Regis Resources Limited

RRL Details

FY21 Financial Performance: Regis Resources Limited (ASX: RRL) operates in gold and mineral exploration, development, and evaluation in Australia. It holds 100% interest in the Duketon gold project and the McPhillamys project.

• The company has recorded revenue growth of over 8% to $819.2 million in FY21, compared to $756.7 million in FY20, reflecting higher average realised prices and gold sales.
• In FY21, the company also has increased its production to 373Koz, up by 5.9% from 352Koz in FY20.
• RRL reported an improved EBITDA of ~$403 million during the period, up by 2.3% year on year and a strong EBITDA margin of 49%.
• Additionally, the company posted a net profit of $146.2 million in FY21 vs $ 199.5 million in the pcp.
• The period ended with the cash and bullion of ~$269 million and net debt of $31.3 million 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.
• Liquidity Risk- The company requires sufficient liquidity to meet the financial obligation, operational activity, trials, and mitigate the working capital risks.

Outlook:

• The management is optimistic about the company’s FY22 performance and expects solid production at Further, the recently acquired 30% interest of Tropicana will result in gold production to increase between 460,000-515,000 oz at an AISC of $1,290-$1,365/oz.
• Looking ahead, the company is focused on pursuing inorganic growth opportunities. It is continuing to work with AngloGold Ashanti Australia Limited, its joint venture partner, to deliver value from Tropicana.
• The company is evaluating a McPhillamys Gold Project in NSW to develop a significant long-life gold mine at the Project.
  

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 company continued with its strong performance and declared a final fully franked dividend of 3 cents per share with the record date of 14 September 2021 and payment date of 28 September 2021. The stock of RRL is trading below its average 52-weeks' levels of $2.050-$5.570. The stock of RRL gave a negative return of ~17.33% in the past one month and a negative return of ~61.20% 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 discount to its peers' average, considering the uncertainty of COVID-19 and gold price volatility. For the purpose of valuation, peers such as Northern Star Resources Ltd (ASX: NST), St Barbara Ltd (ASX: SBM), OceanaGold Corp (ASX: OGC) have been considered. Considering the current trading levels, indicative upside in valuation, strategic acquisition, increase in production, strong topline performance, optimistic outlook, and the key risks associated with the business, we recommend a 'Buy' rating on the stock at the current market price of $2.060, down by ~4.187% as on 17 September 2021.

RRL Daily Technical Chart, Data Source: REFINITIV

De Grey Mining Limited

DEG Details

Extended Drilling at Eagle: De Grey Mining Limited (ASX: DEG) explores and develops mineral properties, primarily gold, silver, zinc, lead, and lithium deposits in Australia. It owns interests in the Mallina Gold project. Recently, the company has continued to expand mineralisation and extended drilling at depth up to 300m below and up to 160m to the west of the Eagle maiden mineral resource. In addition, zones of high-grade gold have been intersected within the overall mineralised intrusion, including 9m @ 17.3g/t Au in HERC849.

Exploration Result from Diucon at Hemi- The potential drilling at Diucon has increased the scale of the mineralised intrusion, and further high-grade gold has also been intersected, including 17m @ 7.5g/t Au in HERC897.

June Quarter and Full-year FY21 Key Performance:

• The company has received receipts from customers of $15k in Q4FY21 and $50k in FY21.
• The company has conducted testwork at Aquila, represent one bulk composite comprising primary mineralisation that has achieved 94.0% of the overall metallurgical recovery.
• During the quarter, there was an increase in active rigs on-site from 10 to 12 with progressive drilling. Further, it recorded a combined 118,416m of aircore, RC and diamond drilling.
• In FY21, the company has received $305k grants and tax incentives from the government.
• The period ended with a well-funded cash position of $70.95 million as of 30 June 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks:

• Impact of COVID-19 pandemic- The company has a significant challenge of delay in projects due to shortage of labour and lockdown restriction that has impacted its operations, and still, the uncertainty prevails.
• 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 company is focused on enhancing management and exploration team capabilities for the next phase of growth.
• The company is progressing in order to determine the emerging mineralised intrusive around Hemi that include Diucon, Eagle and Scooby.
• DEG will release a Scoping Study to demonstrate the Tier 1 production potential of Hemi Mineral Resource in the September Quarter of 2021.

Stock Recommendation: The stock of DEG is trading below its average 52-weeks' levels of $0.797-$1.670. The stock of DEG gave a negative return of ~10.84% in the past one month and a negative return of ~32.83% in the past one year. Considering the current trading levels, strong balance sheet, extension in its drilling at Eagle project, a higher current ratio over the industry and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the current market price of $0.997 as on 17 September 2021, 2:54 PM (GMT+10), Sydney, Eastern Australia. Investors with high-risk appetite should evaluate this stock in view of the technical support and resistance levels as well as taking into consideration associated geological risks, changes in mining technology, and gold prices.

DEG 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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