Regis Resources Limited (ASX:RRL) is a mid-field gold producer in Western Australia, producing around 350,000Koz per annum. While the company is reaching its maturity phase in its Duketown operations, its expansion to new mines (including Tropicana and McPhillamy’s), are yet to be priced into the market. According to our analysis, the current valuation underestimates either the price of Gold in the future, or the amount of gold going to be produced at these exploration sites.
Most mining ventures are inherently risky, yet the company’s recent 30% acquisition of the already established Tropicana mine, means gold production will increase immediately. The addition of the mine will increase production to approximately 700,000+koz per annum.
McPhillamy’s is in the earlier stages of its life, with pending approvals still to be processed by NSW government. Yet there is high anticipation these will be approved, and mine construction will start in early 2022, bringing a new source of gold. It is predicted to be the flagship mine for RRL with expected production of 200,000kozpa, and diversifying the company’s mine sites across Australia.
With an average Gold price of $2,100Koz, RRL can expect a valuation of AUD$2.2bn, with leniency for lower expected production. If production and pricing favour RRL (as we expect), we could see a valuation as high as AUD$4.5-$5bn.
Currently, RRL is valued at AUD$1.9bn amid concerns around gold price, future production rates, and COVID fears.
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