Regis Resources: Guiding to strong FY22 with Tropicana contribution
About the author:
- Author name:
- By Mat Collings
- Job title:
- Former Morgans Analyst
- Date posted:
- 05 August 2021, 8:30 AM
- Sectors Covered:
- Regis Resources (ASX:RRL) outlines a strong FY22 plan, with midpoint guidance of 487koz of production at A$1,327/oz AISC.
- Tropicana is expected to contribute 120-135koz, but is also a major source of capital spending as the Havana open pit cutback continues (est. A$72m).
- A strong Q4 saw RRL hit FY21 guidance, with over performance from the Rosemont underground mine key.
- Revising our forward production estimates on FY22 guidance, we retain our ADD recommendation at a revised target price (login to view). We continue to see RRL as a long-term value proposition as the company demonstrates the upside from Tropicana within its portfolio.
Event: Q4 results and FY22 guidance
Regis has released FY22 guidance, targeting 460-515koz of gold production at AISC of A$1,290-$1,365/oz. This compares to FY21 overall production of 373koz at a cost of A$1,373/oz.
Tropicana contributed two months production to Regis (17.3koz) but with a planned shutdown completed in the quarter, reported costs were outsized at A$2,121/oz.
RRL sprinted to the finish in FY21, supported by record production from the new Rosemont underground mine. Production from the underground will moderate towards long-term average in FY22, though the Garden Well underground will begin to contribute to Duketon production late in the FY.
Tropicana results are difficult to attribute for the last quarter of FY21, with partial production offset through adjustments to purchase price. Guidance for FY22 of 120-135koz (attributable) sees the operation returning towards long-term expectations, with the Havana cutback and Boston Shaker underground ramp up both progressing in FY22 (meaning the reliance on stockpile ore has some way left to run still).
Forecast and valuation update
We have adjusted our FY22 forecasts, reducing production slightly on guidance. We expect AISC to begin reducing from FY23 as Tropicana returns to steady production and underground ore forms a greater portion of production at Duketon.
A breakdown of the impact from our previous assumptions is presented on page 4.
We continue to see long-term value in RRL at the current share price. It will, however, take time to demonstrate the longer-term value at Tropicana where the company has paid a relatively full value for the current mine plan and Reserves. As such, we think RRL suits long-term investors.
We maintain an ADD recommendation at a revised target price (login to view).
A sensitivity table and explanation of our valuation methodology is presented on page 4.
- Greater clarity on Tropicana results and impact over FY22.
- Underground ramp up at Garden Well.
- Progress on permitting for McPhillamys in NSW.
- Permitting risk remains at McPhillamys, creating uncertainty in development timelines.
- Macro-economic risks common to all gold miners of the USD gold price and USD/AUD exchange rate.
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