On Thursday, UBS downgraded Regis Resources (OTC:RGRNF) Ltd. (RRL:AU) (OTC: RGRNF) stock, moving the rating from Neutral to Sell. The firm also revised its price target to AUD1.55 from the previous AUD1.75.
The downgrade follows the issuance of a Section 10 Declaration over the company's McPhillamys project and a subsequent A$192 million write-down reflected in Regis (NASDAQ:RGS) Resources' FY24 results.
The company's FY24 earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 12% short of UBS's expectations, primarily due to the write-down of inventory net realisable value and a decrease in inventory on hand. Additionally, higher depreciation and amortization contributed to a further net profit after tax (NPAT) miss.
UBS noted that while Regis Resources continues to generate cash, its declining production profile and unclear future after the recent events pose challenges. The removal of the McPhillamys project, valued at A$268 million in net asset value (NAV), from the firm's sum of the parts NAV valuation led to an 11% decrease in the price target.
Looking forward, the firm anticipates that Regis Resources' earnings per share (EPS) for FY25-27 will be impacted negatively by 16%, 11%, and 9%, respectively, due to anticipated higher costs and increased depreciation and amortization. The downgrade to a Sell rating reflects the difficulties the company may face in regaining its strategy and growing amidst these financial challenges.
In other recent news, Regis Resources Limited (RRL) has reported strong cash flow and record cash generation, despite facing operational challenges due to weather and labor availability.
The company's production and costs have remained within the full-year guidance, and substantial progress has been made on their organic growth strategy.
This includes the commencement of underground developments and the release of a definitive feasibility study (DFS) that confirms the viability of the McPhillamys project.
Regis Resources also reported a zero lost-time injury rate for the past year and provided production guidance for FY 2025, with expectations of 220,000 to 240,000 ounces at Duketon and 130,000 to 140,000 ounces at Tropicana. The company plans to establish four or five underground mines at Duketon, aiming for an annual production target of 200,000 to 250,000 ounces.
Meanwhile, Tropicana faced challenges due to rain events and labor availability, and increased costs were incurred due to wet weather and waste movement from the Havana cutback.
CEO Jim Beyer discussed the efficiency of the alliance with Barminco and the integration of teams, emphasizing the need for continued exploration despite not finding significant new deposits. These recent developments suggest that Regis Resources remains committed to its growth and operational strategies, despite some setbacks.
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