Jul. 19, 2015 11:17 PM ET | About: Regis Resources NL (RGRNF) Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in RGRNF over the next 72 hours. (More...) Summary
Regis Resources produced 310,000 ounces gold in FY 2015 at a very competitive all-in cost.
The all-in cost per ounce will decrease in 2016 due to lower stripping costs.
The regional exploration programs are returning excellent results, and it looks like the resources could easily be increased within a 20 mile radius around existing production facilities.
Introduction
In a first article more than 18 months ago, I recommended Regis Resources (OTCPK:RGRNF) to benefit from a weakening Australian Dollar to gain exposure to a semi mid-tier gold producer without any debt on the balance sheet. Unfortunately Regis had some bad luck with the weather causing the 2014 production rate to completely miss the guidance and forcing Regis to use some debt to repair the damage on its projects.
Fast forward to July 2015, and the company has just reported its production and cost numbers, and has already provided an outlook for 2016. A positive one, which I will discuss in this article.
Keep in mind Regis Resources is an Australian company, and I'd strongly recommend you to trade in Regis' shares through the facilities of the Australian Stock Exchange where the company is listed with RRL as its ticker symbol, and where the average daily volume is 2.7 million shares. The preliminary 2015 numbers, and a glance at the 2016 expectations
Regis produced just over 75,000 ounces of gold in the final quarter of its financial year 2015, and this brought the total production for the year at 310,000 ounces. The positive production result was due to higher recoveries and throughput rates at the Duketon district in Western Australia, and this resulted in a lower than expected production cost. The consolidated all-in sustaining cost per ounce was just A$1148/oz (US$850/oz) which is a good average considering the Garden Well project had an AISC of in excess of A$1400/oz.
Source: press release
On the other hand, the Moolart Well project might be the project with the lowest production rate (just 20,600 ounces in the past quarter), but with an AISC of A$899/oz (US$665/oz), it makes a lot of competitors extremely jealous.
But wait, there's something else you need to take into consideration. The A$1148 all-in cost included a higher-than-average stripping cost at both the Garden Well and Rosemont projects. These expenses should fall rather dramatically in the next few quarters, and that's already clearly visible in the company's outlook for Financial Year 2016.
(click to enlarge)
Source: company presentation
And that outlook is excellent, despite the fact the production will be 6% lower than in 2015. Regis expects to produce 290,000 ounces of gold in FY 2016 at a very positively surprising all-in sustaining cost of A$1020/oz. That's just US$750/oz. As the current gold price is in excess of A$1520/oz, Regis' net operating margin will be A$500/oz, resulting in a net cash flow of A$150M. Not bad for a company with a market capitalization of A$725M (and it was just A$575M earlier this week). The efforts to extend the mine lives are paying off
A production rate of 300,000 ounces of gold per year is very nice, but it also means the company needs to find 1 million new mineable ounces every three years to replenish the resources and reserves.
Regis Resources understood that it needed to continue to drill at the Duketon district, and the most recent exploration update looks very promising. Regis has completed two reverse circulation drill programs at the Baneygo and Tooheys Well prospects, and with intercepts such as 33 meters at in excess of 8 g/t, 23 meters at 3.05 g/t (Baneygo) and 22 meters at 3.15 g/t (Tooheys Well), it's pretty obvious one could describe this exploration program as 'successful'. That's important because the Baneygo project is located just 7 miles from the Rosemont project and Tooheys Well is just 1.5 miles from the existing Garden Well mine. It's pretty clear that if Regis Resources is able to find a decently sized resource estimate, the ore could be trucked to the existing production facilities.
Source: press release
Regis is aggressively pursuing resource expansion as the company also acquired the Gloster Gold deposit which is just 16 miles from the Moolart Well project with an existing resource estimate of 365,000 ounces gold at an average grade of 1.37 g/t. The purchase price was just US$1.15M (so just $3 per ounce in the ground which is remarkably low) and the promise to pay a royalty of A$10 per ounce it produces from this project. By acquiring this new resource as a bolt-on satellite deposit of the Moolart Well project, Regis definitely shows it's serious about its long term plans at and around the Duketon district. Investment thesis
The aggressive pursuit of increasing its resources at Duketon and buying additional assets for cents on the Dollar will very likely prove to be a very smart strategy. This growth strategy will be underpinned by an expected net cash flow of A$150M during this financial year (and I'd expect the net profit to be approximately A$100M).
This means that Regis Resources is currently trading at just 7 times its expected net profit, and the strong cash flow will very likely cause the management team to reinstate a dividend. I think Regis Resources is a buy on share price weakness.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.
RRL Price at posting:
$1.28 Sentiment: Buy Disclosure: Held
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