I did apretty extensive analysis on the matter and came up with the following:
1.The hedge book has been in existencewell before the new management got started. It has been reduced substantiallystarting from 451k ounces hedged as of June-30-2019 (124% of production of FY2018/2019) to 338k ounces as of March-30-2021 (below 90% production of FY2020/2021). Reduction was 52k ounces in 2019/2020 and an expected reduction inFY 2020/2021 of 73k ounces.
2.Generally speaking price hedging ofown products is a common tool for risk management. Even with the currentcontracted average prices there is still a substantial profit from each ouncesold.
3.However this policy reduces not onlyrisks in the event of falling prices but does reduce possible gains fromraising prices. In effect Regis sold around 15% of it´s production into hedgedcontracts in FY 2019/2020 and will sell over 20% of it´s production into hedgedcontracts in 2020/2021 (final figure pending on final production numbers).
4.For FY 2021/2022 Regis announced tosell 100k oz into the hedged contracts. As Tropicana will add more than 100kounces to the consolidated production numbers, the reduction rate will remainat around 20% of total production. Generally speaking the somewhat levered acquisition of Tropicanadoes increase the price sensitivity of the shares to the gold price while thehedging policy did reduce that sensitivity.
5.That also means that the other 80%of production will be sold at market prices. A price increase of 10% of thegold price will have an impact on the gross margin (revenue – production costs atAISC) of more than 20% (even if and so far as 20% of production goes into thehedged contracts). Whether that also can be seen on the bottom line depends on the additional (non-sustainingi.e. development costs for new mines) costs.
6.It is indeed quite freaky that the following developments did not express themselves in the share price development in the past 6 weeks:
a.On announcement of the Tropicana-dealin mid-April the gold price was at about AUD 2.300. Meanwhile it has risen by AUD150 or 6,5% to AUD 2.450. The leverage effect on the gross margin of Tropicanais also around 100% so the price change alone leads to a gross margin gain ofaround 13%. Given the transaction value of around 900 million that effect aloneshould lead to an increased corporate value of at least 100 Million (which translatesto around 5% of the total capitalization).
b.But not only the gold-price-developmentdriven value of Tropicana has risen by more than 10% (from April 14 to actualdate). The same is true for the ongoing activities at the old parts of Regis. Even takinginto account 100 koz to be sold into fixed hedging prices, the price-derivedgross margin gain calculates to be about 190% of the gold price increase (over12%).
c.So if added the total value of Regisdid rise by at least 12% since April 14- 2021 (date of releasing the info on the Tropicana-deal) which is not reflected in the share price development at all.
So either the market-participants didn´t makethe right valuation on April 14-2021 or they are miscalculating now. I stronglylean to the latter. IMO there is a substantial effect from digesting the sharedilution. People sit on shares they might not really want to have. Also theprice decline certainly has some investors shaken and they either did alreadysell or want so sell because of that. Fallen shares are never sexy. Givenrising gold prices in the past 6 weeks and the analysis above that does notseem to be the right move though.
Of coursethis analysis cannot account for any production problems, production costincreases, expectations regarding these factors, the procpects of McPhillamys andany other expectation changes. However, as there are no substantial news onthose issues they should not have been share price relevant in the past 6weeks.
Provided thatthere are no substantial unforeseen and non-communicated production problemsand/or increases of AISC at the current gold prices the net profit after taxescan be expected to easily exceed AUD 200 million in FY 2020/2021 (even if 20%of total production go into the hedge contracts). That would translate to amassive undervaluation of Regis and its shares (current capitalization below AUD2.000 million. So I actually did buy some.
Of course this is not a recommendation to do the same. Everybody should do his own analysis prior to buying or sellning stock.