Is it time to buy this Australian Gold Miner?
Several analysts raise price target and away she goes...
Regis Resources is a mid tier Australian producer with 2 producing mines and one development project they are trying to get permitted. They consider themselves Australia premier gold mining company. For now, the large development project, McPhillamys, is likely a half decade or more off in the future. This project isn’t reflected in the price or in our appraisal.
Technical Analysis
The chart gets our attention with a couple of strong weeks. Look for a cooling off period, possibly corresponding to retracement in Gold itself ($300-400 is reasonable). I think that will give us a backtest to the neckline of this triple bottom, stage 1 accumulation zone.
Financial/Economic Analysis
The company has 20% debt to equity to manage (many gold miners have no debt). They do have a healthy quick ratio and nearly enough cash to cover debt (about 20x general and administrative expense). The jurisdiction is favorable, for that reason, I used a 2% risk load on the discount factor and 15 year life of projection corresponding to the current portfolio life of mine.
Forward production and cash costs are estimated to be 500k oz per year at 2k/oz. These are very conservative assumptions. At current gold prices, that reflects around 3-400 FCF per year. Current pricing reflects about $2250 realized gold and no growth beyond the current producing portfolio. This leads to a US/OTC valuation of $3.60, equivalent to a 55% discount or so.
Conclusion
Limit Buy below $1.50 (RGRNF) or $2.40 RRL.AX
In the short term the price is very stretched. But with the breakout, combined with financial analysis, I have approved up to the max allocation of mid/large gold producer to my managed portfolio. This has been a good year for European producers such as Kinross and Dundee, so I expect I will trim and reallocate if I’m to achieve a max position size with Regis.
The company is over 50% owned by institutions (ETFs). I’d like to see more insiders, but with a company this size, the capital flow will likely proceed from the ETF effect. It is for this reason that this company is a bit late to the party.
I intend to set price target and trim level around $4 or roughly equal to fair value at current economics. This equates to about 150% gain over 12-18 month time horizon.
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