Company Overview: Resolute Mining Limited is engaged in gold mining, and prospecting and exploration for minerals. The Company operates through three segments: Ravenswood, Syama and Bibiani. It operates over two mines, the Syama gold mine in Africa and the Ravenswood gold mine in Australia. The Syama gold mine is approximately 30 kilometers from the Cote d'Ivoire border and over 300 kilometers southeast of the capital Bamako. The Ravenswood gold mine is approximately 95 kilometers south-west of Townsville and over 60 kilometers east of Charters Towers in north-east Queensland. Its key development focus is in Mali. It has a portfolio of open pit oxide resources located in various satellite pits to the north and south of the main Syama pit. In Ghana, it owns over 90% underground Bibiani Gold Project. It is exploring over 10,800 square kilometers of prospective tenure across two continents and holds Birimian age greenstone tenure in West Africa, with tenements across Mali, Ghana and Cote d'Ivoire.


RSG Details

While it may seem that this gold miner is having a softer FY18 than expected, the outlook for Resolute Mining Limited (ASX: RSG) is still panning out to be strong with various portfolio adjustments and additions, and prospective drilling updates. RSG is adopting a multi-pronged strategy as it continues to add to the portfolio with acquisition of stakes in Orca Gold while it had, last year, done the same for Oklo Resources. The exposure to African focused explorers seems to be under its investment plans in view of potential for value creation. Then, a prospective new oxide mineralised zone at Tabakoroni Nord with strong grades and widths revealed for future underground mining, which is a good sign. The group will commence mining oxide at Tabakoroni around mid-CY18 and expects an updated resource later in 2018. Group’s free cash flow position is decent while benefits are awaited from Syama and Ravenswood during FY19 and FY20.

Full automation of RSG’s Syama gold mine: Resolute Mining signed a strategic framework deal with Swedish equipment and tool manufacturer, Sandvik Mining for fully automating the company’s Syama gold mine in Mali. Sandvik is being roped in to develop underground operation around a fully automated production system. It will primarily help delivering some tested technologies including AutoMine and OptiMine systems for analysis, process optimization and automation, as part of the agreement. For this, a full fleet of Sandvik TH663 trucks and Sandvik LH514E electrical loaders are to be provided. The fully automated underground mine has been slated for commissioning in late 2018.


Syama Gold Mine tenements (Source: Company Reports)

Acquired 15% Interest in Orca Gold through strategic investment: The group has subscribed for over 32.4 million new shares in Orca Gold Inc (Orca) through a share placement priced at circa $0.675 per share. A subscription agreement between Resolute and Orca reflects an investment by RSG of over A$22.5 million for a 15% interest in the fully diluted capital of Orca. The Orca placement would be in two equal tranches with consideration split between cash and Resolute shares. Orca is a first mover in the emerging gold industry in Sudan with a current Mineral Resource of 3.8 million ounces of gold. Orca's principal asset is a 70% ownership interest in the Block 14 Gold Project (Block 14), which is located in northern Sudan (near the border with Egypt). Block 14 Gold is one of the leading gold development projects in Africa. The investment in Orca represents a strategic stake in an exciting development opportunity and expands RSG’s potential project pipeline. Through this move, RSG and Orca will collaborate on opportunities in Sudan, Côte D’Ivoire, and elsewhere in Africa.

Syama Underground mine development on track: The Syama Underground mine development is on track for first sublevel cave ore production which would start during December 2018. During the March 2018 quarter, the underground development started on the fourth production level (the 1055 level) while underground development ore production was ongoing from the first and second production levels (the 1130 and 1105 levels). The second primary ventilation raise bore from the 1290 to the 1140 level was finished during the quarter. The Autonomous Decline has reached the 1035 level, and the Main Decline has reached the 1055 level. Both fan chambers are being prepared for construction of the primary fans, and development of the 1240 and 1105 main pump chambers was finished in preparation for pump station construction. Development rates progress is in line with expectations. Advance slowed in the March 2018 quarter as work focused on establishing a number of items of key underground infrastructure. The incline is due to break through into the box cut in the September 2018 quarter. Development ore would continue to augment the stockpiled sulphide material and satellite open pit sulphide sources.


