How gold prices impacted the Financial metric of Regis Resources?

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Gold prices are moving in doldrums over the ambiguous data and events prevailing in the global market. The Gold spot (XAU) is moving in a range of $1311.30 to $1292.96. The oscillation of gold prices around the psychological level of $1300 is in the range of approximately 1%. Gold prices fell sharply on 14th March to make a low of $1292.96 and again recovered and currently hovering around $1304.

With the gold prices trading in a range, Gold miners are engaging in the exploration activity and ramping up the production. Let’s look at how gold prices impacts the financial strength of a gold miner.

Regis Resources Limited (ASX: RRL) is a Perth based Australian gold miner who is engaged in gold production and exploration. The company operates many mines in the Duketon Area such as Moolart, Garden Well and Rosemont. The company recently announced its Financial Results for the half year ended 31st December 2018.

Operational Performance:

The company’s gold sales increased from 183,846 ounces reported in H1FY18 to 186,276 ounces in H1FY19, and Regis resources also realized a higher sale price in the event of rising gold prices in the year 2018. The sale price increased from $1,641 per ounces in H1FY18 to $1,696 per ounces in H1FY19.  The higher realized price of gold boosted the company’s gold sales proceeds from $298.03 million in H1FY18 to $315.96 million in H1FY19.

The company reported revenue of $317.17 million in H1FY19, which marked an increase as compared to $298.99 reported in H1FY18. The company’s Cost of goods sold also increased from $167.40 million in H1FY18 to $193.36 million in H1FY19. As a result of increased cost of gold sold, the gross profit declined to $123.81 million in H1FY19 as compared to $131.58 million in H1FY18.

The company reported a net profit of $79.85 million in H1FY19, which marked a decline to the previously reported net profit of $84.58 million in H1FY19.

Financial Strength:

The company’s current assets increased from $181.11 million in H1FY18 to $187.08 million in H1FY19, as a result of increased receivables, which reported at $7.6 million in H1FY19 as compared to $5.95 million in H1FY18.

The inventory for the period H1FY19 also surged from $43 million in H1FY18 to $56 million in H1FY19, which led to a net increase in the current asset for H1FY19.

The company’s total non-current assets also surged from $569.16 million in H1FY18 to $628.87 million in H1FY19, which further led to an increase in total assets from $822.53 million in H1FY18 to $884.66 million in H1FY19.

The total liabilities of the company also surged from $185.68 million in H1FY18 to $211.27 million in H1FY19, leading to a net asset of $673.38 million for H1FY19 as compared to $636.84 million in H1FY18.

Liquidity Profile:

The company marked a net cash inflow of $126.48 million in H1FY19, as compared to $121.12 million in H1FY18 due to higher receipts from gold sales, which reported at $315.96 million in H1FY19 as compared to $301.75 million.

The higher commodity prices in the later months of the year 2018 led to a higher average realised selling price and thus provided strength to the balance sheet. The impact of gold prices for the company can be seen on the balance sheet as higher prices led to higher sales proceed and boosted the financial strength of the company.

However, the entire balance sheet strength is not only because of higher gold prices; other factors such as the acquisition of exploration tenements or expansion in projects also impact balance sheet. To evaluate the entire balance sheet solely based on high gold prices is not wise and investors should keep an eye on other exploration and development activities and corporate governance of the company.

During the time of writing this report, the shares of the company closed at A$5.370 (as on 15th March 2019), down by 4.278% as compared to its previous close.


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