Regis Resources Beats On Output And Costs


Regis Resources Beats On Output And Costs

Summary

  • Regis Resources outperforms the expectations on all levels.
  • This is a positive surprise as the heavy rainfall earlier this year disrupted Regis’ operations.
  • As I’m expecting an AISC of around $950 for this year, Regis could actually be a ‘buy’ if the gold price doesn’t crash further.

Regis Resources (OTC:RGRNF) has announced its quarterly update and it’s a nice surprise to see the company actually producing more ounces than expected at a lower than expected cost per ounce. The total output for the quarter was approximately 88,800 ounces of gold at a cash cost of just A$745/oz ($653/oz). The main driver behind this low cost was the Moolart Well mine which had a production cost (after royalties) of just $466/Oz. On the other hand, the Garden Well mine was still a bit disappointing with an after-royalties cost of roughly $1000/oz.

The fact that Regis Resources has dramatically improved its situation should not be ignored. Keep in mind the past year was quite disastrous for Regis as it had to take care of the damage caused by severe rainfall. All damage seems to have been repaired and Regis is back on track to fill up its treasury again. The cash position almost doubled at the end of the previous quarter compared to the second quarter of calendar year 2014, and this is a remarkable achievement as Regis did repay $19M to its mine contractor, which provided decent credit terms during the time of the flooding. The financial statements look a bit tricky though, as it looks like the company added a $12.5M payment to Maca as a production cost in the same quarter. This lowered the operating cash flow to just $18M, but if you’d exclude the payment to Maca, the operating cash flow would have been a very impressive $30M. This means that in a normalized situation, Regis Resources would have generated in excess of US$2.50M in free cash flow during the quarter, and I’m aiming for a free cash flow of US$75M for this year. This would be pretty neat for a company with a market capitalization of less than $650M, and based on the bottom-up approach of the operating costs, the AISC for the quarter was less than US$950/oz.

As Regis Resources is definitely on the right track again, the unexpected floodings should be seen as a bump in the road. The company has increased its production and lowered its costs of production and based on the previous quarter and the cost guidance for this quarter, I do expect Regis to continue its gold production with an AISC of $950/oz.

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