Decarbonization Pressures And Reserve Depletion Will Shrink Gold Margins

Key Takeaways

• Ramelius is highly exposed to declining gold demand and price volatility, with limited diversification leaving future earnings unstable.
  
• Escalating costs, reserve depletion, and tougher ESG funding threaten the company's long-term profitability and ability to sustain growth.
  
• Successful integration, strong operational performance, aggressive exploration investment, planned capacity expansion, and a robust balance sheet position the company for sustained growth and resilience.

Catalysts

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

• As the global economy gradually moves toward stabilization and digital asset adoption increases, the traditional safe-haven appeal of gold is at risk of fading. This structural shift could place sustained downward pressure on gold prices, eroding Ramelius Resources' top-line revenue over time despite continued gold production efforts.
  
• Ongoing global decarbonization and increasing ESG scrutiny are likely to deprioritize capital flows into carbon-intensive industries like gold mining, making funding future expansions or acquisitions more challenging and restricting Ramelius' ability to pursue long-term growth initiatives, ultimately curbing future earnings potential.
  
• Ramelius faces a rising risk of reserve depletion and escalating production costs as it exhausts higher-grade, easily accessible ore bodies. As operations move into deeper, lower-grade or more technically challenging deposits, all-in sustaining costs per ounce are set to increase, compressing net margins and sharply reducing long-term profitability.
  
• The company's near-total dependence on gold as its revenue stream leaves it highly exposed to any protracted downturn in gold prices, whether from shifts in investment demand or competing asset classes. This lack of diversification renders Ramelius vulnerable to sharp cyclical swings, which may severely weaken future earnings stability and predictability.
  
• Failure to consistently discover and replace mineral reserves-despite heavy near-term exploration investment-presents a significant risk of declining production volumes in later years. If exploration at new hubs or beneath existing pits falls short, the company's ability to sustain revenue and support its current valuation will be fundamentally undermined.

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 8.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 33.2% today to 39.3% in 3 years time.
• The bearish analysts expect earnings to reach A$525.6 million (and earnings per share of A$0.45) by about August 2028, up from A$345.7 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 11.9x on those 2028 earnings, down from 15.6x today. This future PE is lower than the current PE for the AU Metals and Mining industry at 14.5x.
• Analysts expect the number of shares outstanding to grow by 0.87% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.99%, as per the Simply Wall St company report.

Ramelius Resources Future Earnings Per Share Growth

Risks

• The successful integration of Spartan Resources, leading to a combined company with a significantly larger production base, market capitalization, and enhanced exploration capabilities, could drive higher long-term revenues and potentially improve market valuation.
  
• Record-setting operational performance, including consistent achievement of production and cost guidance for five consecutive years, strong free cash flows, and industry-leading low all-in sustaining costs, indicates robust profitability and long-term earnings resilience.
  
• Aggressive investment in exploration, with increased guidance of $80 million to $100 million for FY26 and a focus on high-grade targets at Mt Magnet, Penny, Dalgaranga, and other assets, raises the likelihood of reserve replacement and mine-life extension, which would support both future revenues and company valuation.
  
• Planned expansion of mining and processing capacity, especially potential Mt Magnet mill expansions and options to restart or upgrade Dalgaranga, suggests rising production volumes over the next five years, which could drive top-line revenue growth and support net margins through economies of scale.
  
• A strong balance sheet, with over $800 million in cash and gold even after acquisition payments, enables self-funding of growth projects and provides financial flexibility to weather commodity price cycles, thereby supporting stable to increasing long-term earnings and reducing financial risk.

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$3.95, 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$1.3 billion, earnings will come to A$525.6 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of A$2.82, the bearish analyst price target of A$2.6 is 8.5% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.