Ramelius Resources: Digging Into The Q3 Results
Summary
- Ramelius Resources remains on track to meet guidance and is one of the few gold miners to maintain FY-2020 guidance despite the COVID-19 related caution.
- The company's recent Penny West acquisition is a low-risk, high-reward bet on an extremely high-grade resource, and could be a significant game-changer if this resource continues down-plunge.
- In addition, contributions from the Marda open pits continue to beef up Edna May production, with quarterly gold production set to hit a new quarterly record in fiscal Q4.
- Based on a solid growth profile and speculative upside through the acquired Penny West Project, I see the stock as a Hold, and I believe any pullbacks below A$1.15 would provide buying opportunities.
The Q1 earnings season for the Gold Miners Index (GDX) is finally underway, and it's been a challenging start for many names, with less than half of companies beating revenue estimates, and several companies slashing their FY-2020 guidance due to COVID-19 uncertainty. The Australian gold miners seem to be the least affected by the COVID-19 situation, however, with minimal shutdowns and negligible revisions to guidance, and Australian miner Ramelius Resources (OTCPK:RMLRF) is no exception. In fact, the company's fiscal Q4 2020 guidance is projecting a new multi-year high for gold production, and the company remains on track to hit its FY-2020 forecast of 215,000 ounces at the midpoint. Meanwhile, the stock has regained most of its lost ground in the mid-March panic and continues to build a 1-year base below its all-time highs. Given the company's strong growth profile and improving technical outlook, I believe a test of all-time highs near A$1.65 is likely in the next twelve months, and I would view any pullbacks below A$1.15 as low-risk buying opportunities. All figures are based on an Australian Dollar to US Dollar Ratio of 0.64.
(Source: Company Website)
Ramelius Resources is one of the most recent names to release its fiscal Q3 2020 earnings, and the company had an exceptional quarter, reporting quarterly gold production of 51,800 ounces at all-in sustaining costs of A$1,248/oz [$US799/oz]. This places the company's year-to-date gold production at 146,000 ounces at A$1,243/oz [US$796/oz], a cost figure that is nearly 20% below the FY-2019 industry average of $980/oz. While it may seem like the company has no hope of hitting its FY-2020 production guidance of 215,000 ounces at the midpoint, the company adamantly reiterated FY-2020 guidance as it believes it can produce 67,000 plus ounces in fiscal Q4. The bump in production is thanks to a helpful contribution expected from the Marda open pits at the Edna May Mine, and the low-grade stockpiles that were supplementing the mill in Q3 will be replaced by Greenfinch and Marda ore going forward. Let's take a look at the company's operations below:
(Source: Company Presentation)
Beginning with the company's flagship operation, the Mt. Magnet in Western Australia, the company saw Q3 gold production of 39,000 ounces at A$1,114/oz [US$713/oz], with exceptional gold recovery rates of 96.8%, tracking above the year-to-date gold recovery rate of 95.7%. Year-to-date, Mt. Magnet has contributed 107,000 ounces or nearly 75% of the company's total gold production, at exceptional margins of over 40% based on all-in sustaining costs of A$1,162/oz. While milled tonnes for the quarter came in at only 458,000 from over 530,000 in fiscal Q2, this was to be expected as a result of planned milled shutdowns. Fortunately, the milled grade of 2.74 grams per tonne gold more than offset the lower tonnage, allowing for 2% higher production than fiscal Q2.
(Source: Company Presentation)
Moving over to the company's Edna May Mine, mining operations at Greenfinch began in late fiscal Q3 after the company received its final federal environmental approval for the open-pit in January. The Edna May Mine contributed 13,500 ounces in fiscal Q3 at all-in sustaining costs of A$1,618/oz [US$1,035/oz], though this is expected to jump significantly in fiscal Q4. Based on Marda ore now being trucked more than 150 kilometers south to the Edna May operations, we should see a significant increase in production from Edna May in fiscal Q4, as well as going forward. The company has guided for a substantial jump in production from Edna May next quarter, with the belief that the operation can see gold production of 23,500 ounces, an increase of nearly 75% sequentially from fiscal Q3 levels. Thus far, this is looking like an excellent acquisition for just A$13 million in late 2018.
(Source: Company Presentation)
(Source: Company Presentation)
As we can see in the chart below, quarterly gold production has gone virtually nowhere for Ramelius Resources, but this is all set to change dramatically in fiscal Q4. The previous record quarterly gold production for Ramelius sat at 58,600 ounces in fiscal Q3 2018, but contributions from Marda should help to push quarterly gold production well above the 60,000-ounce mark. Assuming the company can hit its guidance of 67,000 ounces for fiscal Q4, this would translate to nearly 10% growth year over year in gold production, from the 196,600 ounces produced in FY-2019. If we assume similar contributions from Marda for the remainder of the year, it's certainly possible we could see Ramelius guide for over 240,000 ounces of annual gold production in FY-2021.
(Source: Author's Chart & Quarterly Reports)
If we look at the table below, we can see that the company's balance sheet remains strong, with over A$125 million in cash and bullion. This translates to a net cash position of A$92.9 million after the company drew down A$32.5 million in the quarter to put towards project development, exploration, and the acquisition of Spectrum Metals. Based on this solid balance sheet and growing production profile, the company should be able to remain in a strong net cash position through FY-2021 with no need to finance, while also carrying out aggressive exploration and development across its projects. Spectrum Metals is one area where investors are likely anxious to see what the drill turns up, given that the acquired project hosts a resource of over 350,000 ounces of gold at 13.8 grams per tonne gold, an extremely high-grade resource. While still early stage, the Penny West Project is a low-risk, high-reward bet that could eventually turn into a cornerstone asset for Ramelius.
(Source: Company Presentation)
If we look at the technical picture below, the company's monthly chart seems to be confirming this shift to a more bullish fundamental outlook, as the stock is setting up in a near 1-year base and just 25% from its all-time highs. If the stock could break out through the top of this base to A$1.45 on a monthly close, this would be a bullish development as it would suggest the technicals are finally confirming the fundamentals, and a new all-time high breakout may be in the works within the next twelve months. However, to bake in a margin of safety on any purchases, I would prefer to be a buyer below A$1.15.
(Source: Tradingview.com)
Ramelius Resources has been a stable but low-growth Australian mid-tier gold miner, but the company's potential for record quarterly production is an exciting new development for investors. Meanwhile, the acquisition of the Penny West Project is an exciting speculative addition to the portfolio if the company can make additional discoveries here, as it's one of the highest-grade projects in the world currently in a Tier-1 jurisdiction. Based on an improving fundamental and technical picture, I would not be surprised to see Ramelius trade up near its all-time highs at A$1.65 in the next twelve months. Therefore, I would view any 15% pullbacks below A$1.15 as buying opportunities.
This article was written by
Analyst’s Disclosure: I am/we are long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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Ramelius Resources FPO (RMS-ASX)
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