We have taken a look at the hedge book positions of key ASX-listed producers to estimate what proportion of production is hedged and to what degree it discounts their gold revenues against an assumed spot price of A$2,700/oz. We have estimated the hedging impact for the current financial period (2HFY20) and for FY21. We have taken the hedge positions as at end December 2019 and most recent guided production. If none was available for FY21, we have assumed FY20 production.

In a rising gold price environment investors are looking to gain gold price exposure through gold equities. Clearly gold price exposure is reduced if the producer has hedged a portion of production, so it is good to know which companies offer the greatest (and the least) effective gold price exposure.

Bell Potter Precious Metals Coverage

Regis Resources Ltd (RRL)
Market Cap: $2,648m
Price: $5.21/sh
Target Price: $5.72/sh
Recommendation: Buy
RRL is one of our top picks among the ASX-listed gold producers due to its strong balance sheet, low costs, capital efficient growth and high shareholder returns. Furthermore, we view RRL’s 100% owned organic growth options as a strategic advantage vs peers and the McPhillamys development project in NSW as undervalued by the market.
Gold Road Resources Ltd (GOR)
Market Cap: $1,544m
Price: $1.76/sh
Target Price: $1.55/sh
Recommendation: Hold
Gruyere’s production ramp-up is virtually complete. Recent in-fill and extension drilling below the previous pit outline has seen the Gruyere JV upgrade the Measured and Indicated Resource component by 29% after mining depletion and lift total Gruyere Resources to 6.6Moz at a gold price of A$1,850/oz ahead of an updated Reserve later in the year. GOR’s 2020 guidance for its share of Gruyere production is 125-142.5koz at an average AISC of A$1,100-A$1,200/oz. GOR 100% owned regional exploration continues in its $26m 2020 exploration budget.
Dacian Gold Ltd (DCN)
Market Cap: $242m
Price: $0.44/sh
Target Price: –
Recommendation: Under review
Its A$200m, 2.5Mtpa Mount Morgans Gold Project declared commercial production on January 1, 2019 originally targeting production of +200kozpa at AISC of ~A$1,000/oz. Poor Reserve reconciliations have led to multiple Resource and Reserve downgrades and mine plan revisions. A major recapitalisation (~$98m) has completed to repair the balance sheet. Production is expected to decline from ~140kozpa in FY20 to 100-110kozpa in FY22. Resources have been cut from 3.5Moz @ 2.0g/t Au to 2.1Moz @ 2.0g/t Au and Reserves from 1.4Moz @ 1.6g/t Au to 0.75Moz @ 1.4g/t Au.
Westgold Resources Ltd (WGX)
Market Cap: $941m
Price: $2.35/sh
Target Price: $2.65/sh
Recommendation: Buy
Production recently began from sub-level caving at Big Bell, which will ramp-up over the course of 2020, marking the completion of WGX’s four year mine re-development and refurbishment program. The company is now generating growing free cash flow from its sole focus on the three Murchison mining operations following the spin out and ASX-listing of its NT polymetallic assets at the start of 2020.
Pantoro Limited (PNR)
Market Cap: $176m
Price: $0.15/sh
Target Price: $0.17/sh
Recommendation: Buy
Following a difficult CY19 during which its Nicolsons operation was mining constrained and underperformed, we continue to look for production improvements in coming quarters to drive a valuation uplift. The recent acquisition of a 50% managing interest in the Norseman Gold Project (NGP) adds a second high grade project that is well suited to PNR’s skill-set. Exploration results and development milestones including a Resource and Reserve update and completion of a Feasibility Study are the key catalysts in coming quarters.
Breaker Resources NL (BRB)
Market Cap: $60m
Price: $0.26/sh
Target Price: $0.71/sh
Recommendation: Buy (Spec)
Is continuing to advance its 100% owned Lake Roe Gold Project, located 100km east of Kalgoorlie, 60km southsoutheast of the operating 3.5Moz Carosue Dam gold mine. In September 2019 an updated Resource of 23.2Mt @ 1.3g/t Au for 981koz contained gold was announced, including 803koz @ 1.4g/t Au in the Indicated category and a high grade core of 673koz @ 2.2g/t Au. While Resource growth has been slower than expected we remain of the view that Lake Roe is a compelling greenfields gold discovery with potential for either standalone development or as a bolt-on acquisition.
Authored by
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.
Disclosures:
Pantoro Limited (PNR):
Disclosure: Bell Potter Securities acted as Lead Manager to Pantoro Limited’s (PNR) $43m equity raise of May 2019 and received fees for that service.
Breaker Resources (BRB):
Disclosure: Bell Potter Securities acted as Lead Manager to Breaker Resources (BRB) $6.4m equity raise of May 2019 and received fees for that service.
DeGrey Mining (DEG):
Disclosure: Bell Potter Securities acted as Joint Lead Manager to DeGrey Mining’s (DEG) $31.2m equity placement in April 2020 and received fees for that service.
David Coates holds long positions in shares in EVN, NST, OGC, RRL, SBM, RSG, PNR WGX, and SLR.