Regis Resources Limited

RRL Details

Latest Update on Acquiring Interest in Tropicana: Regis Resources Limited (ASX: RRL) is engaged in gold production and exploration in Australia. The company operates through two segments, namely the Duketon Gold Project, Duketon North Operations (DNO), comprising Moolart Well, Gloster, Anchor and Dogbolter, and Duketon South Operations (DSO), incorporating Garden Well, Rosemont, Erlistoun and Tooheys Well. On 22 April 2021, the company informed the market that AngloGold (AGG) had waived its pre-emptive rights under the joint deal held between IGO Limited (IGO) and AGG for the proposed acquisition of 30% interest in Tropicana by RRL through IGO. It announced earlier on 13 April 2021 that RRL entered into a conditional binding agreement with IGO for the acquisition of 30% interest in Tropicana for a total consideration of $903mn. The acquisition will be subject to the consent from Minister for Mines and Petroleum. As per the company reports, a 30% acquisition in Tropicana will add 380-430Koz of production in FY21E. The company is expecting Tropicana mine life of more than 10 years and potential for regional growth in the longer term. 

1HFY21 Financial Highlights: The company has registered an increase in revenue to $401.04mn in 1HFY21 as compared with $371.36mn in 1HFY20, on the back of higher gold price realisation in 1HFY21. The company has registered a decline in net profit to $84.80mn in 1HFY21 as compared with $93.39mn in 1HFY20, due to higher cost of sales and higher administrative costs in 1HFY21. The company has reported an increase in cash and cash equivalents position to $202.57mn as on 31 December 2020 as compared with $192.42mn as on 30 June 2020.

Revenue and Profit Growth (Source: Company Reports)

Key Risks: The company is engaged in gold production activities. Any severe fluctuations in the prices of gold may lead to financial losses for the company. The company requires regulatory approvals to carry out its business efficiently. Thus, any delay in regulatory approvals may lead to financial losses for the company.

Outlook: As per the company’s guidance for FY21, the gold production is expected to be in a range of 355,000-380,000 ounces, with a stronger production expected in 2HFY21. The company is expecting All-In Sustaining Cost (AISC) in a range of $1,230-$1,300 per ounce. The company is expecting its capital expenditure in a range of $60-$70mn for Moolart Well pre-strip, Rosemont underground capital development schedule changes and Garden Well underground project. Moreover, RRL is expecting to incur ~$22mn for McPhillamys project in FY21. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, RRL has decreased by ~3.66% and by ~21.76% in the last three months. The current market capitalisation of RRL stands at ~$1.90bn as of 22 April 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$2.610-~$5.955. On the technical analysis front, the stock has a support level of ~$2.711 and a resistance of ~$3.014. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering the company has posted an increase in revenues and strengthened its balance sheet by posting an increase in cash position as on 31 December 2020. For this purpose, we have taken peers St Barbara Ltd (ASX: SBM), Alkane Resources Ltd (ASX: ALK), to name a few. Considering enhancing production through acquiring an interest in Tropicana, stronger production expected in 2HFY21, decent top-line growth in 1HFY21, valuation, and current trading levels, we recommend a “Buy” rating on the stock at the current market price of $2.85, up by ~4.014% as on 22 April 2021.

RRL Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Evolution Mining Limited

EVN Details

Latest Quarterly Updates: Evolution Mining Limited (ASX: EVN) is engaged in operating, discovering, and developing gold-related mining projects in Australia and New Zealand. The company has issued a Q3FY21 report on 22 April 2021. EVN continues to generate a mine operating cash flow of $194.4mn in Q3FY21 and $725.5mn for March 2021 year-to-date (YTD). The company has reported a group cash flow of $39.9mn in Q3FY21 and $258.0mn for March’21 YTD. The company has reported lower gold production in March 2021 quarter to 161,316oz against the previous two quarters for FY21. However, it reported a higher All-In Sustaining Cost (AISC) of $1,268/oz in Q3FY21. The company has reported a lower gold sale to 160,115oz in Q3FY21 as compared with the previous two quarters for FY21.

Production & Sales Highlight (Source: Company Reports)

1HFY21 Financial Highlights: The company has registered an increase in sales revenue to $982.21mn in 1HFY21 as compared with $898.16mn in 1HFY20, mainly on the back of higher gold price realization, partially offset by lower ounces sold. Similarly, the company has reported an increase in profits to $228.69mn in 1HFY21 as compared with $147.21mn in 1HFY20. The company has reported an increase in cash and cash equivalents to $438.12mn as on 31 December 2020 as compared with $372.59mn as on 30 June 2020.

Key Risks: The company is exposed to adverse climate risks such as Earthquake, Floods, Heavy Rainfall etc., which can lead the company to face discontinuation of the business for an indefinite time and may also incur financial losses. The company requires regulatory approvals to carry out its business efficiently. Thus, any delay in regulatory approvals may lead to financial losses for the company.

Outlook: EVN has provided improved cost guidance for FY21. The company is expecting an improved All-In Sustaining Costs to be in a range of $1,190-$1,220 per ounce from its previous guidance of $1,240-$1,300 per ounce. Further, the production is streamlined to 695,000-710,000 ounces against original guidance of 670,000-730,000 ounces. The company is expecting an improved sustaining capital to $100.0-$110.0mn against previous guidance of $112.5-$137.5mn. Lastly, guidance on major capital remains unchanged at $260.0-$290.0mn. 

Valuation Methodology: EV/Sales based Relative Valuation Method (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, 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: In the last one month, EVN has increased by ~12.85% and by ~3.20% in the last three months. The current market capitalisation of EVN stands at ~$8.08bn as of 22 April 2021. The stock is currently trading below the average 52-weeks’ price level range of ~$3.790-~$6.585. On the technical analysis front, the stock has a support level of ~$4.53 and a resistance of ~$4.93. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of high single-digit upside (in % terms). We believe that the company can trade at some premium as compared to its peer average, considering the company has posted an increase in revenues and profits in 1HFY21, and generated positive operating cash flows from mining operations. For this purpose, we have taken peers IGO Ltd (ASX: IGO), Newcrest Mining Ltd (ASX: NCM), to name a few. Considering the improved guidance for AISC and sustaining capital, robust financials in 1HFY21, increased sale of silver in Q1FY21 on quarter-on-quarter basis, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $4.83, up by 2.114% as on 22 April 2021.

EVN Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Note: 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.

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