A fairly dramatic day yesterday on market for shares in Perth-based gold miner Regis Resources (RRL) after the company revealed asset impairments that could be as much as $280 million.
The shares slumped more than 6% in reaction to the news, before rebounding to be in positive territory, before fading at the close to be down nearly half a per cent at $1.80.
The recovery seems to have been after the company made it clear that the write-downs were consistent with production guidance issued in May when the company detailed continuing mining and production problems at its Duketon mining operations after the flooding in February, which has cut ore and gold production and will continue to do so in 2015, as well as weaker gold prices.
The company said in yesterday’s statement that a pre-tax impairment charge in the range of $230 million to $280 million will probably be announced at its financial results in September.
The impairment charge relates to open pit pre-strip mining, deferred waste mining and pre-production costs at its Garden Well and Rosemont assets amid falls in the gold price.
“Whilst no final decision has been made, the board believes it is likely that an impairment charge in the range of $230 million to $280 million will result,” Regis said in the statement.
RRL 1Y – Regis faces $280 million impairment
Regis also reported quarterly gold production to June 30 of 65,747 ounces at a cash cost of $1010 per ounce. Total gold production for the year was 270,759 ounces.
"Production and costs were significantly compromised by restricted operations resulting from impacts and remediation of flooded Garden Well and Rosemont pits,” Regis said.
It said mining operations during the quarter were restricted to the southern stage-four part of the open pit following flooding.
Cash costs of operation for the quarter were $1299 per ounce due to disruptions of flood remediation, restricted mining areas and processing plant restrictions, the company said.
Regis reported an unaudited profit of $79 million for the year to June 30 which does not include tax nor the expected impairment charge.
Of the expected impairment charges, Regis said one "is expected in the order of $150 – $190 million (pre-tax) in relation to the Garden Well and Rosemont operations".
"The bulk of this amount relates to open pit pre-strip mining, deferred waste mining and preproduction costs. The impairment of these assets is consistent with the outlook for these operations as provided in the 2015 guidance announced to ASX on 23 May 2014," the company said in yesterday’s statement.
"An impairment charge is expected in the order of $60 – $65 million (pre-tax) in relation to the McPhillamys Gold Project in New South Wales. Regis completed the acquisition of the McPhillamys project in October 2012 by the issue of 35.7 million shares in Regis to the vendors. This saw the exploration asset at the project carried at a value of $157 million.
"The board has reviewed its strategy for the project given a fall in the A$ gold price of in excess of 20% since acquisition. This review incorporated accumulated knowledge of geological, operating and infrastructure parameters, including an assessment of the current progress towards securing a long term source of process water.
"Whilst this review suggests that the project remains viable at the current gold price (if infrastructure requirement issues can be solved) the board has decided that the potential return on investment does not meet its hurdle rate at the current time. Accordingly the Company does not anticipate progressing to a feasibility study process in the near term.
"The Company will however continue to undertake cost effective work on the project, with a view to being in the best possible position to expedite development if and when circumstances permit. The board believes that the significant gold resource at McPhillamys will deliver real value for shareholders at some time in the future and remains an important project in the Company’s portfolio"
"An impairment charge is expected in the order of $20 – $25 million (pre-tax) in relation to regional exploration expenditure at the Duketon project. This expenditure relates largely to ongoing greenfields exploration programmes completed over a number of years. The impairment reflects the Company’s current strategy of focussing the bulk of the exploration effort at Duketon on bringing projects with known resources in to the mine plan for treatment at either the Garden Well or Moolart Well processing plants," the company said yesterday.
Directors said in the statement that the expected impairment charge "will have no cash flow consequences and no effect on any covenants in the Company’s debt facility.
"The Company’s focus continues to be improving the operating performance at the Duketon gold business with a view to maximising profitability and cash flow generation," Regis said.
