Regis Resources (ASX: RRL) is a gold production and exploration company. 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). The second operation is the McPhillamys Gold Project located in NSW (100 per cent owned by Regis). Regis has a market capitalisation of A$2.4 billion.

What are the key features of Regis March quarterly results?

Gold production for the March quarter 2020 was 86,300 ounces (ozs) (December quarter 2019: 90,849 ozs), down 5.0% from the previous quarter. This drop was mainly due to lower grades and a short processing interruption. All in Sustaining costs (ASIC) for the March quarter 2020 was $1,174/oz (December 2019: $1,219/oz). The decrease in AISC was driven by lower strip ratios and ore stockpile build-up at Duketon South.

Full year production guidance remains unchanged with a production range of 340,000-370,000 oz. After excluding the royalty cost impact associated with the higher prevailing gold price (currently approximately $27/oz), full year AISC guidance is maintained at the upper end of the $1,125-$1,195/oz guidance range. The COVID-19 pandemic is not having any material impact on Regis’ mining operations.

Cash flow from operations increased by A$7.4 million to A$107.4 million for the March quarter 2020. Cash and bullion was A$168.8 million at the end of the quarter (unchanged relative to the December quarter 2019), after payment of A$40.7 million in dividends, A$30.0 million in capitalised mining costs, A$7.7 million on exploration and feasibility projects, A$15.6 million in income tax payments and A$12.1 million on a number of discrete capital projects.

What is the state of play for the McPhillamys Gold Project?

The McPhillamys Gold Project, located in NSW, is one of Australia’s largest undeveloped open pit gold projects with an Ore Reserve of 60.8 Mt @ 1.04 g/t gold for 2.02 Moz. Gold production is expected to be around 190,000 ozs per annum and mine life is expected to be around 10 years based on current resources.

Regis management notes the assessment phase of the McPhillamys Development Application is now well underway with Responses to Submissions (RTS) expected to be complete by the middle of the year. The RTS is the third of five major phases in the assessment and approval process. COVID-19 restrictions in place across Australia are not currently anticipated to cause any significant delays in proceeding through the approval phases. The fourth and fifth phases mainly centre on NSW Government processes. Regis’ management is currently anticipating that a NSW Government decision on the Development Application for the McPhillamys Gold Project will be in the first half of 2021.

What is the outlook for Regis?

The outlook for the gold price remains positive in the current environment of significant economic uncertainty. Most notably, gold prices over the last 6 months has increase by around 23% in US dollar terms. It appears that the gold price has settled in the around US$1,700 per ounce. With the $US/$A exchange rate around 0.64 cents, this translates into a $A gold price of around $2600 to A$2,700 per ounce.

Consequently, the immediate outlook for Regis, and for that matter other gold producing stocks, is positive. Looking longer term, approval and development of the McPhillamys Gold Project will provide a material boost to Regis’ production profile and earnings.

What is the market reaction?

The initial market reaction to the March 2020 quarterly report is broadly neutral. Regis’ share price is down 0.2% and is currently trading at A$4.45. Regis is trading at a forward P/E ratio in the low-teens and an annual dividend yield of around 4%.

 


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April 29, 2020