Company Overview: Regis Resources Ltd (ASX: RRL) is a gold production company that has operations at the Duketon Gold Project in the North-Eastern Goldfields of Western Australia and the McPhillamys Gold Project in the Central Western region of New South Wales. The Duketon Gold Project consists of two operating centres being the Duketon South Operations (DSO) and the Duketon North Operations (DNO). The company has also 30% interest in the Tropicana Gold Project.

RRL Details

2021 AGM Highlights: On 25^th November 2021, RRL held its 2021 Annual General Meeting (AGM), wherein the management highlighted that the company had continued its long track record of reliable production and decent financial performance in FY21. Some of the other key points highlighted at the AGM are as follows:

• Acquisition of 30% Interest in Tropicana Gold Project: In FY21, RRL completed the acquisition of 30% interest in Tropicana Gold Project, which diversified its asset base and has expanded its resource base.
• Expanding Resource Base: Over the year, the company witnessed a 33% increase in its ore reserves and a 35% increase in total mineral resources.
• FY21 Result Highlights: For FY21, RRL reported NPAT of $146 million, and EBITDA of $403 million. Further, the company reported EPS of 26 cents per share. Due to the increase in the cost of sales, the company’s operating cash flow declined by 19.5% to $276.3 million in FY21.
• Dividend Update: For H2FY21, the company has paid a final dividend of 3 cents per share, taking the total full year dividend to 7 cents per share.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Metrics: Gross margin for FY21 stood at 27.6%, down from 38.9% in FY20. EBITDA margin for FY21 stood at 49%, down from 52% in FY20. Current ratio for FY21 stood at 2.33x, down from 2.74x in FY20. Cash cycle days for FY21 stood at 59 days, up from 32.1 days in FY20. Debt to equity ratio for FY21 stood at 0.22x, up from 0.05x in FY20.

EBITDA and EBITDA Margin (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 35.15% of the total shareholding, while the top four constitute the maximum holding. Van Eck Associates Corporation and IPConcept (Luxemburg) S.A. are holding a maximum stake in the company at 10.81% and 5.10%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Exploration Update: In an exploration update provided on 22 November 2021, the company informed that the drilling beneath Garden Well Main pit has shown strong mineralization in the area, with the deepest hole in this system intersecting 24.5m @ 3.2 g/t gold. Further, the drilling at Moolart Well has resulted in significant fresh-rock mineralisation with results including: 10m @ 13.2 g/t gold, 26m @ 7.6 g/t gold, 19m @ 5.7g/t gold. At Tropicana, the drilling results at Boston Shaker continue to demonstrate down-plunge growth potential up to 200m below the current resource envelope.

Q1FY22 Operational Highlights: For the quarter ending 30 September 2021 (Q1Y22), RRL reported gold production of 101,989oz at an AISC of $1,521/oz. Notably, the production was lower when compared to the production of 114,145oz in June 2021 quarter, due to the activity schedule, some unplanned short term operational issues. Some other key highlights of the quarter are as follows:

• The revenue from gold sales for Q1FY22 stood at ~$179 million at an average realised price of $2,178/oz after factoring for hedging.
• The operating cash flows reported stood at ~$92.5 million from Duketon and Tropicana operations, down from ~$108.5 million in Q4FY21 due to lower quarterly production.
• RRL held ~$208 million cash and bullion as at 30 September 2021, down from ~$268.7 million as at 30 June 2021.

Substantial Holder Update: On 13 December 2021, IPConcept (Luxembourg) S.A became a substantial holder of RRL with 5.01% voting power. IPConcept (Luxembourg) S.A holds ~38,502,728 ordinary shares of RRL.

Key Risks:

• Commodity Price Risks: The company is exposed to the risks related to the fluctuations in the gold price as it could directly impact the company’s financials.
• COVID-19 Pandemic: The COVID-19 pandemic and its associated impacts may disrupt the company’s operations and costs of doing business.

Outlook: Looking ahead, the company is focused on exploring its substantial tenure in the Duketon Greenstone Belt. Further, the company is continuing the development of the Garden Well South underground mine, with the first ore expected in the December 2021 quarter and stoping to commence late in the June 2022 quarter. For FY22, the company expects its production to be in the range of 460-515koz of gold, with AISC of between $1,290-1,365/oz. From Duketon, the company expects the production to be between 340 – 380koz with AISC of $1,340 - 1,410/0z. From Tropicana (30%), RRL expects the production to be between 120 – 135koz with AISC of $1,140 - 1,230/oz.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of RRL has corrected by ~22.15% in the last six months and is trading lower than the average 52-week price level band of $1.860 - $5.040, offering a decent opportunity for accumulation. The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company might trade at a slight discount to its peers, considering the uncertainty surrounding the impact of COVID-19 pandemic, and fluctuations in gold price. For the valuation purpose, peers such as St Barbara Ltd (ASX: SBM), OceanaGold Corp (ASX: OGC), and Resolute Mining Ltd (ASX: RSG), etc., have been considered. Considering the company’s expanding resource base, decent exploration results, decent production performance in FY21, modest production outlook in the long-term, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $1.880, as on 21 December 2021, 10: 30 AM (GMT+10), Sydney, Eastern Australia.

RRL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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