The S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is covered in red but the Ramelius Resources Limited (ASX: RMS) share price is bucking the downtrend.
It isn’t just the stronger gold price that’s helping push the miner higher. Ramelius posted a big increase in half year profits.
The news sent the stock surging by 12.2% to $1.43 in morning trade. If Ramelius closes at this level, it would mark a near 10-year high for the stock!
Good as gold
Management reported a 329% uplift in net profit to $20.5 million and a 31.8% increase in earnings before, interest, tax, depreciation and amortisation (EBITDA) for the six months to end December 2019.
The profit growth comes even as the miner reported a drop in gold production for the period to 92,084 ounces compared to 104,051 ounces for the same period in 2018.
The big jump in profitability is driven by improving grades at Ramelius’ Western Australian gold mines and an increasing realised gold price. Looking at the price of gold today, Ramelius’ second half results could prove to be another ripper.
Safe haven buying
The precious metal climbed a further 1.5% since yesterday to US$1,642 an ounce on news that the coronavirus is spreading rapidly in countries outside of China. There has been a big increase in reported cases of the virus in Italy, Iran and South Korea since the weekend.
Gold benefits from global uncertainty. The Trump trade war with China boosted the appeal of the yellow metal last year and the pandemic is taking the commodity to new highs.
Another significant reason for investors to be excited about Ramelius is the tumbling Australian dollar. The Aussie is trading at around US66 cents currently when it was trading at US70 cents in July when Ramelius’ new financial year began.
The current gives the miner another boost as Ramelius’ mines are located in Australia. Since it’s cost base is in the local currency but it sells in US dollars, its margins get a nice uplift.
Management reported an all-in sustaining cost (AISC) of $1,240 an ounce for 1HFY20. This is a modest $20 an ounce increase to the first half of FY19.
The stars are almost perfectly aligned for the stock and the trend for gold and the Australia dollar remains very favourable for Ramelius – at least for the shorter-term.
The miner’s full year production guidance is 205,000 to 225,000 ounces and ASIC of $1,225 to $1,325 an ounce.
“The Company’s profitability has increased significantly on the December 2018 half year and continues the solid earnings from the second half of FY19,” said the company’s chief executive Mark Zeptner.
“This profitability has been achieved as a result of strong cost controls, improving grades, and an improving gold price.
“However, the Mt Magnet operation has been the main driver with grades increasing by 18% from both the underground and open pit mines.”
Ramelius isn’t the only one benefiting from the strong gold price. Shares in Evolution Mining Ltd (ASX: EVN), Northern Star Resources Ltd (ASX: NST) and Newcrest Mining Limited (ASX: NCM) have also surged by 3% to 5% each.
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Motley Fool contributor Brendon Lau owns shares of Evolution Mining Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.