Broker Upgrades: Gold darling disappoints with long-term plan, and RBC plays down steel cuts

Ramelius Resources shares chopped 17% on Mt Magnet mine plan with lower medium term gold production and higher capex
Argonaut cuts RMS from buy to hold
RBC says market is too bearish on Chinese steel output and iron ore

There’s so much excitement around gold stocks – still undervalued despite many hitting record highs as far as numerous analysts are concerned.

But they can still disappoint, none more so than recent market darling Ramelius Resources (ASX:RMS), which cut its own grass with a terribly received 17-year mine plan for its flagship Mt Magnet operation yesterday.

The ~$3 billion WA gold producer had 6% taken of its share price in early trade.

It got worse each time MD Mark Zeptner moved his lips to explain the story on a conference call with analysts. By halfway through the presentation RMS was down 11%, by 2.30pm AEDT close to 14%, a minor massacre.

The issue for Ramelius is this. Its Edna May gold mine is wrapping up, meaning Mt Magnet is flying solo, and the incredible recent performance of its operations has been powered by the ultra-high grade but short-lived Penny gold mine and higher-than-expected grades in the oxide zone of its Cue gold project.

Both are satellites away from the Mt Magnet Mill, which will soon need to rely on closer but lower-grade ore sources.

Ramelius says it will produce 2.1Moz over 17 years out of Mt Magnet, 37% higher than in 2024. It’ll still be a money spinner, generating $2.5b in pre-tax cash flow at $3500/oz gold or $4.3bn at $4500/oz, closer to current spot prices.

Over the next 10 years, RMS will produce 2.6Moz, including the development of its greenfields Rebecca/Roe project near Kalgoorlie, where an FID is due this year.

But RMS will pursue a larger 680,000oz cutback at the Eridanus deposit over a 280,000oz underground from April 2026, a decision which comes with a larger capital bill. A $95m mill expansion which could take mill capacity to 2.7Mtpa on fresh ore and 3Mtpa on softer ore is also smaller than analysts expected.

“Ramelius has always been challenged on mine life, so we’re really banking mine life here,” RMS MD Mark Zeptner said in response to queries about what appeared a big lift in capex for minimal production upside.

“And also secondly, rather than taking a short term win on let’s go ahead and dive in on the high grade parts of Eridanus, sterilise a whole lot of low grade material and go for the underground, we’ve decided the best thing by the orebody is to actually do the cut back.

“This will really consolidate the mine profile at Eridanus for the next 15-17 years.”

What do analysts say?

Argonaut head of research Hayden Bairstow said Ramelius is now more reliant on delivering Rebecca/Roe to recover producer to over 200,000ozpa after the next three years.

Its buy rating and $3.50 price target have been clipped to a hold with a 26% trim on the price target to $2.60. Argonaut had estimated 25% lower capex ($833m to end of life) at Mt Magnet and 10% higher mill capacity than outlined in the updated mill plan.

“On an annual basis, the updated mine plan produces 30-45% less gold than we had forecast from FY27-FY31 but 20-40% more gold from FY33-FY35,” Bairstow said in an early note.

“We have adjusted our forecasts for Mt Magnet to match the updated mine plan, which has translated to material cuts to our production and earnings forecasts for RMS,” he followed up later on Tuesday.

“The company is now heavily reliant on securing the approvals for Rebecca/Roe to sustain group production over 200koz. We believe approvals for Rebecca/Roe are likely to take longer than anticipated which will see group production fall to ~120koz in FY28.”

On top of that, RMS has decided to maintain guidance of 270,000-300,000oz for FY25 at all in sustaining costs of $1500-1700/oz, despite a strong first half that had Argonaut forecasting FY25 output of 322,000oz at $1319/oz.

There remain questions on whether the outperformance seen in the grades from Cue in the December half can be repeated as mining transitions into the fresh rock at Break of Day.

RBC, which has a sector perform rating on RMS was also negative on the update.

“The maiden combined Mt Magnet mill upgrade and Eridanus cutback study has broadly missed our expectations, for production, costs and capex,” analyst Alex Barkley, who has a $2.80 price target and sector perform rating on the miner, said.

“We already include the projects in our base case forecasts.”

Higher costs and lower production guidance for 2026 and 2027 will hit cashflow, Barkley says, after RMS’ stellar run, which will culminate in $270m in free cash flow for the second half of 2025.

Consensus had Ramelius producing 225,000oz in FY26, that’s now been clipped to 200,000oz, with all in costs to be $200-300/oz higher at ~$1656/oz, while FY27 guidance has been trimmed by 40-50,000oz to 136,000oz at $1692/oz (admittedly, the latter is a beat versus RBC’s estimate of $1974/oz and consensus of $1941/oz).

Remember, RMS still has a major near 20% stake in Spartan Resources (ASX:SPR), owner of the massive and high-grade Never Never discovery. With the disappointment from investors yesterday, is the time yet to play that trump card?

Ramelius shares tumbled close to 17% by the close for a 10% YTD gain and 55% 12 month lift.

Argonaut’s downgrade was followed by one from Canaccord Genuity, which kept its buy rating but chopped its PT from $3.20 to $2.90.

Is China steel the one?

Elsewhere, RBC analysts led by Kaan Peker, say negativity is overblown on iron ore prices and specifically Fortescue (ASX:FMG) in the face of reported steel production cuts in China.

Media out of the Middle Kingdom suggested the largest supply trim in years could be on the cards in 2025, with as much as 50Mt of crude steel production to come out of the market, followed by 20Mt in 2026 and 10Mt in 2027.

The catchphrase is ‘supply discipline’. China has produced upwards of 1Bt of crude steel every year since 2020.

But that year has proven to be a peak as capacity swaps to favour greener steelmaking methods, attempts to reduce emissions and weak property market and construction demand has haunted steel mills.

Last year’s output was propped up by a record amount of overseas steel exports, but anti-dumping duties and the threat of tariffs from the US could kill that market of last resort.

At the same time, iron ore production is anticipated to grow in the coming years, especially with the growth of the new Simandou mine in Guinea from the end of this year.

But RBC thinks fears around production cuts are overblown. In recent years directions to trim output have largely failed to be heeded by factory owners.

“We expect Chinese crude steel production to decline in 2025, but not due to mandatory cuts: There were no mandatory production restrictions in 2022, 2023, or 2024, despite policy calling for output control in two of those years,” RBC’s analysts said.

“Nonetheless, China’s crude steel production still witnessed YoY declines in 2022 and 2024. This was largely due to steel mills adjusting output in response to profitability (market driven).”

They noted that production has run below capacity in recent years.

“We believe this market commentary is the key driver behind the recent iron ore and FMG’s share price weakness. We view the recent weakness as being overdone,” Peker et al said.

“We do not expect mandated steel production cuts in China in 2025 but expect crude steel production to decline on the back of lower demand/prices. Moreover, over 1H, we expect iron ore prices to be supported given the recent supply disruptions, seasonal demand from Chinese construction and low steel inventories.”

RBC is generally positive on iron ore producers. It has a $21 price target and outperform rating on FMG.