Wattle Dam is the group’s cash cow, producing solid amounts of high grade gold at a low cost.
With Wattle’s mine life potentially coming to an end, RMS also has its lucrative Mt Magnet project, which will come into production this year.
RMS is benefitting from its strong operations and boom times for gold, making it one of the hot stocks over the past year.
The group is a low-cost operator with no debt and in a strong financial position with $90 million in cash on hand.
The company’s primary project is the Wattle Dam gold mine, which has produced in excess of 150,000 ounces of gold since 2006.
It is the highest grade gold mine in Australia and has a low cost of production of less than $500 per ounce of gold.
It is currently being mined as an underground operation. However, the mine’s life span is coming to an end, so RMS is drilling to extend the mine life.
In a recent update, Ramelius Resources noted it has extended its mine life to 2013.
Fortunately, recent drilling confirms mine life upside, with a new high grade zone discovered at depth (as at February 2011).
Wattle boasted production of 91,700 oz in 2010 at a total cash cost of $458 per ounce.
It clocked record production of 26,668 oz in the recent December quarter and mine cash flow of $25.6 million.
Wattle anticipates production of 90,000 oz in 2010/11.
Last July, RMS purchased the Mt Magnet gold project, located 600km north east of Perth.
The group intends to bring this project into production in 2011, which will handily replace Wattle Dam if the mine’s life is not extended.
Mt Magnet looks to be a lucrative cash cow for RMS. A recent drilling program has identified a number of high grade gold targets for follow-up in 2011.
The project boasts historic production of 5.6M oz of gold, JORC resources of 3.3M oz and reserves of 474,000 oz.
Mt Magnet boasts potential production of 100,000 oz per annum (p.a.) for 5-7 years and a further 200K oz of gold is available in other pits.
RMS has more than enough cash in the bank to push ahead with Mt Magnet owing to its Wattle Dam production sales.
RMS is targeting an all-up cost of $800 per ounce. There is also potential to lift production to 150K oz p.a. by adding underground ore.
The mine currently has an operating margin of around $1000 per ounce.
Strong financials and sector
For the half ending December 2010, RMS recorded a net profit of $32 million and announced capital return and a dividend totalling 7 cents per share.
RMS is in a strong financial position with $86 million in cash and gold on hand with no debt.
The group has a market capitalisation of $294 million and clocked a net profit of $20 million for FY10.
For the year, total cash costs of $458 per ounce were produced and the group saw production of 91,700oz of gold in 2010.
Gold has generally hovered around US$1,360 an ounce lately, with the precious metal seeing a bull market over the last decade, and repeatedly hitting historical new highs.
Gold prices rose at an average of 18% a year over the last decade and companies such as RMS are benefitting from the boom. Indeed, the likely continuation of the boom means RMS is currently one of the stocks to watch.
The Wattle Dam mine is the highest grade gold mine in Australia, is low-cost and has produced a lot of gold and cash for RMS, which is a debt-free company.
If Wattle Dam’s mine life is not extended, RMS has its Mt Magnet prospect on hand for production this year.
RMS is targeting gold production of 230,000 oz by 2013/14.