Company Overview: Regis Resources Ltd (ASX: RRL) is a gold production company that has operations at the Duketon Gold Project in the North-Eastern Goldfields of Western Australia and the McPhillamys Gold Project in the Central Western region of New South Wales. The Duketon Gold Project consists of two operating centres being the Duketon South Operations (DSO) and the Duketon North Operations (DNO). The company has also 30% interest in the Tropicana Gold Project. The company was listed on ASX on 19 February 1987.

RRL Details

Key Takeaways from FY21 Results:

• Increase in Production: For the year ended 30 June 2021, the company reported total production of 372,870 ounces, which is 5.9% higher than the previous year.
• Rise in Gold Production: Due to the rise in gold sales and average realised price, the company’s total revenue grew by 8.3% YoY to $819.2 million.
• Rise in Cost of Sales: RRL’s costs of gold sold in FY21 stood at $582.66 million, up from $452.01 million in FY20.
• Acquisition of 30% in Tropicana Gold Project: One of the important highlights of FY21 was the acquisition of 30% interest in Tropicana Gold Project from IGO Limited for a cash consideration of A$903 million.
• Increase in Mineral Resource and Ore Reserve: Following the inclusion of 30% of the Tropicana Gold Mine, the company’s total Mineral Resources increased to 10.4Moz and Ore Reserves grew to 4.8Moz.
• Dividend Paid: For H2FY21, the company has paid a final dividend of 3 cents per share, taking the total full year dividend to 7 cents per share.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Metrics: Due to the rise in cost of sales, the company’s profitability margins in FY21 have been reduced, compared to the previous year. Gross margin for FY21 stood at 27.6%, down from 38.9% in FY20. EBITDA margin for FY21 stood at 49%, down from 52% in FY20. Current ratio for FY21 stood at 2.33x, down from 2.74x in FY20.

EBITDA and EBITDA Margin (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 30.18% of the total shareholding, while the top four constitute the maximum holding.  Van Eck Associates Corporation and The Vanguard Group, Inc. are holding a maximum stake in the company at 10.81%, and 5.05%, respectively, as also highlighted in the chart below:       

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Change of Director’s Interest: On 6 October 2021, one of the company’s Directors, Jim Beyer, who holds indirect interest in the company, acquired 60,287 ordinary shares by vesting 100,479 performance rights issued in 2018 under Executive Incentive Plan.

Key Risks:

• Commodity Price Risks: The company is exposed to the risks related to the fluctuations in the gold price as it could directly impact the company’s financials.
• Foreign Currency Risk: Since gold is globally traded in US dollars, the movements in the US$/A$ exchange rate may impact RRL’s results of operations and cash flows.
• COVID-19 Pandemic: The COVID-19 pandemic and its associated impacts may disrupt the company’s operations and costs of doing business.

Outlook: Looking ahead, the company is focused on optimising mining and processing operations across the Duketon Gold Project and maximising cash flow at the project through the process of optimisation and the blending of ore feed from satellite resources across the Duketon tenure. Further, the company is also focused on advancing the economic study of the McPhillamys Gold Project to develop a significant long-life gold mine at the project. For FY22, the company expects its gold production to be in the range of 460,000-515,000 ounces with AISC of between $1,290-1,365/oz, supported by solid production at Duketon and RRL’s 30% interest in Tropicana. Growth Capital expenditure in FY22 is expected to be in between $155-165 million.

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

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 stock of RRL has corrected by ~13.33% in the last three months and is trading lower than the average 52-week price level band of $1.860 - $5.040, offering a decent opportunity for accumulation. The stock has been valued using an EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainty surrounding the impact of COVID-19 pandemic, and fluctuations in gold price. For the valuation purpose, peers such as Northern Star Resources Ltd (ASX: NST), OceanaGold Corp (ASX: OGC), and Resolute Mining Ltd (ASX: RSG) have been considered. Considering the company’s decent production performance in FY21, acquisition of 30% interest in Tropicana Gold Project, modest production outlook, current trading level and valuation, we give a “Buy” rating on the stock at the current market price of $2.180, up by ~0.46% as on 12 October 2021.

RRL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision 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.

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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