I think the financial aspects you mentioned are something you should demand of any goldie after the near constant bull market in AUD gold! The development cycle turnover is also something not unique to RMS, and it is not speed you want in development it is optimising the net cashflow out to shareholders.
You want to buy a "long lived gold camp that keeps delivering" do you?
How many years Reserve and resource life to they have compared to peers (lowest on my holdings)?
Exactly what do you want them to deliver, gold or cash?
Can you please list how much their cash balance increased in FY16, FY17 and forecast for FY18 at the gold hedge price? You can then divide this by their market cap at the time to approx their investment rate return and list these numbers compared with how much their share price moved that FY. I think it shows the market follows the cold hard cash, and in terms of cash generation RMS is now not really ahead of their peers. Given their current forecast they will not increase their cash flow as much as their peers in the same environment, their margins are limited by their ongoing capital investment required to define and develop their reserves and mine plan, and their 50% hedging at AUD1715.
I calculate RMS cash flow/market cap return for FY17 was about 8%. ($17M cash flow (deducting financing cash flows from capraising). They have high capex but it seems to be intended to convert resources to reserves so I see it more as amortised cost rather than investment in increasing production. Anyhow 8% is not great compared to what it was FY16 and about in line with peers.
Ok the following was a lot better than I expected I have updated my sentiment!
I admit I had not really accounted for just how much the market cap has dropped since April. I thought cashflow is not going to improve FY18-20, with no organic growth forecast and capex about the same. Cash Flow will go up 50% of the increase in gold price margin because of their hedge.
Forecast margin for FY18 at gold AUD1715 = 1715-1170=545 (this is lowest margin on my list)
Cash flow = koz * margin - capital spending = 130*545 - 28 - 11 =$32M.
% return over market cap = 32/218 = 15%
This is actually fairly good, better than my other goldies at the moment because RMS has dropped 20% in price where as the others have all gone up 20% or more.
RMS deserve a bit of a catch up on the technicals as I said in other post, and now I admit on the fundamentals they could deserve a push back up to 50-60c range, and this could happen quite soon. Not that I am in the market to buy more as I am still way overweight them (I should have sold more in April to rebalance my portfolio but it was too painful having missed the 70c Feb and I thought it would bounce.
So there you have it I upgrade to a short term buy to my own surprise, but stick by what I said previously that in in my own longer term fundamental cashflow analysis I do not see them as a sector outperform, compared to other companies with less capital requirements and more organic growth prospects.
The only remaining growth is acquisitions, and I think your post in the other thread showed you agree with me the prospects of adding value through acquisitions are very low in this pricing market where most goldies are cashed up and easy to finance. The best deals were done already by NST and EVN, and I think any more will be at the higher market cap range.
Final thing after excluding acquisitions is what to do with the cash? I was expecting more dividend goodness actually. If they are making cash it does not seem good for the share price to hold on to it if the acquisition market is pricy... Before you jump in and shout your disagreement towards financial strength and flexibility, remember I have excluded acquisitions (and very glad they did not jump in like RED did). here is a good reason why.
The top Australian gold miners are a very high return business, margins at current prices and their reigned in costs are fantastic, $500 - $800 margins on a $1700 product ... that is 'Apple like'. But the margins on their cash are basic interest rates which are abysmal. RMS cash is now $90M which is close (ish) to half its market cap. That means half its market cap is earning it no return! If you instead use enterprise value, then RMS is making a 30% return! Think if RMS market cap was half cash, and they could magically exchange this for shares, the market cap would halve, but the share price would stay the same as you own twice as much of RMS. This new lean RMS would offer you an investment return of 30% in cash flow instead of 15%. One way to really convince yourself of this is use a common dividend policy paying x% of the cash they make ... do you like part of 15% or 30% cash return better?
A company that is 10x larger market cap like NST can afford to hold a few hundred K cash but it hurts RMS a bit more I think.
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