Syama’s Total Underground Development (Source: Company reports)

Exceptional Results Confirm Major Gold Discovery at Tabakoroni: The reverse circulation and diamond drilling at the Tabakoroni Project located 35km south of the Syama Gold Mine in Mali has returned significant high grade gold intersections in numerous holes identifying new zones of mineralisation. Syama is a world class orebody that has enormous untapped potential. The results from Tabakoroni confirm the project as a major gold deposit. Further, new near-surface oxide mineralized zone is identified at Tabakoroni Nord. The wide and high grade gold intercepts from drilling at the northern section of the Tabakoroni Main Zone has identified two high grade sulphide shoots that indicate potential for a future underground mine. Open pit mining operations are scheduled to commence at Tabakoroni in the coming months based on the previously defined Mineral Resource of 10.2 million tonnes @ 2.4 grams per tonne for 778,000 ounces of gold. Moreover, multi-rig drilling exploration program is expected to grow existing oxide resources at the new Tabakoroni Nord and develop the potential for a high-grade underground mine at the Tabakoroni Main Zone. Additionally, it is expected that an updated and expanded mineral resource estimate for Tabakoroni, including a maiden underground mineral resource, will be available later in calendar year 2018.

March 2018 Quarter Performance: In the March quarter 2018, production of 66,685 ounces of gold compared to 66,581 ounces in December 2017 was reported. All-In Sustaining Cost was of A$1,332 per ounce / US$1,051 per ounce as compared to A$1,392 / US$1,069 in December 2017 quarter. Moreover, the company got an average gold price of A$1,714/ US$1,349 per ounce from gold sales of 70,159 ounces. The cash, bullion and listed investments were of A$153 million / US$121 million as at 31 March 2018. Additionally,  gold in circuit inventory as at 31 March 2018 was of 92,169 ounces worth A$160 million / US$120 million.


Gold Forward Sales Contracts (Source: Company Reports)

Loncor Investment: The group in the March 2018 quarter announced finishing a binding agreement to secure a 27% interest in Loncor Resources Inc. However, the agreement is subject to due diligence and is expected to complete by 30 June 2018. Loncor has gold prospects and resources in north-eastern Democratic Republic of Congo (DRC). These are provided with exclusive gold rights to an area covering 2,087 km located along the Ngayu Archaean greenstone belt in the Orientale province. RSG is establishing a strategic position in north-eastern DRC by acquiring interests in successful explorers with large holdings. The investment in Loncor complements the existing interest in Kilo Goldmines Limited. Kilo has a large landholding in north-eastern DRC which, similar to Loncor, is split between 100% owned prospects and projects under joint venture with Randgold. Overall, RSG is confident that the DRC Archean greenstone belts will host future gold mines in addition to Randgold’s giant Kibali deposit.

Strategic Investment in Mako Gold Limited: In the March quarter, RSG made an investment of A$2.0M in an Initial Public Offering (IPO) to acquire a 15.8% interest in Mako Gold Limited. Mako is an Australian incorporated exploration company exploring for gold deposits in the Birimian greenstone belts of West Africa. On completion of its IPO, Mako was listed on the ASX in April 2018. Mako has rights to permits containing three mineral projects located in Côte d’Ivoire and Burkina Faso. Mako is led by Mr Peter Ledwidge (Managing Director) and Ms Ann Ledwidge (General Manager Exploration). Both are experienced geologists who previously were involved in acquiring and exploring projects for Orbis Gold Ltd.

Outlook: For FY18, RSG projects the gold production of 280,000oz at AISC projected to be of A$1,360/oz (US$1,020/oz). The company expects capital expenditure for growth projects to be of A$162M (US$122M) and made the exploration budget of A$38M (US$29M) for FY18. RSG had originally projected for FY18 gold production and cost guidance of 300,000oz at AISC of A$1,280/oz (US$960/oz). However, mining operations were limited within the Syama main open pit and this led the sulphide operation process a greater quantity of lower quality stockpiled material than what was expected earlier. This has resulted in reduced production.

Stock Recommendation: The shares of RSG have risen over 34.74% in the last six months as on June 12, 2018 and are trading at a low P/E as compared to its peers. While gold prices and lower production forecast did impact the return on equity as at December 2017 to sit at 4.9%, down from 11.4% as at December 2016, however, it is still close to the industry median of 5.9% while RSG is gearing up to improve the returns in the coming periods. Given the long term potential and positive valuation metrics, we give a “Buy” recommendation on the stock at the current price of $ 1.275.
 

RSG Daily Chart (Source: Thomson Reuters)

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