Ramelius Resources Limited

RMS Details

An Update on Q3FY21 Production: Ramelius Resources Limited (ASX: RMS) is engaged in the exploration, mine development, mine operations, and the production and sale of gold. The Company operates the Mt Magnet, Vivien, Edna May, and Marda gold mines and associated processing plants around Western Australia. The company has registered a gold production of 66,029 oz in Q3FY21 within the guidance range of 65000-70000 oz. Gold production from Mt Magnet came in at 41,832oz and from Edna May, it was 24,197 oz in Q3FY21. The All-in sustaining cost (AISC) remained within the guidance to $1,370/oz. The company has posted a total gold sale of 65,420 oz for a total gold sales revenue of $146.7 million with an average gold price of $2,242/oz in Q3FY21.  

1HFY21 Financial Highlights: RMS has registered an increase in revenue to $342.23 million in 1HFY21 as compared with $158.45 million in 1HFY20. The company has posted an increase in NPAT to $81.32 million in 1HFY21 as compared with $20.49 million in 1HFY20. The company has seen an increase in its cash and cash equivalent position at $203.69 million as of 31 December 2020 as compared with $165.67 million as of 30 June 2020.

Cash and Cash Equivalent Position (Source: Company Reports)

Key Risks: The company is engaged in the exploration of gold. Any fluctuation in the prices of gold may lead to financial losses for the company. The company operates in multiple countries. Any severe movement in foreign exchange prices may lead to financial losses for the company.

Outlook: The company has provided guidance for June 2021 quarter and full-year FY21. RMS expects gold production to be in a range between 65,000-70,000 oz at an AISC range of $1,240-1,340/oz for the June quarter of 2021. For FY21, the company is expecting gold production to be in a range of 275,000-280,000 oz at an AISC in the range of $1,280-1,330/oz in FY21. The company has projected its capital expenditure to $31.2 million for June 2021 quarter. Tampia project is likely to utilise $7.0 million, Penny project development may utilize $14.8mn, and all other exploration projects may utilize $6.9 million. 

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

Stock Recommendation: RMS has delivered 3-month and 6-month returns of ~+7.07% and ~-21.00%, respectively. The current market capitalization of RMS stands at ~$1.45bn as of 28 April 2021. The stock is trading below the average of the 52-week high price of $2.530 and 52-week low price of $1.180. On the technical front, the stock has a support level of ~AU$1.602 and a resistance of ~AU$1.779. 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 stock might trade at a slight premium as compared to its peer median EV/Sales (NTM Trading multiple) as the company managed to report gold production within the guidance range in Q3 FY21. It also maintained production costs in line with the guidance. For this purpose, we have taken peers Aeris Resources Ltd (ASX: AIS), IGO Ltd (ASX: IGO), Regis Resources Ltd (ASX: RRL), to name a few. Considering the increase in gold production in Q3 FY21, strong revenue growth in H1 FY21, adequate cash balance, and valuation, we recommend a “Hold” rating on the stock at the current market price of $1.6275 (as mentioned in below chart).

RMS 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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