Ultimately I think this question comes down to mine life. Every bidder would have been feeding in similar gold price and margin assumptions to value the reserve portion but the resource to reserve conversion value is the hard part.
The deal looks expensive on a reserve basis but this is a true tier-1 operation (not some untested company calling its undeveloped asset tier-1). There are a lot of resources in the ground and probability of mine life extensions. It is also a relatively new mine in the sense it has only been operating for 10-15 years when many large operations like this in WA have been operating for 30+.
I think the issue with undeveloped projects, in Australia in particular, is that invariably the feasibility studies are full of crap in terms of actual margins in operation (capex assumptions have usually been ok though). So you could compare this deal to RED for example and think it is expensive but which one in reality will actually match the NPV model used to justify the purchase?
The RRL CEO referred to this on the conference call saying the risks are 'front-end weighted' or 'back-end weighted'. They take on low front-end risk but have the back-end risk of not defining more ore (a risk that historically has been low for a mine like this).
Funnily enough the mid-cap producers have been exactly right to avoid greenfields projects like DCN or GCY (and BGL too) over the last five years and purchase stakes in assets like the Super-Pit and Cowal.
This deal reminds me of when SBM overpaid for Atlantic Gold in 2019. SBM was in a bad place with its existing assets and needed to diversify production. RRL's other concern is diluting the hedge position.
It certainly isn't a cheap deal and I think is going to create issues for Regis in paying out dividends and funding McP development. A large number of Regis shareholders expect the dividend but I can't see how that happens with the dent load now and perhaps $400M in cpaex over 2 years for McP.
RRL Price at posting:
$3.17 Sentiment: Hold Disclosure: Held
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)