Regis Resources (RRL)

Analyst: Macquarie Private Wealth

Recommendation: Neutral (previously outperform)

Price target: $3.60 (previously $4.40)

Wednesday’s close: $3.47

Reason: Garden Well not making the grade

Comments: Regis' September production report highlighted the ongoing below-reserve grade reconciliation issues at Garden Well. During the quarter, the Garden Well mined output underperformed the reserve model by 24%. This was predominantly driven by 30% lower grade offset marginally by 8% higher tonnes. In light of this, Regis has conducted tighter spaced drilling, which highlighted the same quantum of gold in-situ but in 14% more tonnes at a 9% lower grade – in our view indicating that the grade profile is unlikely to revert to the currently published reserve of around 1.3 grams per tonne gold in the near term. As such, increased plant throughput will remain the determinant of maintaining previous production guidance and market expectations. Regis has provided Garden Well production guidance for the coming quarters: 40,000-45,000oz December 2013 quarter (Macquarie previous estimate 50,000oz, new estimate 45,000oz), 48,000-53,000oz March and June 2014 quarters, (Macquarie previous estimate 50,000oz, new estimate 49,000oz).

Our forecasts are based on the combined Erlistoun/Garden Well reserve grade of 1.34gpt gold; as such, to maintain guidance implies higher throughput (around 6 million tonnes per annum), lower grade (around 1.2gpt) and higher operating costs. While we continue to like Regis for its strong balance sheet and cash generation, we see a downward resetting of production expectations, predominantly from Garden Well, as driving softness in the current share price in the medium term. We would look to re-enter the stock once the risk of the Rosemont stage 2 development has been completed in the first half of 2014.

Independence Group (IGO)

Analyst: Simon Tonkin, Patersons Securities

Recommendation: Hold

Price target: $3.52 (previously $3.72)

Wednesday’s close: $3.85

Reason: Tropicana to hit its straps in December quarter

Comments: Independence Group (IGO) reported a solid September quarter of production from Long and Jaguar, with both operations outperforming annualised guidance. At Tropicana, the first gold pour was slightly later in the September quarter than anticipated, with guidance now estimated at the lower end of the 120,000-160,000oz range for CY2013. In October, the process feed was changed to fresh (from oxide) to test commissioning of the high-pressure grinding roll (HPGR). Encouragingly, aircore drilling at Phoenix West (16km north of Tropicana) returned a significant intercept of 9m at 3.1gpt gold. Long continued to perform well, with 2991t of nickel ore mined at cash cost of $3.54/lb payable. (Patersons estimate 2363t at $4.20/lb payable). This was well above annualised guidance of 9000-10,000t of nickel at cash costs of $4.30 to $4.70/lb. IGO will be drill testing Moran, McLeay, Long North targets in the December quarter, which could yield further extensions to resources. Jaguar recorded a solid quarter of production, which was ahead of our estimates due to higher throughput (117,000t versus 110,000t) and lower costs (38c/lb versus 45c/lb). A premature failure of the girth gear on the SAG mill is expected to result in 14 days of lost production in the December quarter. IGO generated $23.7 million in operating cash flow for the quarter, with circa $4.9 million in free cashflow. As expected, IGO drew down $47 million of its financing facility to cover its share of Tropicana JV, which includes working capital. We have incorporated production and cost adjustments and our updated forward $A/$US exchange rate forecasts and our target price decreases 9% from $3.72 to $3.52/share.