Company Overview: Ramelius Resources Limited (ASX: RMS) is a Western Australian gold producer, involved in the exploration, mine development, mine operations and the production and sale of gold. The company currently operates the Mt Magnet, Vivien, Marda and Edna May gold mines and associated processing plants around Western Australia (WA). Ramelius Resources Limited continues to monitor an often rapidly changing external business environment to make sure that it retains the necessary skills to manage change at all levels within the organization.


RMS Details
 


Well Placed for Future Mine Development and Acquisition Opportunities: Ramelius Resources Limited (ASX: RMS) is a well-established mid-tier gold production and exploration company which operates the Mt Magnet, Vivien, Edna May and Marda gold mines and associated processing plants around Western Australia. The company is focused on growing its investment in the company by prudent use of capital on exploration, asset acquisition and corporate activities. In order to deal with the dynamic gold price environment, the company tries to balance the levels for suitable downside insurance, through hedging, whilst maintaining exposure to any future upside in the gold price.

In recent years, the company has enjoyed significant success with the increased gold production and addition of new assets including the Marda and Tampia Hill gold projects, both located in WA. The acquisitions of the Marda & Tampia Gold Projects demonstrate the company’s proactive commitment to growth. The company is currently in the process of acquiring Spectrum Metals Limited via takeover offer.

During 2015-2019, the company’s NPAT grew at a CAGR of 7.96% and its basic earnings per share increased at a CAGR of 1.82%. Ramelius Resources Limited is currently well placed to accommodate both future mine development decisions and acquisition opportunities while providing a significant buffer during the current COVID-19 pandemic.


Key Performance Indicators Over the Last Five Years (Source: Company Reports)

The company’s operational and financial performance in the recent past has underpinned its core strategies of securing both the immediate short-term future of Ramelius and building its capacity in the medium to longer term. Going forward, the company is focused on the continued developments at the Marda and Tampia projects at Edna May and new mines, Eridanus and Shannon, at Mt Magnet. RMS’s decent financial performance, healthy balance sheet, recent acquisition, etc., augur well for growth in the future.

FY19 Performance Highlights: The financial year 2019 was the fifth consecutive year of profit for the company. For FY19, the company posted a net profit after tax of $21.8 million and EBITDA of $112.2 million. During the year, the company reported gold sales of 203,318 ounces generating revenue of $352.8 million, up 3% on FY18. Over the year, the company was benefited by the Australian gold price, strong operational performance, the bedding down of the Marda and Tampia Hill acquisitions and continued success of its exploration programs at Mt Magnet, Vivien and Edna May.


2019 Performance Highlights (Source: Company Reports)

H1FY20 Performance Highlights: In the first half of FY20, the company experienced strong financial and operational performance. Over the period, the company sold 85,692 ounces at an average realised gold price of A$1,844 generating strong a margin of $604 per ounce above AISC per ounce. In H1FY20, the company produced 92,084 ounces of gold from its Mt Magnet, Vivien, and Edna May gold mines at an All-In Sustaining Cost (AISC) of $1,240 per ounce. For the half-year period, the company reported NPAT of $20.5 million, up 329% on the previous corresponding period (pcp). Further, the company reported EBITDA of $65.91 million, up 32% on pcp. The half-year results were driven by the strong cost controls, improving grades, and an improving gold price. During the period, the company invested $78.9 million in future long term mine development.

As at 31 December 2019, the company had a strong balance sheet with net cash and bullion of $87.7 million and zero debt. Due to the increases in inventory, mine development assets, and exploration and evaluation expenditure, as well as the recognition of $29.1 million in right of use assets under the new leasing accounting framework, the company’s total assets over the half-year period increased to $454 million.


H1 FY2020 Financial Highlights (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 34.25%. Ruffer LLP and Van Eck Associates Corporation hold the maximum interest in the company at 9.08% and 5.06%, respectively.
 

