Company Overview: Resolute Mining Limited (ASX: RSG) is an explorer, developer, and operator of gold mines in Australia and Africa. In the last thirty years, RSG has mined over 8 million ounces of gold from 10 mines in Africa and Australia. The company currently owns four gold mines: the Syama Gold Mine in Mali, the Mako Gold Mine in Senegal, the Bibiani Gold Mine in Ghana and the Ravenswood Gold Mine in Australia. The company has established a portfolio of strategic investments in highly prospective, well managed, African-focused gold exploration companies to provide a pipeline of future development opportunities.


RSG Details
 
 
 
Well-Positioned to Deliver on the Full Potential of its Assets Base: Resolute Mining Limited (ASX: RSG) is a gold exploration and mining company with over 30 years of mining experience. The company currently owns four gold mines which include: the Syama Gold Mine in Mali, the Mako Gold Mine in Senegal, the Bibiani Gold Mine in Ghana and the Ravenswood Gold Mine in Australia. The company is focused on delivering enduring value to its shareholders and to the communities in which it operates, RSG is committed to the ambition of being a multi-mine, low-cost, African-focused, gold producer. Over the last 30 years of operations, RSG has developed operational expertise which provides a strong foundation for the company’s future success. From FY16-FY19, the company’s revenue increased at a CAGR of 5.78%. 


Revenue Trend (Source: Thomson Reuters)

Going forward, the company is focused on accelerating its drilling activities to increase resource base in pursuit of mine life extension opportunities. RSG is also undertaking active exploration drilling campaigns across its African portfolio with a focus on Mali, Senegal, Côte d’Ivoire and Guinea. RSG’s one of the key focus areas in FY20 is to optimise mine plan to support lower cost, longer life production. In FY20, the company is well-positioned to deliver on the full potential of its asset base and generate long-term value for  shareholders.

FY19 Results Highlights: In FY19 or the year ended 31 December 2019, the company’s operations at Syama, Ravenswood and Mako produced 384,731 ounces of gold at an All-In Sustaining Cost of A$1,577/oz. For the full year, RSG reported group revenue of $770 million, underlying EBITDA of $208 million and an underlying NPAT of $21 million. In the second half of FY19, the company saw increased revenue underpinned by increased production following the acquisition of Mako and a stronger gold price environment. 

In FY19, the company achieved several strategic objectives including a new Stock Exchange listing in London and significant portfolio optimisation through acquisitions and divestments. During the year, the company successfully added the Mako Gold Mine to its portfolio, commissioned its Syama Underground Mine and achieved exploration success across its portfolio with particularly exceptional results at Tabakoroni. The addition of Mako complements the company’s existing portfolio of large-scale, long-life mines and contributes immediate production and margin growth.


FY19 Results Summary (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 55.10%. ICM Limited and Van Eck Associates Corporation hold the maximum interest in the company at 13.53% and 8.74%, respectively.


Top 10 Shareholders (Source: Thomson Reuters)
 
Sale of Ravenswood Gold Mine: On 31 March 2020, the company announced the successful completion of the sale of the Ravenswood Gold Mine in Queensland, providing immediate liquidity and exposure to the future success of the Ravenswood Expansion Project while transferring the capital expenditure funding requirements and development obligation to a highly credentialed and experienced consortium with a strong relevant track record in successful project development. This sale is in-line with the company’s objective of ensuring a new long-life future for Ravenswood while maximising value for RSG’s shareholders. It will also allow the company to focus on its African portfolio and the abundant opportunities for further growth and value creation.

March 2020 Quarter Update: In the March 2020 quarter, the company delivered a solid production result while achieving important debt refinancing objectives and completing the Ravenswood asset sale. During the quarter, the company produced 110,763oz of gold at an AISC of US$1,007/oz. Syama and Mako collectively pour 99,717oz at an AISC of US$918/oz. Over the quarter, the company sold 102,008oz of gold at an average realised price of US$1,407/oz. Consistent and reliable performance over the quarter generated strong free cash flow for the company. As at 31 March 2020, the company had cash and bullion of US$96 million.

On the exploration front, the company saw significant high-grade oxide gold intersections from drilling at Syama, supporting the potential to extend the life of Syama’s oxide operation. During the quarter, RSG commenced the construction of a new solar hybrid power station at Syama. The company also initiated a Pre-Feasibility Study (PFS) at Tabakoroni Underground Mine, focused on investigating various underground mining methods and reviewing suitable processing options. In March 2020 quarter, the company completed A$300 million senior debt refinancing and ~A$194 million equity raising. 


Operating Performance Snapshot (Source: Company Reports)

Covid-19 Update: In its latest release, RSG has assured that its Gold production has not been impacted by government-regulated COVID-19 restrictions and its mining and processing operations are continuing at the Syama Gold Mine and the Mako Gold Mine. At the Bibiani Gold Mine, the existing care and maintenance activities are continuing without interruption.

Risks: The ongoing Covid-19 situation poses unique risks and challenges to global mining companies operating in Africa. Although RSG has not yet been materially impacted by the Covid-19 situation, the pandemic still poses a significant risk to the company as challenges presented by COVID-19 continue to change on a daily basis. In response to Covid-19 situation, the company has implemented various measures to ensure that the impact of the pandemic is mitigated across all aspects of its operations. With its significant regional experience and robust foundations across its business, RSG is well placed to sustain its operations. 

A Quick look at Key Margins: In FY19, the company’s Gross margin and EBITDA margin stood at 9.2% and 10.7%, respectively. For the same period, the company reported an Asset turnover ratio of 0.42x. RSG’s Asset to equity ratio stood at 2.27x, higher than the industry median of 1.86x. For FY19, the company reported current ratio of 0.79x.


Key Ratios (Source: Thomson Reuters)

What to expect: Going forward, RSG is focused on accelerating its drilling activities to increase resource base in pursuit of mine life extension opportunities. At Mako, the company is progressing with accelerated drilling to grow the resource base and mine life. Further, RSG intends to operate Syama Underground Mine at full capacity. RSG’s one of the key focus areas in FY20 is to optimise mine plan to support lower cost and longer life production. 

Guidance: In FY20, the company is expecting to produce 430,000oz of gold at an AISC of US$980/ounce. From Syama Gold Mine, the company expects to produce 260,000oz of gold at an AISC of US$960/oz and for the Mako Gold Mine, it is targeting 160,000oz of gold at an AISC of US$800/oz.


Key Valuation Metrics (Source: Company Reports)

Valuation Methodology: Price to Earnings Multiple Based Relative Valuation (illustrative)

Price to Earnings Multiple Based Approach (Source: Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: RSG currently holds a decent financial position with surplus cash to be used for deleveraging. In FY19 and in the first quarter of FY20, the company has produced strong production results from its operating mines. In the last six months, the stock of RSG has declined by 23.85% on ASX and is currently trading towards its 52-week low of $0.605, offering a decent opportunity for accumulation. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and have arrived at a target price with lower double-digit upside (in % terms). For the purpose, we have taken peers like St Barbara Ltd (ASX: SBM), OceanaGold Corp (ASX: OGC), Regis Resources Ltd (ASX: RRL), etc. Considering the company’s decent production history, resilient performance amid Covid-19 pandemic, FY20 outlook and its current trading levels, we give a “buy” recommendation on the stock at the current market price of $0.935, down by 2.094% on 28 April 2020.


RSG Daily Technical Chart (Source: Thomson Reuters)

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