Loyal to the cause
Michael Quinn, 15 December 2011
DEPENDING on your appetite for risk and reward, and, more pertinently the gold price, Regis Resources is the sort of gold stock that’s got a whiff of the ‘bankable’ about it.
Goldman Sachs initiated coverage of the stock last week, and suggested a 12-month price target of about 20% more than current levels was on the cards. In the world of resource equities, and in particular junior resource companies, that’s not the sort of return that is likely to set pulses running.
But the point with Regis is that relatively speaking, it’s relatively low risk – with, nonetheless, a very strong emphasis on the word “relatively”.
Goldman Sachs sees four main risks: operational, construction, commodity and cost.
Because of Regis’ management’s track record, and the company’s two projects’ locales (in Western Australia), the first two are essentially non-events – albeit mining operations and developments have inherent risks. Commodity risk too is an inherent risk in the mining sector, though use of hedging – in Regis’ case, minimal use – does mitigate some of the uncertainty.
Perhaps the biggest risk to Regis versus peers in some other jurisdictions around the world is cost pressure.
“The business is operating in Western Australia, with workers sourced from a market that anecdotally is very tight (and therefore wage pressure is undoubtedly high),” Goldman Sachs said. “The company is comfortable that given the long tenure of many operations management and technical staff (though previous companies and assets), there is a high degree of loyalty, which could help offset the potential for a rising turnover.”
While Goldman Sachs leaves it at that, the operative word there though is “could”, because while loyalty is a charming concept, it is fair to say it is invariably quickly stretched when tangible disparities emerge or widen.
The rising cost of consumables is also highlighted as a possible risk, though generally speaking that is an industry wide phenomenon globally.
Goldman Sachs reveals a number of comparisons between Regis and other peers listed on the ASX, but while some metrics might suggest there’s reasonable upside in some cases, in others the comparables are less compelling. Much it seems, more or less, is currently priced in for the next year or so with Regis – hence the modest target price.
Two obvious game changers for Regis are the gold price and exploration success.
As recently noted, Regis managing director Mark Clarke made the point at the company’s AGM last month that while he wasn’t normally the type to crystal ball gaze with regards the gold price, there was a macro indicator or two that suggested it was unlikely to suffer big reversals any time soon.
Ignoring the element of self-serving contradiction – as in ‘I never really look at what the gold price might do but gee it looks good doesn’t it’ – many would agree with Clarke’s sentiment. However, there’d be no huge shortage of so-called experts betting the other way. As reported this week by Bloomberg for example, a forecaster who correctly predicted the slump in commodities in 2008, economist Denis Gartman, was this week suggesting gold was poised to enter a bear market.
On exploration, the future is also undoubtedly far from certain. But fair to say the outstanding Garden Well discovery two years ago under shallow cover, is a promising portent.
A potential third carrot for capital growth in the future is payment of dividends. Clark recently made the point that the board he was on had a clear track record of returning cash to shareholders. Increased dividend payouts by gold companies in the North American market is de riguer at the moment, given the very low interest being paid by banks.
Regis probably won’t be in position to splash the cash for a year or two, but major cashflow thereafter is very much in the offing.
Whether a North American listing might also be countenanced at some stage remains to be seen.
Also in the December 15 - 21, 2011 edition
- AFRICA
- Eritrea risk narrows Zara field
- ASIA DESK
- Not all good as gold in China
- AUSTMINE
- MST buys Nixon Communications
- BREAKING NEWS
- Abenab progress for Avonlea
- Alara advances
- Alcoa declares divi
- Alcyone search boost
- Better news for St Barb
- Black Fire complies
- Bu Dun Hua copper
- Chief sees higher rating for Endeavour
- Cockatoo extension
- Impala sacks drillers
- Industrea win
- Kingston shines
- Maiden Rosie resource
- More Bass trouble
- More concerns on uranium supply
- Nany option exercised
- Newcrest output up
- Palito reassessment
- Pegasus finds copper
- PGM output up
- Radar on track
- Redhill expands holding
- Rio in control
- River attraction for Silver Lake
- Southern Cross ready to move forward
- Stonehenge sets sights high
- Straits gain
- Strategic permit
- Tanoyan update for Reliance
- Trafford's exploration boost
- Two Rivers death
- Ventnor copper hits
- WA uranium policy
- West Rand mines to merge
- Windfall at lake
- Winmar attracts investor
- Yellowhead on track
- CENTRAL ASIA
- Can miners really side-step a war?
- COAL
- Mardon's new year wish
- CONSULTING
- Consultants see room to grow in 2012
- Lory leads SKM mining into new growth phase
- CONTRACTING
- Contracting briefs: Redpath, Thiess, Decmil
- FINANCE
- A golden path to Dubbo development
- Copper deficit a fixture for the future
- Kagara opts for safety first
- Money’s almost too tight to mention
- Terramin view expected to become clearer
- FORUM
- How the JORC and Valmin codes work
- More must buy into JORC discussion
- FROM THE CAPITAL
- Capital management will be key 2012 theme
- GOLD
- Upside seen despite Teranga downslide
- HEAVY METAL
- Atlas Copco expands mining range
- ISSUES
- State-run miners: best of a bad bunch
- MINING
- Independence gloom unwarranted
- MINING INTELLIGENCE
- 'tis the season (still) to be wary
- MINING IT
- Auto-money changes everything
- Innovation is the new black
- IT notebook: ARANZ Geo, Immersive Technologies
- IT notebook: Devex receives certification
- IT optimists
- Mining IT: 2011 rebooted
- Mining IT: product releases to fill 2012 calendar
- XPAC to lead dynamic software revival
- PEOPLE
- People on the move: Gindalbie Metals, Abcourt Mines, Carbon Energy
- SOUTH AMERICA
- Chili backers like its prospects
- VIEW FROM THE WEST END
- Bitten on the bum by a Black Swan