Company Overview: Regis Resources Limited is a gold production and exploration company. The Company is principally engaged in the production of gold from the Duketon Gold Project; exploration, evaluation and development of gold projects in the Eastern Goldfields of Western Australia, and exploration and evaluation of the McPhillamys Gold Project in New South Wales. It has two business segments, which comprise the Duketon Gold Project, being Duketon North Operations (DNO) consisting of Moolart Well, and Duketon South Operations (DSO), incorporating Garden Well and Rosemont. Its portfolio projects include Duketon Gold Project and McPhillamys Gold Project. Its Duketon Gold Project is located in the North Eastern Goldfields of Western Australia approximately 130 kilometers north of Laverton. Its McPhillamys Gold Project is located approximately 35 kilometers southeast of the town of Orange and approximately 30 kilometers west of the town of Bathurst in the Central West region of New South Wales, Australia. 


RRL Details

Decent Top-line and Bottom-line Performance for FY15-19: Regis Resources Limited (ASX: RRL) is involved in the exploration and evaluation of the McPhillamys Gold Project in New South Wales; exploration, evaluation and development of gold projects in the Eastern Goldfields of Western Australia; and production of gold from the Duketon Gold Project. Its business objectives include processing operations and optimise mining across its Duketon Gold Project by maintaining high safety standards. It aims at maximizing cash flow by operational optimization and blending of ore feed from satellite resources along with organically increasing its reserve base by discovering as well as developing satellite resource positions, expanding the reserve base across existing operating deposits. It focuses on regional exploration to add incremental ounces and mine life to the three operating mills in the district. With a view to develop a significant long-life gold mine at McPhillamys Gold Project in NSW, it is advancing on the economic study of it. Moreover, it is actively pursuing inorganic growth opportunities in order to deliver sustainable value to shareholders.

Looking at the past performance over FY15 to FY19, total revenue and net income of the company have grown with a CAGR (compounded annual growth rate) of 8.92% and 17.06%, respectively. Group’s total revenue improved from $465.3 Mn in FY15 to $654.8 Mn in FY19, and net income improved from $86.9 Mn in FY15 to $163.2 Mn in FY19.

Moving forward, the company anticipates reliable performance from the existing Duketon Operations as well as a gradual introduction of new production from Rosemont Underground and new satellite pits. Additionally, company’s transformational McPhillamys Gold Project in New South Wales is progressing well. With this, the company has kept its full-year FY20 production guidance unchanged at 340,000-370,000 oz at an AISC range of $1,125-$1,195/oz. Moreover, current geo-political tensions in the gulf region may cause gold prices to rise, helping the company to boost its earnings in the coming times. 


Historical Financial Performance (Source: Company Reports)

September’19 Quarter Key Highlights:Gold production for the period was reported at 87,633 oz, as compared to 90,966 oz in the previous quarter. Pre-royalty cash cost (CC) for the period was reported at $914/oz and All-In Sustaining costs (AISC) of $1,234/oz, as compared to CC of $949/oz and AISC of $1,189/oz in the previous quarter. The decrease in cash cost can be attributed to costs associated with new satellite pits. The marginal increase in AISC was driven by the reduction in mill throughput which got impacted by an unplanned maintenance shutdown at Garden Well plus a temporary reduction in grade because of short term variations in the mine schedule. The company in August 2019 declared net profit after tax for the period at $163.1 million. The Board of Directors paid a fully franked final dividend of 8 cents per share with total amount of $40.7 million in September 2019. Total dividend for FY19 stood at 16 cents per share with total amount of $81.3 million, which is a record full year dividend payment, representing a payout ratio of 49.8% of net profit after tax.


September’19 Quarter Key Highlights (Source: Company Reports)

Decent Cash Position at the end of Sep Qtr: Cash flow from operations for the period was reported at $82.5 Mn, as compared to $85.2 Mn. Cash and bullion position held at the end of the period was reported at $147.4 million, as compared to $205.3 million in the previous quarter. This cash and bullion balance comprised $40.7 million in fully franked dividends; $30.6 million on capitalised mining costs; $5.7 million on land acquisitions; $2.6 million on TSF development; $10.1 million on exploration and feasibility projects; and $20 million to triple the RRL’s landholding in the highly prospective Duketon Greenstone Belt.


Cash and Gold on Hand Data (Source: Company Reports)

FY19 Key Highlights for the period ended June 30, 2019: The company achieved an after-tax profit of $163.1 million for the full year period, as compared to a decrease of 6.4% from the previous year result of $174.2 million. Costs of sales (inclusive of royalties) but before depreciation and amortization (D&A) increased to $328.1 million, an increase of 17.5% on the previous year.

Gold production for the period stood at 363,418 ounces with an increase in gold sales revenue by 7.9% on the previous year. Around 369,721 ounces of gold were sold at an average price of $1,765 per ounce in 2019, as compared to 359,750 ounces of gold at $1,680 per ounce.

