Australia | Apr 27 2012
– Regis delivers solid production report
– Exploration and new projects to boost production in coming years
– Citi has Regis as its preferred Oz gold producer
– Other broker opinions mixed
By Chris Shaw
Emerging gold producer Regis Resources ((RRL)) delivered a well received quarterly production report yesterday, the highlight being the performance of the Moolart Well mine. For the three months Regis produced 26,700 ounces of gold at a cash cost of $519 per ounce.
As Citi notes, higher grades and mill recoveries at Moolart Well meant solid output at low cost. The performance also highlights the operational potential of the Garden Well and Rosemont projects in the broker's view.
The quarterly production has Regis well placed to meet full year production expectations of 95,000-105,000 ounces, UBS noting costs should also fall below the $540-$590 per ounce range as Garden Well starts up. Commissioning for this project is on schedule for early in September.
As new projects come on stream Regis should enjoy a significant jump in production, as Deutsche Bank notes expectations are for gold output of more than 300,000 ounces per annum in FY13 and 400,000 ounces in FY14.
A key to this expected production growth in the view of Goldman Sachs is the ability of management to deliver on operational expectations. Deutsche agrees, suggesting the good track record of management meeting planned production increases offers further share price upside going forward.
The other positive in the view of Deutsche is solid mine life, as Moolart Well is currently expected to be a 100,000 ounce per year producer for at least the next seven years and exploration is continuing at both Moolart Well and Garden Well and is expected to boost resources and reserves.
Citi is similarly positive on the exploration potential of Regis, as for Garden Well alone the broker sees scope for further drilling to add more than 10 million tonnes per annum of reserves. This would extend the project's mine life to 10 years at a five million tonnes per annum mill rate.
While investors should see some valuation upside from increases in production in coming years there is also scope for dividend payouts, Deutsche suggesting distributions could commence in the second half of FY13 given Regis at present has around $340 million in cash on its balance sheet.
Post the production report brokers have made some changes to their models for Regis, with UBS updating its numbers to account for lower commodity prices and revised foreign exchange assumptions.
The changes see UBS trim its price target to $4.50 from $4.70, while Citi has gone the other way and lifted its target to $5.30 from $4.75. The consensus price target for Regis according to the FNArena database is $4.55, targets ranging from RBS Australia at $3.84 to Citi at $5.30.
Ratings on Regis are currently split at Buy and Hold twice each. Citi sees value at current levels and so is on the Buy side, highlighting Regis as its preferred gold stock on the Australian market. Deutsche Bank is similarly positive given the potential for production to continue to increase, while Goldman Sachs, which is not in the database, also rates Regis as a Buy with a price target of $5.10.
UBS in contrast rates Regis as Hold on valuation grounds, but acknowledges there is potential valuation upside from increases to production in the medium-term.
In a stronger market today shares in Regis are higher and as at 10.50am the stock was up 4c at $4.10. This compares to a range of $2.20 to $4.43 over the past year, the current share price implying upside relative to the consensus price target in the FNArena database of a little more than 11.0%.
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