Regis Resources Limited (ASX:RRL) was upgraded by equities research analysts at Deutsche Bank from a “sell” rating to a “hold” rating in a research note issued to investors on Wednesday. The analysts noted that the move was a valuation call.
Separately, analysts at JPMorgan Chase & Co. reiterated a “neutral” rating and set a $2.10 price target on shares of Regis Resources Limited in a research note on Sunday, January 25th. Six equities research analysts have rated the stock with a hold rating, The company presently has an average rating of “Hold” and a consensus target price of A$1.87 ($1.45).
Regis Resources Limited (ASX:RRL) opened at 1.235 on Wednesday. Regis Resources Limited has a 52-week low of A$1.150 and a 52-week high of A$2.690. The stock has a 50-day moving average of A$1.8 and a 200-day moving average of A$1.6. The company’s market cap is A$617.18 million.
Regis Resources Limited is an Australia-based gold production and exploration company. The Company is a gold miner with operations at the Duketon Gold Project in the North Eastern Goldfields of Western Australia and the McPhillamys Gold Project in the Central Western region of New South Wales. The Company’s Duketon Gold Project is located in the Laverton region about 350 kilometers north-north east of Kalgoorlie in Western Australia, consists of tenement packaging, which covers over 2,000 square kilometers of ground.
Regis Resources Sell Off Overdone?
FNArena News - March 09 2015
-Several upgrades as share price falls
-Still an issue of declining grades
-M&A potential heightened
By Eva Brocklehurst
The update on operations at Regis Resources' (RRL) mines had a familiar tone for brokers. The company has been struggling with lower head grades at its Garden Well mine and wet weather added to the setback in January and February. Production for the two months suggests the March quarter will be, at best, at the low end of guidance and broker forecasts.
There were some positives in the latest update. At Rosemont, several pit wall failures have limited access to higher grade material but this has been offset by the mined ore now having a positive grade reconciliation. Subsequently Rosemont is expected to deliver above output guidance. Moolart Well is performing to expectations, although brokers note grade has dropped at this mine as well.
A year ago, when the company advised of production problems, brokers responded negatively, given guidance was revised down and costs revised up. There was a spate of downgrades with the result that, at that stage, the stock had seven Hold ratings on FNArena's database. Now, several brokers have decided the bad news is factored in and have reversed their recommendations. The database contains three
Buy ratings, four Hold and one Sell. The consensus target is $1.81, suggesting 39.9% upside to the last share price, and compares with $1.95 before the update. Targets range from $1.45 to $2.29.
Despite the fact some brokers now have Buy recommendations this is not the end of the production issues. No commentary was provided on costs but UBS expects current estimates are now at risk of being too low. UBS had expected FY15 to be a quiet period as the company rebuilt investor confidence. The latest update has put paid to this. The broker still believes diversifying operations is important and, with McPhillamys out of the picture and problems continuing at Garden Well, a lift in exploration and/or merger & acquisition activity cannot be ruled out.
Of note, the company has advised that its remaining $20m debt facility has been restructured to allow a single bullet payment in June 2017, which improves flexibility regarding the resumption of dividends. Macquarie has reduced earnings forecasts by 34% for FY15. As a result, dividend forecasts have been lowered. The broker expects the company could pay an unfranked 3c dividend for FY15.
Regaining some control of grade at Garden Well and returning to stable production are considered key catalysts. More clarity on the development of Erlistoun could also prove positive.That said, Macquarie believes the stock is oversold and upgrades to Outperform from Neutral. The broker has lowered production forecasts, which were already conservative, and envisages substantial upside now exists.
Macquarie also expects the first half results, due next week, will reveal strong gold sales and a robust Australian dollar gold price.
The performance of the three main assets has underwhelmed Deutsche Bank. Some issues such as weather and the Rosemont pit wall failure may be short term, but the continuing problems in reconciling grades at Garden Well make it hard for the broker to have confidence in the forward years. Moolart Well is also considered unlikely to deliver grades above 1.0g/t. Regis Resources now has fewer options if
Garden Well continues to underperform.
Nevertheless, Deutsche Bank upgrades to Hold from Sell on valuation. The broker also suspects the company may be in a position to reinstate dividend payments at the full year result. Regis is expected to assess M&A opportunities, given the Duketon hub appears reasonably mature from an exploration perspective.
The company has not been a good communicator with investors. That is JP Morgan's gripe. The broker believes the latest announcement will further damage market confidence in the assets and the stock is unlikely to trade at full value. The broker concedes the market may have over-reacted to the news but maintains the issues are exacerbated by poor handling of communications. JP Morgan finds better
risk/reward opportunities elsewhere in the sector, and retains a Neutral rating.
The main source of Credit Suisse's downgrades to earnings forecasts are the refining of later year forecasts to to more closely align Garden Well grades with reserve grades. The guidance on Garden Well fell well short of expectations but Credit Suisse does not adjust for the negative reconciliation issues beyond this year, on the understanding that it applies specifically to low-confidence ore zones in the south
of the pit which account for only around 10% of the total remaining reserve tonnage. Meanwhile, Rosemont, the newer mine, continues to grade well after some short term issues and the broker models a return to reserve grades in future years.
Growth plans based on bringing McPhillamys to production have had to be shelved, given poor returns and water issues but the work done in the central NSW region positions the company well to bid for an operating mine that may be divested by a global major, in the broker's opinion. While the company has, historically, created value through low cost development of new mines, Credit Suisse acknowledges there
is nothing obvious available for acquisition, or within Regis Resources' assets, to offset a production decline in two years time, as Moolart Well grade falls. In the context of the sharp decline in the share price the broker upgrades to Outperform from Neutral.
RRL Price at posting:
$1.24 Sentiment: Hold Disclosure: Held
(20min delay)