Monsters of Rock: Could this beaten down gold miner be 2022's comeback kid?

Regis Resources (ASX:RRL) has arguably been the largest casualty of the trend that has seen investor turn up their noses at gold miners who have, god forbid, been making boring old profits this year.

The Duketon gold mine owner, a long term dividend payer and reliable gold producer which has tipped more than $532 million into shareholders’ pockets since 2013, has become a poster child for the market’s ambivalence towards the Australian gold sector.

$1.33 billion capped Regis has seen its shares tumble in 2021, falling almost 53% to $1.76 as investors have baulked at the $900 million it tossed IGO (ASX:IGO) for a 30% stake in the Tropicana gold mine and persistent approval delays at the 200,000ozpa McPhillamys project in New South Wales.

Could it be due for a rebound?

RBC Capital Markets analyst Alexander Barclay thinks so, naming Regis as the Canadian investment bank latest “outperform” in the gold space.

RBC has favoured Northern Star (ASX:NST) and Silver Lake (ASX:SLR) in the gold space this year, both 2021 losers.

But the gold sector’s fortunes could cycle back in 2022. Societe Generale and TD Securities both expect gold to hit US$1900/oz (around US$120/oz above current levels) in 2022 as inflation and political instability rises.

Barclay says Regis has “rare value” based on its growth profile and the big fall in its share price, saying it is trading a a “considerable discount vs its history and peers”.

Mine life extensions, growth on the horizon

Despite reducing Regis’ price target from $2.75 to $2.50, Barclay views the miner as an outperform with 80% upside to both its three year EV/EBITDA multiple and peers.

He views Regis as cheap given its growth outlook which could see gold production increase by 32% from FY22 to FY25, and said RBC sees as much as 43% upside to the gold producer’s $2.50 price target.

One of the big triggers would be a regulatory decision expected on McPhillamys in early 2022, which Barclay estimates will add 20c to its share price and 190,000ozpa to its production profile once the mine is built.

On top of that, Barclay says exploration drilling results from its Duketon and Tropicana assets have put questions around mine life to bed. A resource and reserve upgrade in April next year “could be a positive catalyst”, he reckons.

“RRL already trades at a size discount for its ~500kozpa. McPhillamys approval would draw further attention to this valuation gap,” Barclay said.

“RRL discount driven by backwards thinking: The Tropicana acquisition may have been an overpayment, but has since strengthened RRL’s portfolio.

“Hedges are down to a manageable 295koz at Q1FY22. Duketon mine life is no longer a major concern. McPhillamys guidance is now more conservative.

“RRL is a relatively low-cost, long-life, diversified gold miner with a strong operating track record and upcoming potential catalysts in the McPhillamys decision and April-2022 R&R update. Yet, RRL now trades at a substantial discount.”

Regis Resources share price today:

Rio expands Paterson footprint with farm-in deal

Rio Tinto (ASX:RIO) lit up the market with the Winu copper-gold discovery a few years ago, made under deep cover in WA’s Paterson Province in the East Pilbara.

The global mining giant has since done a bit of work on ground outside the discovery, which is expected to become a mine around 2025.

Having previously inked a deal to explorer with Carawine Resources (ASX:CWX) at its Baton and Red Dog prospects, Rio has inked a new deal worth up to $10 million to take a look at West Wits Mining’s (ASX:WWI) Mt Cecelia project.

Rio will pay $150,000 up front and complete at least 800m of diamond and/or RC drilling at Mt Cecelia by the end of 2022 to start the process and can earn a 51% interest in the ground by tipping $4m into exploration within four years.

For $250,000, Rio then has the option to sole fund another $6m of exploration expenditure within three year to take an 80% stake.

West Wits MD Jac van Heerden said good electromagnetic survey results had piqued the major’s interest.

“The strength of the electromagnetic survey results for the Mt Cecelia Project has been highlighted by Rio Tinto, a global Tier-1 mining company, committing significant expenditure to advance exploration and drilling in 2022,” he said.

Rio was one of the few large cap miners in the green as commodity prices fell overnight amid news around Chinese property developer Evergrande’s default, rising 0.63%.

Iluka Resources (ASX:ILU), which launched the environmental approval process for its Eneabba rare earths refinery 300km north of Perth, was up over 7% as the Materials index – comprised mainly of large and mid cap resources stocks – dropped 0.25% as of 3.30pm AEDT.