capital expenditure of A$14m on the acquisition and capital development of three projects, including Shannon open pit pre-Strip under Mt Magnet whose expenditure was A$5.5m. For exploration (all across the project), the capex was A$4.2m and in asset acquisitions that includes Marda Gold Project deposit, the company had incurred the capex of A$4.3m. Furthermore, at the end of September 2018, the company’s forward gold sales comprised of 124,750 ounces of gold at an average price of A$1,727/oz over the period to March 2020. RMS during the September quarter had announced a takeover offer for all the ordinary shares of Explaurum Limited and also the acquisition of the Marda Gold Project.


Positioning among peers reflects undervalued scenario (Source: Company Reports)

Proposed Acquisition of the Marda Gold Project: RMS has signed a binding Exclusivity and Implementation Deed for the proposed acquisition of the Marda Gold Project, which is situated north of Southern Cross, Western Australia, for the total consideration of A$13.0 million. The consideration payable for Marda will be funded from the Company’s current cash reserves. This acquisition will be completed upon the completion of a Deed of Company Arrangement (“DOCA”)  by RMS with respect of Black Oak Minerals Ltd (in Liquidation) (BOK), the owner of Marda, which would result in RMS owning 100% of the shares. The total consideration comprises of A$0.5 million non-refundable deposit that are required to be paid to the Liquidators of BOK to facilitate funding of third party transaction costs and to contribute towards the monies in the BOK creditors trust. Marda Gold Project contains a total of 333koz of Mineral Resources at 1.96 g/t Au and 151koz of Ore Reserves at 2.30 g/t Au. The acquisition cost of A$86 per reserve ounce represents the excellent value of the transaction. Additionally, the acquisition of BOK is to be completed via a DOCA that will be put to the creditors of BOK in late October 2018. Under the binding Exclusivity and Implementation Deed signed by RMS, the secured creditor of BOK is obliged to vote in favour of the Ramelius DOCA. After getting DOCA approved by creditors, an application is required to be filed with the Courts for getting the approval to transfer the shares in BOK to Ramelius for nil consideration. However, only after the approval of BOK’s creditors and the Court, the completion of the DOCA is expected before the end of the 2018 calendar year.

Increase in Resources and Reserves: As at 30 June 2018, the Mineral Resources increased by 36% and Ore Reserves was up 54% for the year, after mining depletions. The company’s total Mineral Resources are projected to be 70.5 Mt at 1.5 g/t Au for 3,476,000 oz of gold and the company’s total Ore Reserves are projected to be 13.3 Mt at 1.6 g/t Au for 698,000 oz of gold.


Production Profile with Free Cash Generation (Source: Company Reports)

Outlook: For the FY 19, RMS expects to produce 200,000-220,000 ounces of gold at an AISC of A$1,150-$1,250/oz. In FY 18, RMS produced 208,118 ounces of gold at an AISC of A$1,191/oz for the year. For FY 18, RMS had reported Net Profit before Tax of A$45.5M and an 81% growth on the Financial Year 2017 pre-tax profit.

Stock Recommendation: RMS stock has fallen 15.6% in three months as on October 17, 2018 and is trading at a P/E of 7.88. RMS stock is trading at the level of $0.460, and has support at $0.44 and resistance at $0.55. Meanwhile, RMS extended the takeover offer for Explaurum Limited as currently none of the conditions given in the takeover offer have been fulfilled. Explaurum has considered Target's Statement and has asked the shareholders to reject Ramelius Offer. As per estimations, Tampia and Marda together can add over 500 kozs to Edna May’s 203 kozs in reserves at the end of FY18. Then, Mt Magnet mine plan based on 2018 reserves is expected to extend to early 2023. FY20 revenue and EBITDA are expected to be on the uptrend while FY19 is expected to be more or less in line with FY18. We give a “Speculative Buy” recommendation on the stock at the current price of $ 0.460.
 

RMS Daily Chart (Source: Thomson Reuters)

 
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