Regency Mines: Growth Of A Major Nickel Resource

We focus on the announcement of the maiden nickel resource at Mambare and the June 2012 resource update, which we believe have gone largely unnoticed by the market. These were expected to be significant value creators and we now look to the commissioning of the Direct Nickel (DNi) pilot plant to trigger a re-rating of the share price and prove the commercial advantage of nickel laterite production using the DNi process.


Mambare – significant Ni resource
The June 2012 announcement of the 162.5 Mt. Nickel resource grading 0.94% with 1.53Mt of contained nickel should have had more influence on the Regency Mines (RGM.L) share price than was realised. When we consider our approximation of the potential resource upside, there is clear room for valuation growth if the company is able to delineate even only part of our rough estimate of 2.4bnt at a grade of 0.94% with 23Mt of contained nickel.

Other assets strengthen valuation case
Away from Mambare. RGM continues to make progress with its other Australian and PNG assets, including the recently-identified graphite targets. Until recently these have taken a back seat to Mambare, but we now expect progress here to pick up as the Mambare drill programme is complete for the near term. More recently, we have seen
the company take an option to buy Sudanese agromineral assets. The due diligence on this deal will run until November and could lead to the addition of more prospective land to the company’s portfolio.

Valuation: Trading below NAV
Regency is currently trading below our low-end scenario valuation (1.2p/share), which calculates the net asset value (NAV) from the current market value for its listed investments summed with the book value of the exploration assets. This of course clearly ascribes as little as no value to the Mambare resource, the potential cost benefit of the DNi technology or the potential upside from the company’s other assets. Our headline valuation taken from our median case valuation scenario is 3.6p/share and includes the current Mambare resource at 2.5p/share based on an updated peer group.

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