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Is Regis Resources Ltd a Buy at Current Prices?

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Regis Resources (ASX: RRL) is a company that specialises in gold production and exploration. Regis market cap is $2.6 billion, Regis current share price is at $5.53 (12 July 2019). At the end of 2016, the share price was trading at $2.38, effectively doubling over the last 2.5 years.

RRL-stock-price

This company has two main operations in Australia. The first operation is in the Duketon region (Western Australia) with three operating mines (100 per cent owned by Regis). Annual production for FY19 is in the range of 340,000 - 370,000 ounces (oz) and costs (known as AISC) are in the range of $985 - $1055 per oz.

The second operation is in McPhillanmys – NSW (100 per cent owned by Regis). This project has identified a mineral resource of 2.3 million oz of gold and ore reserves of 2.0 million oz of gold. Regis is undertaking a definitive feasibility study to develop this project. This project could produce 292,000 oz of gold over a nine year mine life.

Investor may consider having some exposure to gold. This is because the gold price (in US dollar terms) generally increases when there are global economic and political concerns. The issues today include heightened concerns with global economic growth expected to slow over the next 12 months as well as international tensions around the trade dispute between the United States and China and the political dispute between the United States and Iran over Iran’s nuclear weapons capabilities.

One way to gain exposure to gold is buying gold stocks on the ASX. Regis one such company. The positive aspects of Regis include the following:

  1. First, Regis is a strong financial position with $187 million in cash and bullion, no debt and generating strong cash flow. Regis is currently trading at a P/E ratio of around the mid-teens and a dividend yield of around 3 per cent (dividends are fully franked).
  2. Second, Regis gold production outlook is positive. This growth could be underpinned by the development of Mcphillamys Gold Project. This project could produce 192,000 oz of gold per annum over a nine year period possibly commencing around 2021. In addition, Regis is also developing the Rosemont underground mine with the first ore expected to be mined in September 2019 quarter.
  3. Finally, Regis gold production costs of are at the low end of the industry’s average. This low cost is expected to continue in the years ahead as the Mcphillamys Gold Project is a low cost project.

The negatives aspects include:

  1. Expanding production capabilities requires significant capital investment and exploration is high risk.
  2. Mining companies rely on finding additional resources to replace dwindling resources due to mining. There is a risk that Regis might not find replacement resources.

New developments for Regis

Regis realised their quarterly report on the 23 July 2019. The key points include:

  1. Strong cash build-up of A$18.7 million in the June quarter 2019 and cash and bullion of $205.3 million at 30 June 2019.
  2. Regis is expecting another strong year of production at their Duketon Gold Project in FY20 with production of 340,000-370,000 oz at an AISC range of $1,125-$1,195/oz. However, costs in FY20 are slighter higher than in FY19, causing a fall in the Regis share price on Monday 24 July 2019.
  3. An application for The McPhillamys Development submitted for the environmental considerations to the Department of Planning NSW and is waiting approval.

The outlook for gold is positive. This assessment is made on the basis that there are a number of global political and economic concerns. A few concerns include potential continuation of the proliferation of trade barriers in the form of tariffs mainly from the US and China, uncertainty around whether the new Prime Minister of the UK Boris Johnson can reach a successful Brexit deal and continued nuclear tensions in the Middle East surrendering the US and Iran.

A few other gold stocks investors could consider include, Newcrest Mining (ASX: NCM), Northern Star Resources (ASX: NST), Saracen Minerals (ASX: SAR) and Evolution Mining Ltd (ASX: EVN).

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978) (“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute "research" as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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