Regis Resources Limited

RRL Details

Reserves & Resources Upgrade: Regis Resources Limited (ASX: RRL) is a gold exploration firm operating the Duketon gold project in the North-Eastern Goldfields in Western Australia and McPhillamys gold project in New South Wales (NSW). As of 16 June 2021, the market capitalisation of RRL stood at ~$2.01 billion. On 15 June 2021, RRL reported an increase in its ore reserves to 4.8Moz and mineral resources to 10.4Moz after adding the Tropicana gold mine (30%).

30% Interest Acquisition in Tropicana Gold: On 31 May 2021, RRL announced the completion of a 30% interest acquisition in the Tropicana gold project for $903 million (before adjustments) cash from IGO Limited. It financed the acquisition via raise of $650 million equity and a $300 million loan drawn from the facility obtained from Bank of America.

Key Takeaways from March Quarter (Q3 FY21): The company reported $135.7 million of revenue and 67,383oz of gold sales in Q3FY21. Its gold production for the quarter was 85,748 oz, down on a pcp and QoQ basis. Its average realised price of $2,014 per ounce for Q3FY21 was lower than $2,351 per ounce in Q2FY21. During the quarter, RRL raised ~$200 million via placement and $294 million from the institutional component of the entitlement offer at $2.70 per share. RRL had cash flows of $67.2 million from operating activities from the Duketon gold project in Q3FY21. RRL paid an interim dividend of $20.5 for 1HFY21. It had $202.3 million in bullion and cash as of 31 March 2021.

Past Five-Year Revenue & Net Income Trend (Data Source: Analysis by Kalkine Group)

Key Risks: The company faces the risk of changes in production and realised gold prices. It is exposed to the exploration delays and shortage of rig availability due to the COVID-19 restrictions.

Outlook: RRL has provided a production estimate of 355,000 – 380,000oz for an estimated AISC of $1,230 - 1,300/oz for FY21. It estimates exploration spend to be $28 million, growth capital between $60-70 million and C1 cash costs inclusive of royalties between $1,030-$1,090 per ounce for FY21. RRL has planned to drill the underground resource definition in CY21. It will continue significant exploration programs around Tropicana for discoveries and mine life extensions. The estimations underpin a forecasted mine life of over ten years.

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

Source: 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 gave a negative return of 6.57% in the past three months and a negative return of 27.69% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $2.5-$5.956. The stock of RRL has a support level of ~$2.340 and a resistance level of ~$3.121. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at some discount than its peer average, considering its lower production for Q3FY21 on pcp, lower cash flow from operations in Q3FY21 and the risks associated with the change in the oil prices, production, and costs. For this purpose, we have taken peers like Resolute Mining Limited (ASX: RSG), St Barbara Limited (ASX: SBM), and Northern Star Resources Limited (ASX: NST). Considering the current trading levels, high ROE, and net margins in 1HFY21, addition of Tropicana mine, upgraded reserves and resources estimates as of 31 March 2021, production estimate for FY21, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $2.620, down by 1.873% on 16 June 2021.

RRL Daily Technical Chart, Data Source: REFINITIV 

Carnarvon Petroleum Limited

CVN Details

Exploration Update on the Bedout Basin: Carnarvon Petroleum Limited (ASX: CVN) is an explorer, producer, and developer of oil and gas projects. It holds interest in oil projects such as the Cerberus hydrocarbons project, Buffalo Project, engaged in oil exploration via different oil wells. As of 16 June 2021, the market capitalisation of CVN stood at ~$399.17 million. On 11 June 2021, CVN provided an update on the exploration activities of its Bedout Basin. The review of the Basin’s acreage has resulted in favourable prospects with new seismic data. The Basin holds potential for low costs dollar ($) per barrel (boe) due to shallow water setting. CVN has recently completed an Archer 3D seismic survey over the Dorado field and nearby prospects. It is currently undertaking a 3D survey over ~3,200 km² Keraudren Extension.

Exploration Update on Buffalo-10 Well: On 11 May 2021, CVN announced the receipt of US$20 million funds from Advance Energy Plc (post the farm-out completion) for the drilling of the Buffalo-10 well. It has started the purchase process for long-lead equipment and other related services. It is finalising the tender process for the drilling rig and has also started the process of seeking Timor-Leste Government approvals for exploring the well.

March Quarter Key Takeaways: During the quarter, CVN reported the completion of farm-in by Advance Energy Plc. (Advance Energy) and raise US$20 million to undertake the Buffalo-10 well drilling. CVN incurs no drilling cost with this farm-in and is the project operator with 50% equity ownership. CVN progressed work on pre-FEED for the Dorado project development. CVN incurred a net cash outflow of $277,000 from the operating activities during Q3FY21. CVN held a cash balance of $103 million as of 31 March 2021.

Net Profit/Loss from FY16-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of exploring its ongoing projects and material changes in the oil price. It is exposed to delays in sanction of government approvals and failure of joint agreement ventures due to alliance issues/unmet pre-agreed outcomes.

Outlook: In a recent preparation update on the drilling of the Buffalo-10 well, CVN had announced its plans to drill the Buffalo-10 well in the last quarter of 2021. At the Dorado project, CVN had reported plans to enter FEED in the June quarter, enabling targeted Final Investment Decision (“FID”) in 1HY2022. It is also planning to drill two wells (Pavo-1 and Apus-1 wells) in the Bedout Basin at the Dorado project.

Stock Recommendation: The stock of CVN gave a negative return of 6.60% in the past three months and a positive return of 23.75% in the past nine months. The stock is currently trading near its 52-weeks’ average price level band of $0.180-$0.335. Considering the current trading levels, no borrowings in 1HFY21, high current ratio and decent cash position, drilling updates on Buffalo-10 well and Bedout Basin in 2021, and associated exploration risks and regulatory sanctions, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.250, down by 1.961% on 16 June 2021.

CVN 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.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.