01/08/2012 - 10:29

Regis’s pot of gold bolsters performance

01/08/2012 - 10:29


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TWO years ago, Regis Resources had yet to prove itself as a solid Western Australian gold producer; it was on the verge of its first gold pour from the Moolart Well mine in the Duketon Gold Project north of Laverton and was targeting production of 100,000 ounces per annum.

Since then the company has not only delivered on production targets, but has also more than tripled forecasts to 347,000oz for the current financial year, increasing to about 410,000oz in 2013-14.

Such forecasts have contributed to the company becoming one of the best performing in Western Australia, based on its total shareholder return (TSR).

In the year to June 2012 the company delivered a TSR of 57.6 per cent, while its three-year TSR averaged 101 per cent per annum.

As the company is yet to pay a maiden dividend, the success lies solely in its ever-increasing share price; the value of shares bought when stock bottomed out at 6.5 cents in October 2008 has since increased by more than 6,000 per cent.

Aiding the surge in the share price early on were former Equigold executives Mark Clark, Nick Giorgetta, and Morgan Hart, who replaced the initial Regis board in early 2009.

Chief financial officer Kim Massey told WA Business News the strong performance was based largely on the company and board’s ability to deliver on its promises.

“The projects we’ve got are quality projects and we’re delivering on what we said we would; our cash costs are low and we’re making good margins on the gold we’re selling, so the results are real,” Mr Massey said.

It’s costing Regis around $550/oz to produce gold at Moolart, before royalties, and the same is expected for the life-of-mine cash costs at its Garden Well project, which will begin production in the September quarter.

Regis negotiated a debt facility with Macquarie ahead of its Moolart Well development, but Mr Massey said the company had avoided taking on any more debt.

“With the way the gold price has been and our operations at Moolart Well we haven’t needed to,” he said.

“We’re not needing to raise money so I think we’re getting a premium for that.” 

Regis is now the seventh largest WA-based company based on its market capitalisation of just more than $1.77 billion.

It is in a strong position, given that its first mine was able to fund development of the second. For the quarter to June 2012, operating cash flow from Moolart was $26.6 million.

But the company has also been able to cut costs and development time by having its own in-house development team.

The Moolart Well project was developed at a cost of only $67 million, down from the projected $73 million.

Meanwhile, the Garden Well plant, at twice the capacity, will be developed for about $109 million.

“That’s being able to manage the whole construction process, you can get the best price for everything and you’re not charging margins on top of that,” Mr Massey said. “That is another thing that we get credit for; the market takes that into account and we’re showing we can do it.”

Returns from the Garden Well project are expected to pay back the capital costs in only seven months, giving Regis significant cash flow.

Analysts have stated that would put the company in a position to pay its first dividend after the first half of the current financial year.

But Mr Massey said Regis had other expenditure commitments to take into account before it decided whether to pay a maiden dividend.

Such expenditure would likely be developing the Rosemont and Erlistoun deposits also within the Duketon Project, both of which provide higher-grade ore and are likely to be funded internally.

Regis is currently undertaking a feasibility study for the Rosemont project and, all going to plan, expects first production in 2013-14.

Patersons Securities analyst Alex Passmore said the fact the company was moving swiftly towards achieving first production at Garden Well without incident, and was shoring up its production profile, was largely responsible for its stocks soaring over recent weeks.

“The stock price has moved from $3.80 to $4.60 over the last month and that has been a reflection of its performance rather than purely being driven by gold prices,” he said.

Mr Passmore said he remained positive the stocks would continue to perform well, but cautioned it was trading at the upper end of Patersons’ valuation.

Meanwhile, Deutsche Bank analyst Chris Terry was confident the outlook was positive for Regis and issued a target price of $4.85 per share.

“We believe the trend can continue, given impressive production growth is about to be delivered, exploration continues to produce positive results particularly around Rosemont where we see high potential and (the company’s) strong management team,” Mr Terry said.


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