$5/share valuation, page-6

RBS Report

Regis Resources

Cash starts to flow

1H11 earnings were above our forecasts. Operating cash flow and net change in cash were both positive, which is an admirable achievement while commissioning a new mine. We flag a reserve upgrade in late March as a likely positive catalyst and move to a Buy recommendation.

Slick commissioning flows into earnings

1H11 earnings of A$13.5m were above our forecast of A$2m. The difference was largely due to A$8.4m worth of bullion not being booked as sold in the December quarter, but included in the revenue line in the P&L. Stripping that out, the balance of the difference between our forecasts was largely attributable to costs. Achieving positive earnings and operating cash flow of A$12.5m in the first half of production is an outstanding effort, in our view.

Net cash in a flash

RRL had a net debt position of A$17m as at 31 December. Cash and cash equivalents of A$13m does not include bullion awaiting settlement of A$8.4m, which is arguably a cash
equivalent, in our view. At the time of publishing its 1H11 results, we believe RRL is likely to be in a net cash position. The flow through from this is increased confidence that RRL will be able to fund the development of Garden Well from cash and debt. The risk of dilution via
equity raising is non-existent, in our view.

Garden Well growth drives investment decision

Production and costs at Moolart Well appear well in hand, so we believe the key driver of an investment decision is contingent on the final size of Garden Well. RRL will provide an updated reserve, including revised operating metrics, at the end of March. Based on indicative information provided to date, we have increased throughput, capex and production for our Garden Well forecasts, raising our valuation by 5%.

Investment view ? move from Hold to Buy

The earnings and cash flow performance from the first half of operations at Moolart Well reaffirms our positive view of the calibre of RRL?s management. We look forward to an
update on the Garden Well reserve as the next positive catalyst for the stock and move from a Hold to a Buy recommendation.