Due to increased production, cash flow from operating activities for the period increased by 6.1% to $275.5 million. After payment of $96.1 million in payments for mine development, $57.4 million in property, plant and equipment, $81.2 million in dividends and $34.8 million in exploration expenditure, cash and bullion holdings at the end of the period was reported at $205.3 million.

RRL maintained a gold hedging position at 451,514 ounces at a weighted average forward price of $1,611 per ounce, which comprised 426,514 ounces of forward contracts with an average delivery price of $1,598 per ounce and 25,000 ounces at spot trade with a delivery price of $1,830 per ounce. In FY18, the gold hedge position was maintained at 388,711 ounces of forward contracts with a weighted average forward price of $1,555 per ounce.


FY19 Income Statement (Source: Company Reports)

Recent Update:
On December 19, 2019, the company announced the appointment of Mr Stuart Gula as Chief Operating Officer. He has more than 30 years of experience across a range of commodities, delivering new mining businesses in jurisdictions such as Africa, China, the USA and Indonesia. Previously, he has worked at Sihayo Gold Limited (ASX: SIH) as a senior executive, and had held senior executive positions at IAMGOLD, Sino Gold, Minerals and Metals Group, PT Bumi Sukesesindo and Nyrstar, a European based integrated metals and mining company.

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 32.28% of the total shareholding. Van Eck Associates Corporation and Vinva Investment Management Limited hold maximum interests in the company at 12.62% and 5.13%, respectively.


Top 10 Shareholders (Source: Thomson Reuters)

A Quick Look at Key Metrics: Its EBITDA margin and net margin for FY19 stood at 47.8% and 24.9%, better than the industry median of 28.7% and 10.9%, respectively, implying decent fundamentals for the company. ROE for FY19 stood at 24.1% better than the industry median of 12.0%, which implies that the company generated a better return for its shareholders than its peer group. Current ratio for FY19 stood at 3.03x, better than the industry median of 1.81x, implying a decent liquidity position of the company. Cash cycle for FY19 stood at 31.80 days lesser than the industry median of 46.6 days, which implies that the company efficiently managed its asset-liability balances. Its return on invested capital for FY19 stood at 20.1%.


Key Metrics (Source: Thomson Reuters)

Key Risks: The company is susceptible to certain risks such as Credit risk, Liquidity risk and Market risk, including foreign currency risk, interest rate risk and commodity price risk.

Company Outlook: As per the release, gold production over the next three years is expected to increase by around 10% above the current level to ~0.4 million ounces by FY22, underpinned by the increase in high-grade material from the Rosemont underground and planned open pits at the region. Moreover, underground production at Garden Well, exploration success, reserves depletion and business development initiatives along with the timing of McPhillamys, have impacted the company’s production profile. In the graph below, production target comprises 8% of Inferred Mineral Resources and 92% of Ore Reserves from the Duketon operation.


Indicative 3-year Gold production profile from the Duketon operation (Source: Company Reports)

Important Developments: RRL submitted Development Application (DA) and Environmental Impact Statement (EIS) for the McPhillamys, to the NSW Department of Planning, Industry and Environment (DPIE) for appraisal and assessment. Following this, the Definitive Feasibility Study (DFS) is expected to be completed to incorporate additional requirements for Project development emanating from the DA process. Other than this, the company is progressing on the water supply agreement along with refining the pipeline route access to utilise recycled water from the Centennial Mine and Mt Piper Power Station near Lithgow.

Gold Outlook: At the time of writing, Gold Spot (XAU/USD) traded at US$1541.45550 (18:28 (UTC+11)). On the verge of the current war-like situation between US-Iran along with destruction in Iraq, has led to increase in fear of oil supply concerns globally, leading to investment diversion towards safer asset class, i.e., Gold. It recently broke its important resistance level at US$1552.88 on weekly timeframe chart, which if sustained will lead to a fresh 52-week high level.

Gold Spot Price (XAU/USD) (Source: Thomson Reuters)


Key Valuation Metrics (Source: Thomson Reuters)

Valuation Methodology: EV/Sales Multiple Approach

EV/Sales Multiple Approach (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months

Stock Recommendation: RRL’s stock posted a negative YTD return of 1.86%, while in the span of five years the stock posted a return of 110.45%. Considering the company’s ongoing projects, September quarter performance, FY19 results, company outlook, gold outlook, and current trading levels, we have valued the stock using a relative valuation method, i.e., EV/Sales multiple and arrived at a target price of lower double-digit growth (in % term). Hence, we give a “Buy” recommendation on the stock at the current market price of A$4.350 per share, up 2.837% on January 14, 2020.
 
 
RRL Daily Price Chart (Source: Thomson Reuters)

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