Ramelius Reports Record Margin But Stock Slips
Ramelius Resources (ASX:RMS) had a confusing day on the market yesterday. The Western Australian gold miner just delivered the most profitable quarter in its history, yet the share price closed 2.18% lower at A$3.59. For investors, the natural question is simple: if the business is doing this well, why isn’t the stock following? The answer comes down to investors looking past the good news and worrying about what might go wrong next. In our view, the market may be overreacting because the underlying business is in much better shape than the share price suggests.
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Ramelius Just Had Its Most Profitable Quarter Ever
The headline number is impressive. Ramelius made a record A$3,584 of profit on every ounce of gold it sold last quarter, equivalent to a 62% margin. To put that in plain terms, the company is now keeping 62 cents of every dollar it earns from selling gold, which is exceptional by any standard in the mining industry.
The reason is simple. Ramelius sold its gold for an average of A$5,795 per ounce during the quarter, up 12% on the previous three months. When prices climb that quickly, profits expand even faster. The company is now sitting on more than A$600 million in cash and gold, giving it serious firepower to fund growth and reward shareholders.
Speaking of rewards, management has spent A$110.2 million of their A$250 million buyback program in just one quarter, putting it 44% complete in record time. We believe this sends a clear message that the boardroom thinks the shares are worth more than what the market is currently paying.
The Cost Increase Sounds Worse Than It Actually Is
So what spooked investors? Ramelius lifted its full-year cost estimate higher than expected. On the surface, that looks like a problem. But once you break it down, most of the increase isn’t really a cost issue at all.
The biggest chunk comes from an accounting change at the Never Never mine, which started full production earlier than planned. That may sound technical, but the total amount of money being spent hasn’t actually changed; it’s just being recorded differently in the books. Another piece of the increase comes from higher royalty payments, which are only rising because gold prices are so strong, effectively a good problem to have.
Only a small portion of the cost bump is genuine pressure, mainly from rising fuel prices. We believe most investors haven’t paused long enough to separate the noise from the real story.
The Investor’s Takeaway
At A$3.59, Ramelius is trading well below its 52-week high of A$5.16, even though the underlying business is arguably in the best shape it’s ever been. Production should bounce back strongly next quarter as Never Never ramps up to contribute over 30% of output, and management is targeting a group production rate of over 500,000 ounces a year by FY30, a meaningful step up from current levels.
The biggest risk here isn’t Ramelius itself; it’s the gold price. With gold under pressure on inflation and rate hike concerns, any further weakness would quickly eat into those record margins. For investors who believe gold’s bull run still has room to go, the current weakness may be a genuine opportunity. More cautious investors may prefer to wait for next quarter’s production rebound before jumping in.