Top 10 Shareholders (Source: Thomson Reuters)

Takeover offer for Spectrum Metals Limited: In February 2020, Ramelius Resources Limited through its wholly-owned subsidiary Mt Magnet Gold Pty Ltd offered to purchase all of the Shares in Spectrum Metals Limited (ASX: SPX) in exchange for 1 Ramelius Share for every 10 Spectrum Shares plus $0.017 cash for each of the Spectrum Share.  On 18 March 2020, Ramelius Resources Limited announced that it has obtained control of SPX by reaching 50.5% ownership in SPX pursuant to its off-market takeover offer announced on the ASX on 10 February 2020. The company has advised the shareholders of SPX to accept the Offer. The offer is scheduled to end on 30 April 2020 (unless further extended). As per the Directors of Spectrum, the merger of the two companies would provide mutual benefits to shareholders in both companies. Following the acquisition of Spectrum Metals Limited, the market capitalization of Ramelius Resources Limited will be increased which is like to improve the attractiveness of the Company to domestic and foreign institutional investors. Ramelius Resources Limited currently holds 75.52% ownership shares in Spectrum Metals Limited. 

March Quarter Update: In the March 2020 Quarter, the company produced 51,825 ounces of gold, in line with the guidance of 50 – 55,000 ounces. Over the period, the company took a prudent approach to capital management by drawing $32.5 million from the Syndicated Facility in place. At the end of the March quarter, the company’s balance sheet was in a strong position with net cash and gold of $90.4 million. 

A Quick Look at Key Margins: In H1FY20, the company reported a gross margin of 22.9%, up 15% on pcp. For the same period, the company reported an EBITDA margin of 41.3%, higher than the industry median of 36.2%. Further, the company reported a net margin of 12.9% for H1FY20, up 10.3% on pcp, demonstrating the company’s improving profitability. The company has a current ratio of 1.89x, higher than the industry median of 1.7x, reflecting that the company is well-positioned to pay its short-term obligations. 


 Key Metrics (Source: Thomson Reuters)

Pro-actively Managing Covid-19 Crisis: As a proactive response to the COVID-19 threats, the company has already held discussions with its hedge counterparties as to how it would restructure its short-term contracts should a complete lockdown occur in Australia. In addition, the company has implemented various measures that it believes, go beyond just the formal guidance issued by State and Federal health authorities. Further, the company has also put in place processes that allow for appropriate response in the event any employees and contractors are affected by this virus. Ramelius Resources Limited has also commenced the process of rationalising non-essential exploration activities to reduce the “footprint” created by travel requirements in and out of sites and the interaction between individuals.

What to expect: The company is well placed for future mine development decisions and other acquisition opportunities. It’s strong balance sheet underpins its ability to invest in future growth opportunities as evidenced by the recent takeover offer for Spectrum Metals Limited. Following the acquisition of Spectrum Metals Limited, Ramelius Resources Limited is expected to become more attractive to domestic and foreign institutional investors. Till now, the company has maintained its FY20 guidance of 205,000 - 225,000 ounces at an AISC of A$1,225 – 1,325/oz. 


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

EV/Sales Multiple Approach (Source: Thomson Reuters)
 
Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: In the last one year, the stock price of RMS has increased by 25% on ASX. However, in the past three months, the stock has corrected by 21.93%. The company currently has a strong balance sheet with provisional cash and gold balance of $122.9 million. We have valued the stock using EV/Sales multiple based illustrative relative valuation method and have arrived at a target price of lower double-digit upside (in% terms). For the purpose, we have taken peers like Westgold Resources Ltd (ASX: WGX), St Barbara Ltd (ASX: SBM) and Resolute Mining Ltd (ASX: RSG), etc. Considering, the company’s strong balance sheet, decent financial and operational performance and its recent takeover offer for Spectrum Metals Limited, we are giving a “Buy” recommendation to the stock at a current market price of $1.165, up by 10.952% on 14 April 2020. 
 
 
RMS Daily Technical Chart (Source: Thomson Reuters)

Disclaimer

The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as personalised advice.