By Brett Bearham - September 4, 2015 | More on: RRL
Mining stocks have experienced a turbulent ride over the past 18 months, with those in the gold sector no exception. Despite several gold stocks enjoying a significant bounce from their yearly lows, such as Northern Star Resources Ltd(ASX: NST) and Evolution Mining Limited(ASX: EVN), there are still opportunities. One of those opportunities is Regis Resources Limited(ASX: RRL).
Regis is an Australian-based gold production and exploration company. Its core operation is at the Duketon Gold Project in the North Eastern Goldfields of Western Australia, which consists of three main deposits in Moolart Well, Garden Well and Rosemont. Both Garden Well and Rosemont support robust mining schedules, and have long mine lives exceeding seven years and six years respectively.
The company has sought to extend the operational mine life at Moolart Well also, with the recent acquisition of the Gloster Gold Deposit. This deposit is strategically located 26 kilometres from Regis’ Moolart Well processing plant, and has an historic resource estimate of 365,000 ounces.
In its most recent quarterly report, Regis announced it had $51.7 million in cash and $21.4 million in gold bullion. Cash holdings more than doubled in value over the quarter, and the cash position increased an incredible $100 million for the 12 months to June 2015. The company has also reduced its debt level to just $20 million, which is covered easily by available cash.
Regis has reduced operational costs over the past 12 months whilst increasing operating cash flow. It expects to generate operating cash flow of around $140 million in FY 2016, with expansion capital expenditure expected to be in the order of $15 million to $20 million for the same period.
At the mid-point of FY 2016 estimates, the company expects to produce 290,000 ounces at an AISC (all in sustaining cost) of $1,020 per ounce. This makes Regis one of the most competitive gold producers in the Australian market.
The company has also been prudent in managing its gold sales and hedging. Regis has hedged a total of 281,000 ounces at an average price of $1,437 per ounce. These hedges are not subject to a specific delivery schedule, meaning the company can choose to sell its gold at either the spot price, or the hedge price, depending on which is more profitable.
Regis has indicated it will resume dividends later this year, targeting a payout ratio of 60% of net profit after tax. A dividend target of between 5 cents and 7 cents a share indicates a dividend yield of between 3.4% and 4.7%, which is much higher than that presently offered by Northern Star and Evolution Mining.
The company also has an opportunity to improve the value provided by its Garden Well project. The project accounts for around 35% of production, but has a low recovery rate of just 83.9%. An increased recovery rate would lead to a decreased AISC and a further boost to profits.
Foolish takeaway
Regis Resources is a well-managed gold producer with low debt, long mine life and cash in the bank. It has a good hedging policy, expects to resume paying dividends later this year, and has the opportunity to boost profits further. If you are looking to add a gold stock to your portfolio, Regis Resources should be at the top of your list.
RRL Price at posting:
$1.50 Sentiment: Hold Disclosure: Held
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