Regis Resources Ltd

RRL Details

Regis Resources Ltd (ASX: RRL) is in the business of gold mining and is operating two distinct project areas situated in the North-Eastern Goldfields of Western Australia and the Central Western region of New South Wales.

Q3FY21 Performance Update (For the Quarter Ended 31 March 2021)

The company has recorded revenue of A$135.7 million  on the back of gold sales of 67,383oz at an average price of A$2,014/oz in Q3FY21. Production of gold during the period reduced to 85,748 oz compared to 91,411 oz in Q2FY21 and 86,300 oz in Q3FY20. Its Duketon Gold project has generated cash flow from operations of A$67.2 million in Q3FY21 down from A$100.1 million in the prior quarter. RRL had A$202.3 million in cash and bullion at the end of 31 March 2021. 

Physicals and Costs Data by Site (Source: Company Reports)

Acquired 30% stake in Tropicana Gold Project

The company, on 31 May 2021, updated that it has acquired 30% stake in the Tropicana Gold Project from IGO Limited for A$903 million (subject to adjustments) in cash. It has financed the acquisition by equity raising of A$650 million completed on 10 May 2021 and a three-year loan facility of A$300 million secured from Bank of America.

Resource and Reserve Update

After the addition of 30% of the Tropicana Gold Mine, it has reported a rise in its mineral resources to 10.4Moz and ore reserves to 4.8Moz. The overall Mineral Resources of Tropicana at the end of 31 December 2020 stood at 145 Mt at 1.6 g/t Au for 7.64Moz (100%) and 44 million tonnes at 1.6 g/t Au for 2.29Moz (30%). Also, Tropicana has ore reserves estimate of 49Mt at 1.7 g/t Au for 2.69Moz (100%) and 15Mt at 1.71 g/t Au for 0.81Moz (30%) as of 31 December 2020.

Outlook

RRL will continue underground resource definition drilling through CY21 to extend the Boston Shaker underground ore reserve. It will also continue significant mine and exploration programs around Tropicana for new discovery and mine life extensions. Besides, the company has guided achieving production of 355,000 – 380,000oz for an AISC of A$1,230 - 1,300/oz for FY21. It estimates the spend on exploration to be A$28 million  and growth capital to stay between A$60 million – 70 million. It has also guided  C1 cash costs including royalties to remain between A$1,030 - 1,090 per ounce for FY21.

Key Risks

RRL is exposed to the risk of fluctuation in the gold price as well as reserve estimations, environmental  risk, and regulatory changes.

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

Technical Overview:

Weekly Chart –

Source: REFINITIV

Note: Purple colour lines are Bollinger Bands® with the upper band suggesting overbought status while the lower band oversold status, and yellow lines are Fibonacci retracement lines which measure price rebound and backtrack. https://www.bollingerbands.com/

Forming a ‘Double Bottom’ around $2.36, the stock has given a higher close for the ongoing week near its peak price of $2.57 at $2.56. The candle formed on the chart confirms to a ‘Bullish Engulfing’ implying bullish reversal of the existing downtrend. The technical indicator RSI with a reading around 34 and a curve at the end pointing up, suggests gaining of positive momentum for the stock.

Going forward, the stock may have resistance around the 23.6% retracement level of $3.21 whereas support could be around the previous low of $2.36.

Stock Recommendation

We have applied EV/Sales based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight discount to EV/Sales Multiple (NTM) (Peer Average) considering lower production and sales as well as lower cash flow from operations in Q3FY21. The stock has made a 52-week low and high of $2.360 and $5.956, respectively.

Given the current trading level along with its growth in mineral resource and ore reserves following the acquisition of 30% of the Tropicana Gold Mine and its continued mine and exploration programs, we give a “Buy” recommendation on the stock at the current market price of $2.560 per share, up by 0.392% on 2^nd July 2021.

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

Note 2: Investment decisions 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 analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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.

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