Ramelius Resources Limited

RMS Details

Increases in Mineral Resources: Ramelius Resources Limited (ASX: RMS) is involved in the exploration, mine development, production of gold in Australia. Recently, the company has proposed an issue of 615,522 ordinary shares under an employee incentive scheme. As per the new estimates of Mineral Resources and Ore Reserves, the company’s total Mineral Resources have increased by 15% to 110 Mt at 1.6 g/t Au for 5.4 Moz of gold. Total Ore Reserves are estimated to be around 17 Mt at 2.0 g/t Au for 1.1 Moz of gold.

FY21 Financial Performance:

• The company has recorded robust revenue growth of 38% to $634.28 million in FY21, compared to $460.57 million in FY20, driven by increased production volume at Edna May and a higher realised gold price.
• For FY21, the company reported total production of 277,450 ounces, up 22% the last year.
• It has delivered a strong EBITDA performance of $340.9 million in FY21, up by 33% from $256.02 million in FY20. The additional volume at Mt Magnet is more costly due to deep mining at Eridanus, however, more than offset by a higher gold price.
• At the end of the period, the cash and bullion stood at $234.0 million with ~70,000oz contained in stockpiles and GIC as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Gold Price Risk- The fluctuations of gold prices in the global market have a direct impact on the company’ profitability.
• Geological Risk: The company is exposed to geological risk where it needs to have a regular quality and quantity check from a geologist. Therefore, any negative report could impact its operations.

Outlook:

• The management has provided gold guidance of 260,000 - 300,000oz @ AISC A$1,425 – 1,525/oz for FY22 and expects further production growth to 280koz in FY22.
• The company focuses on strategic acquisition opportunities and disciplined capital management with a strong balance sheet.
• It is progressing towards studying on Mt Magnet & Edna May mining/processing and underground development & production at Penny.

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: Recently, the company has declared a fully franked dividend at 2.5 cents with a record date of 2 September 2021 and a payment date of 4 October 2021. The stock of RMS is trading below its average 52-weeks' levels of $1.180-$2.345. The stock of RMS gave a positive return of ~4.96% in the past one week and a negative return of ~34.21% in the past one year. The stock has been valued using EV/Sales multiple-based illustrative relative valuation and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium to its peers, considering the economic recovery and a higher asset turnover ratio. For the purpose of valuation, peers such as Regis Resources Ltd (ASX: RRL), Dacian Gold Ltd (ASX: DCN), Westgold Resources Ltd (ASX: WGX) have been considered. Considering the current trading levels, increase in production volume, strong balance sheet, strategic acquisition, strong revenue growth, optimistic outlook, and valuation, we recommend a 'Buy' rating on the stock at the current market price of $1.345, as on 1 October 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

RMS Daily Technical Chart, Data Source: REFINITIV 

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.

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

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