Regis Resources Limited

RRL Details

Regis Resources Limited (ASX: RRL) is an Australian gold miner, engaged in activities of gold production and exploration. It has operations at the Duketon Gold Project and the McPhillamys Gold. The company has a market capitalization of ~$1.88 billion as on 11^th May 2021.

Results Performance (First Half-Year Ended 31 December 2020 – H1FY21)

For the first half year ended 31 December 2020, the revenue from continuing operations of the company stood at $401.00 million, a rise of 8.0% on the pcp, led by an increase in average realization price by 12.3% YoY to $2,317/oz. However, it reported a 3.1% YoY fall in ounces produced to 172,977oz and a 5.4% YoY fall in ounces sales to 172,990oz. Finally, profit after tax fell by 9.2% YoY to $84.80 million, partially due to an increase in All-in sustaining cost by 10.6% YoY to $1,356/oz.

The company declared an interim dividend of 4 cps ($20.5 million) fully franked payout.

Statement of Financial Performance (Source: Company Reports)

Q3FY21 Result Update: On 29 April 2021, the company released its quarterly update ended 31 March 2021. Quarterly production stood at 85,748oz and sales came in at 67,383oz at a mean price of $2,014/oz for total revenue of $135.7 million. Further, cash flow from operations for the period stood at $67.2 million for the March quarter down from $100.1 million in the previous quarter with the lesser gold price, the key driver. Meanwhile, cash and bullion reported at $202.3 million, a decrease of $17.7 million after paying out $16.8 million in dividends and $19.5 million in income tax.

Recent Update:

Approval Received for 30% Acquisition of Tropicana Interest: On 6 May 2021, the company has stated that the Ministry for Mines and Petroleum has approved the transfer of proposed tenements from IGO Limited (ASX: IGO) to RRL. This indicates the acquisition of a 30% interest in Tropicana by RRL from IGO (Acquisition) is now free from all legal procedures.

As per the release dated 13 April 2021, RRL entered into this agreement with an effective date of 31 March 2021 for a cash consideration of $903 million. Completion of the acquisition is expected to occur on or around 31^st May 2021.

Key Risks:

The company is exposed to environmental regulation under the laws of the Commonwealth and the States of Western Australia and New South Wales. Further, the company is exposed to risk relating to digital effectiveness, maximizing portfolio returns, cyber risk, rising cost, energy mix, COVID-19 disruptions, fraud, and new world commodities.

Outlook:

The company witnessed a growth of 11% in its total Ore reserves to 4.0 million ounces versus 3.6 million ounces as at 31 March 2020. Rise in reserve at DSO resulted due to the addition of the Garden Well Underground mine, Ben Hur Open pit mine, handling of low-grade stockpiles and at DNO, three new mining areas at Moolart Well plus low-grade stockpile treatment indicates that operations will extend at the Duketon Operations until FY 2028.

In the meanwhile, the company has maintained its FY21 guidance and gold production is planned to fall in the range of 355,000-380,000oz, C1 cash costs with royalties in the range of $1,030-1,090/oz and AISC is expected to be between $1,230-1,300/oz. Further, the growth capital is expected to be $60–70 million with exploration spend of $28 million.

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

Technical Overview:

Source: Refinitiv (Thomson Reuters)

Following the previous week trend of higher opening and higher close, the stock gave higher opening for the ongoing week but finally gave softer close at $2.63. The technical indicator RSI with a reading around 30 suggests that the stock on the border of the oversold zone thereby limiting downside potential for the stock.

Going forward, the stock may have resistance around 20 periods SMA of $3.09 whereas support could be around the previous low of $2.54.

Stock Recommendation:

The stock declined by ~23.3% in 3 months and ~33.4% in 6 months. The stock has made a 52-week low and high of $2.555 and $5.956, respectively and is trading towards the 52-week lower levels.

We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price which reflects a rise of low double-digit (in % terms). We believe the company can trade at a slight premium to its peer P/E (NTM Trading multiple) considering recent organic and inorganic growth as a result of persistent management focus to create value for investors.

Considering the aforesaid facts, we give a “Buy” recommendation on the stock at the current market price of $2.630 per share, down by 2.593% on 11^th May 2021. 

Note: 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 Valuation has been achieved and subject to the factors discussed above.

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