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Ramelius Resources (RMS) July 2020 Review

ramelius resources company review

“Mighty oaks from little acorns grow”: although these words were first spoken in 1374, they ring true today, especially in the case of WA gold producer, Ramelius Resources.

Ramelius Resources, a $3M IPO in 2003, began drilling for gold in a 13500 oz ‘starter pit’ called Wattle Dam in 2006, located approximately 70km south of Kalogoorlie. Gold production from Wattle Dam commenced later that year with the ore to be processed through a mill it didn’t own, with the expectation that it was a 5 months project, that would generate revenue of $10M.

But these expectations were exceeded and Ramelius quickly generated sufficient free cashflow from operations to buy its own mill (called Burbanks) for $2.8M

Then in 2008 Ramelius discovered a high-grade zone beneath Wattle Dam that included intersections of 16 metres at 482 g/t., 123 metres from the surface. This made it at one stage the highest ore grade gold mine in Australia.

In 2010 it had $100M in cash and was looking to expand, so it bought the mothballed Mt Magnet gold project for $40M and began mining in 2011 before commissioning the mill in 2012. 

By 2013 Wattle Dam had increased from a 13500 oz mine in 2006 to a 275000 oz mine with its own mill, and Ramelius now had all the makings of a highly successful gold producer.

In 2017 Ramelius bought the Edna May gold mine from Evolution Mining for $90M, taking the company’s annual forward gold production toward 200,000 oz per annum.

Two years later Ramelius bought 2 adjacent mines for about $80M, comprising $64m for explorer Explaurum and its Tampia Hill gold development, and $13m for the Marda asset – both in close proximity to its existing mine site, Edna May. Ramelius has a history of cost discipline and this was exemplified by the reduction in upfront capital costs for the treatment of ore from Tampia, from $50M to $26M.

Ramelius is today at a more than 200,000 oz pa production rate and growing steadily, with FY21 production estimated at 250,000 oz and current guidance for the June quarter at 65-70,000 oz. pa.

This suggests that a 300,000 oz annual target is achievable in the near-term and the release of the company’s 5 year life-of-mine plan in a few weeks will confirm this target and outline how it is to be achieved, including increasing the estimated life of some existing mines.

This may be a tipping point in how the company is perceived by investors and more importantly, how it is valued by the market.

Should share price valuation multiples currently attributed to gold producers like Northern Star and Evolution apply to Ramelius, then shareholders can expect a fillip to the share price in the period ahead. Shareholders have already enjoyed a spectacular rise in the value of their investment over the life of this gold miner, with a market capitalisation today of $1,438M.

And the rise may not be over yet.

Gold prices were rising before the COVID-19 pandemic, driven by Central Bank buying, continuation of negative real interest rates and strong inflows into gold-backed Exchange Traded Funds (ETFs). ETFs currently account for about 25% of total global gold demand.      

Ramelius currently hedges about 30% of forward gold production, so much of any further upside in the gold price will be captured by the gold miner.

But Ramelius doesn’t need rising gold prices to sustain its meteoric share price rise since 2003.

It just needs to continue its well-honed, judicious approach to mine acquisition in adjacent areas to existing mines and infrastructure, funded from a conservatively geared balance sheet.

The release of its next 5 year life-of-mine plan will most likely see this gold miner describe just how it can continue to scale new  heights and maintain the growth momentum witnessed since its humble beginnings as a $3M market cap minnow in 2003, to become one of Australia’s major gold producers.

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