Decarbonisation And Rising Rates Will Erode Golds Safe-Haven Appeal

Key Takeaways

• Heavy reliance on Western Australian projects and ore grade depletion may lead to increased operational risk and declining profit margins.
  
• Structural shifts in gold demand and rising regulatory and compliance costs threaten long-term revenue growth and earnings quality.
  
• Strong operational efficiency, successful asset integration, and financial resilience position the company for stable growth, robust margins, and attractive long-term shareholder returns.

Catalysts

Engages in the exploration, evaluation, mine development and operation, production, and sale of gold.

• Ongoing global decarbonisation efforts and the increasing shift toward renewable energy may further erode gold's traditional status as a safe-haven asset, which could drive a structural decline in long-term gold prices and consequently diminish Ramelius Resources' revenue potential.
  
• Sustained rises in global interest rates threaten to reduce gold's attractiveness relative to yield-generating alternatives; if such trends persist, realized gold prices and overall revenue generated from future production could face prolonged pressure.
  
• The company's operations continue to exhibit significant project concentration risk, as they remain heavily dependent on Western Australian assets, making Ramelius particularly vulnerable to regional regulatory changes or unforeseen operational disruptions, both of which could create material volatility in earnings.
  
• The company highlighted high grades at Mt Magnet and Cue as key performance drivers in FY '25, but ongoing ore grade depletion across its key deposits could result in higher extraction costs and declining production yields in subsequent years, directly compressing net margins and decreasing profit sustainability.
  
• Mining sector regulatory scrutiny and environmental compliance costs are increasing, and as Ramelius pursues growth through acquisitions and resource integration (such as Dalgaranga and Spartan), the risk of higher capital and operating expenditures will continue to rise, threatening to erode future free cash flow and reduce long-term earnings quality.

Ramelius Resources Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Ramelius Resources compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Ramelius Resources's revenue will grow by 7.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 39.4% today to 6.2% in 3 years time.
• The bearish analysts expect earnings to reach A$92.5 million (and earnings per share of A$0.05) by about August 2028, down from A$474.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 66.5x on those 2028 earnings, up from 12.4x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 13.9x.
• Analysts expect the number of shares outstanding to grow by 0.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

Ramelius Resources Future Earnings Per Share Growth

Risks

• Ramelius Resources has established a strong platform for growth with the successful integration of new assets, a robust exploration program, and a clear pathway to increasing annual gold production to 500,000 ounces by 2030, which supports the potential for higher future revenues and sustained earnings growth.
  
• The company's industry-leading all-in sustaining costs, combined with ongoing efforts to improve operational efficiency and adopt renewable power sources, position Ramelius to retain wide net profit margins even in a volatile cost environment.
  
• The acquisition of Spartan and integration of Dalgaranga provide opportunities for synergy realization, diversification of production sources, and extension of mine life, all of which can enhance revenue stability and support long-term free cash flow generation.
  
• Ramelius maintains a sector-leading balance sheet with nearly $1 billion in liquidity, significant cash reserves, and undrawn financing capacity, which provides resilience against industry downturns and allows the company to fund growth projects or pursue further opportunistic acquisitions to increase future earnings.
  
• The company's consistent record of meeting production and cost guidance, paying increasing dividends, and maintaining strong cash generation per ounce sold demonstrates a track record of disciplined management and operational execution, which could strengthen investor confidence and contribute to higher share prices through improved net margins and capital returns.

Valuation

• The assumed bearish price target for Ramelius Resources is A$2.6, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Ramelius Resources's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$3.85, and the most bearish reporting a price target of just A$2.6.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be A$1.5 billion, earnings will come to A$92.5 million, and it would be trading on a PE ratio of 66.5x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of A$3.07, the bearish analyst price target of A$2.6 is 18.1% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.