- Coverage picking up on Regis Resources
 - Macquarie and BA-ML initiate with Buy ratings this week
 - Production growth, quality assets and management team the attractions
 - Blue sky from exploration a further positive

By Chris Shaw

Emerging gold producer Regis Resources ((RRL)) is garnering increased attention in the market of late, with both Macquarie and BA Merrill Lynch initiating coverage on the stock with Buy ratings this week. This brings to seven the number of brokers in the FNArena database to cover the stock, Regis scoring five Buy ratings and two Hold recommendations.

For Macquarie, the attraction of Regis is the combination of a quality asset base, some blue sky potential and a standout management team. The assets are centred on the Duketon gold project in Western Australia, which contains the Moolart Well, Garden Well, Rosemont and Erlistoun deposits.

Regis is currently producing around 100,000 ounces per year from the Moolart Well mine. Macquarie expects this could increase to as much as 400,000 ounces per year by FY14 as the Garden Well and Rosemont operations ramp-up. Deutsche Bank agrees post a recent site visit, the broker forecasting total production in FY14 of 410,000 ounces.

At present, Regis has reserves of 2.9 million ounces at 1.52 grams per tonne gold, while resources stand at 6.5 million ounces at 1.25 grams per tonne gold. Macquarie estimates this equates to a remaining four-year mine life at Moolart Well and mine life of around eight years at both Garden Well and Rosemont.

Assuming production increases to around 400,000 ounces per year as expected, BA-ML notes this would equate to a capitalised annual growth rate in production of 33%. This compares favourably to the mid-tier average of 6% growth.

This growth in production comes with the benefit of low costs, BA-ML estimating cash costs for Regis are around US$500 per ounce. There is also low capital intensity at the company's projects, which will mean the Garden Well project will be self-funded and so lower risk. 

Beyond the expected ramp-up in production, BA-ML notes exploration offers additional upside to both reserves and resources. The Garden Well project offers potential from significant depth and southern strike extensions, while satellite prospects and regional exploration could also deliver further gold discoveries.

The full story is for FN Arena subscribers only. To Subscribe click here

Or If You're New To FN Arena - click here for a trial

If you are a subscriber login here