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Why this ASX gold stock is shining brighter than its larger peers today

Brendon Lau
ASX gold mining shares

There’s no better day for an ASX gold producer to report a drop in earnings. The profit drop hasn’t hurt the Ramelius Resources Limited (ASX: RMS) share price today as it surged higher along with the rest of its peers.

The Ramelius share price jumped 11% to $1.26 as we head towards the market close as losses on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index deepened to 1.7%.

Investors are dumping risk assets due to the escalating trade war between US and China and flocking into the safety of gold.

ASX gold stocks dominate the top performers on the ASX 200 index with the Resolute Mining Limited (ASX: RSG) share price, Saracen Mineral Holdings Limited (ASX: SAR) share price and Northern Star Resources Ltd (ASX: NST) share price taking the top three spots, respectively, as they recorded gains of between 9% and 10% each.

Still glittering despite profit plunge

Smaller producer Ramelius won’t be outshone even as the miner posted a 29% plunge in full year net profit to $21.8 million on the back of a 3.2% increase in revenue to $341.8 million.

The higher realised gold price was offset by falling production and an increase in costs that’s due largely to lower grades at its Vivien project.

But there were a few bright spots in the results that helped lift sentiment towards the gold miner. First off, Ramelius declared a 1 cent per share fully franked dividend, which represents a 27% payout ratio. This is the first regular dividend the miner has paid since 2007.

Secondly, Ramelius reported a rebound in its second half performance with net profit surging 357% to $17.1 million compared to the same six-month period in the last financial year.

Growing cashflow and strong balance sheet

Management also added that margins are rising despite a small tick-up in all-in sustaining costs (ASIC) due to good cost control and the record high Australian dollar gold price.

This means the miner has the balance sheet strength to contemplate further acquisitions to grow scale after it bedded down the Marda and Explaurum transactions.

The group reported a 15.2% increase in operating cash flow for FY19 while net group cash inflow hit $27.6 million compared to a net cash outflow of $3.5 million in the year before.

Ramelius won’t be the only gold stock that will do well in this tense macroeconomic environment as investors faith in fiat currencies are going to be tested, but it is more leveraged than the bigger players to the rising gold price.

The big turnaround in its second half performance and the resumption of its dividend payments bodes well for the stock.

It’s Australian-based operations also means it will get an additional free earnings kick if the Australian dollar weakens further against the US currency – and that seems likely, in my view.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with him on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019