Earlier this year Regis Resources Limited's (ASX: RRL) share price was approaching $2, today it's $1.29. As a value investor, is this a good opportunity to 'buy'?
Regis is an Australia-based gold production and exploration company. The Company has operations at the Duketon Gold Project in the North Eastern Goldfields of Western Australia and the McPhillamys Gold Project in the Central Western region of New South Wales.
Regis is one of Australia's largest gold companies and produced 270,000 ounces of gold in fiscal 2014. Its cash costs are near the middle of the cost curve which enable it to make profits in most gold price environments.
A read through of Regis' recent quarterly report shows that total gold production at its Duketon operations for the year was within original guidance at 310,024 ounces at a pre-royalty cash cost of $826 per ounce and an AISC of $994 per ounce.
Compared to Q3 performance at Duketon, Q4 mill throughput was up 6%, recoveries were up 2% and grade was up 6%.
Quarterly gold production of 75,372 ounces was in line with revised guidance at a pre-royalty cash cost of $871 per ounce and an AISC of $1,148 per ounce. Production was up on the March quarter 2015 of 65,949 ounces at cash cost $936/oz and AISC $1,159/oz.
FY2016 gold production guidance is 275,000 – 305,000 ounces at an AISC range of $970 – $1,070 per ounce. Expansion capital forecast is at $15-20 million.
Growth through aquisition
At the recent Diggers & Dealers mining forum in Kalgoorlie, Regis managing director Mark Clark said the recent difficulties at the company's Garden Well mine in Western Australia had limited its ability to participate in the recent wave of consolidation in the mining sector.
In terms of acquisitions Mr Clark said, "We've looked at many, many opportunities over the past couple of years, but unfortunately up until now we haven't been able to win those opportunities on price because someone's been willing to pay more than us or things haven't quite met our criteria".
"I think we just have to stay patient and keep working on that and have confidence over time that we'll find something."
Miners such as Northern Star Resources Ltd (ASX:NST) and EVOLUTION FPO (ASX:EVN) have leapfrogged Regis through numerous acquisitions in the Australian gold sector.
The company last month flagged it would resume dividends later this year, with a target of maintaining a payout ratio of 60 per cent of net profit after tax, while also launching a share buyback plan for up to 5 per cent of its issued capital. It is targeting a dividend of between 5c and 7c a share later this year.
Verdict
Regis is a prudently managed company with low debt. It expects to pay fully-franked dividends from fiscal 2015, a rarity for an Australian listed mining company. Unit production costs, or cash costs, of around USD 700 per ounce put the company near the middle of the global cost curve.
But, as mentioned in my recent article regarding Nickel producer Western Areas Ltd (ASX:WSA), regardless of how well these companies are run, ultimately their share price follows the commodity price. Regis offers a "pure-play" exposure to the gold price.
A quick look at the two charts below shows the link between Regis' share price movement and the Comex 1-year gold price for the past 12 months.
Regis Resources Limited's share price 1 year.
Comex gold price 1 year.
Because Regis' share price is dictated by the gold price, that's why I'll be keeping it on my watch list for the moment.
