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

Financial Performance for half year ended Dec 2018: Resolute Mining Limited (ASX: RSG), that has operations in Africa and Australia, is engaged in the mining, exploration, mine development, and production of gold and minerals. As at March 27, 2019, Resolute Mining Limited has a market capitalization of around $932.46 million. As of now, the group owns three gold mines, which are the Syama Gold Mines in Mali, the Ravenswood Gold Mine in Australia, and the Bibiani Gold Mine in Ghana. Meanwhile, in the six-month period ended December 2018, the company has reported 10% YoY rise in the revenues to ~A$223 million. The company has reported the net loss after tax of A$5.3 million from the profit of A$38 million in the same period of 2017. The company has posted the gross profit from operations of A$24 million in half-year ended December 2018 versus A$30 million in the same period of 2017.


1HFY19 Income Statement (Source: Company Reports)

The total gold production during the six-month period ended 31 December 2018 was 129,199 ounces (oz) versus the total gold production of 142,748oz during the same period of 2017. The company has achieved the current production at an All-In Sustaining Cost of A$1,449/oz compared to A$1,395/oz in the prior year same period. During the six months ended December 2018, the company sold 128,275oz of gold at an average gold price of A$1,734 per ounce compared to gold sales of 121,480oz at an average gold price of A$1,678 per ounce during the same period of 2017.

In a nutshell, we expect that the company is well-placed to achieve its long-term growth prospects and its decent financial position might also act as a tailwind. The company is also having a decent annual dividend yield of 1.63%. The company also stated that exploration drilling at Tabakoroni would continue throughout 2019 to fully define the resource envelope. Apart from these positives, the robust growth prospects coupled with a strong balance sheet might also act as key catalysts.

Decent Standing from Liquidity Levels: Resolute Mining’s current ratio stood at 1.57x at the end of December 2018 which can be considered at a decent level. As a result, the company is in a sound position to tap the growth prospects and the opportunities which might arise moving forward. We expect that its strong liquidity position would support it making deployments towards business initiatives which might help it achieving long-term growth.
 
Detailed Analysis of RSG’s Cash Flows: Resolute Mining’snet investing cash outflows amounted to A$181 million in the six months ended December 2018. Moreover, during the same period, the company had gold bullion on hand of 22,768 ounces that is of the total value of approximately A$40 million versus gold bullion on hand of 21,495oz which had a total value of A$36 million during the same period of previous year. As at 31 December 2018, the cash, bullion, and listed investments were of A$117 million versus A$196 million as at 31 December 2017. In the half-year ended December 2018, the company’s net financing cash inflows amounted to A$122 million while, in the 12 months ended June 2018, the net financing cash outflow amounted to $15 million.
 
Secured the Certainty of Revenue from Ravenswood Gold Mine Through Forward Sales Till 2020: On 31 January 2019, RSG had forward sold 30,000 ounces (oz) of gold, which was at an average price of US$1,335/oz. This is for the scheduled monthly deliveries of 5,000oz to be done between July 2019 and December 2019. Further, on 11th February 2019, RSG had forward sold 30,000oz of gold, which the company did at an average price of A$1,887/oz. This time it is in scheduled monthly deliveries of 5,000oz to be done between January 2020 and June 2020.

The company took an advantage of gold prices prevailing in the Australian dollar to create the gold hedge position in it till 2020. Through this, the company has secured the price to be received in 2020. As a result, the company got certainty about the revenue it can receive from RSG’s Ravenswood Gold Mine in Queensland, Australia. As on 11 February 2019, RSG’s total gold hedge book stood for 172,000 ounces to be done in monthly deliveries till June 2020, which means about 30% of RSG’s projected gold production during this period and forms less than 3% of RSG’s current gold Ore Reserves. Through hedging above the budgeted gold price, RSG is able to secure its future revenue and cash flow.

Strong Operational Performance During Half-Year Ended December 2018: In the six months ended December 2018, RSG achieved the production at the Syama Gold Mine in Mali (Syama) production of 93,309oz at an AISC of A$1,244/oz (US$901/oz). The highlight for half-year ended December 2018 was successful commencement of long hole open stoping and sublevel caving at the Syama underground mine. In the same period, the company achieved the production from the Syama sulphide circuit of 37,256oz at an AISC of A$1,627/oz (US$1,178/oz). The company also achieved the production of 56,053oz from Oxide operations at an AISC of A$992/oz (US$718/oz).

The sourcing of Oxide production was initially from stockpiled ore from northern satellite pits (A21, Alpha, Beta and BA01), located between 4km and 8km north of Syama processing plant. Tabakoroni is projected to provide 100% of oxide mill feed at Syama in 2019.In the month of November 2018, RSG made an announcement about the signing of Joint Development Agreement with Ignite Energy Projects Pty Ltd in order to develop new 50 megawatts (MW) independent hybrid power plant at Syama which would be combining solar, battery, and heavy fuel oil technologies. This innovative project will be the world’s largest fully integrated hybrid power plant meant for a standalone mining operation. The new power plant is expected to replace the existing historic 28MW diesel fired power station at Syama and is anticipated to be fully operational by the end of 2020.

Maintains Ore Reserves and Mineral Resources: On a fully attributable basis, recognising RSG’s direct share as at 31 December 2018, the company has Ore Reserves of 5.1Moz and Mineral Resources of 14.8Moz. As at 31 December 2018, the company has maintained the Managed Ore Reserves, on a 100% basis, at 5.8Moz after accounting the small increases in Ore Reserves at Ravenswood and Bibiani as well as the mining and stockpile depletion at Syama and Ravenswood of 129,200oz.


Managed Ore Reserves (Source: Company Reports)

Capital Management: During six months ended December 2018, Resolute Mining entered into US$100 million revolving loan facility agreement with Investec Australia Limited. As part of the process of syndication of the syndicated facility agreement, the facility limit has been expanded to US$150 million. The expanded facility got signed on December 21, 2018 and all the conditions precedent were satisfied as of 31 December 2018. The expansion to US$150 million was done with the participation of Investec, BNP Paribas, Citibank N.A., and Nedbank Limited. The Facility has an initial 3-year term, with rates, fees and terms extremely flexible and highly competitive. Resolute Mining can draw on the facility as required with respect to any corporate financing purposes, and credit limit and tenor remains capable for the further extension.

Future Outlook: RSG has stated that, for the year to 30 June 2019, the production is expected to be of 300,000oz at an AISC of A$1,280/oz (US$960/oz). Moreover, the mined ore tonnes from Mt Wright are projected to continue at similar levels through CY19. The improved throughput and crusher availability are anticipated to result in higher gold production and lower AISC in the March 2018 Quarter. The company has received all key approvals for the Ravenswood Expansion Project (REP), and the mining and processing of the Buck Reef West open pit and an associated upgrade to processing capacity are scheduled to commence in 2020. Additionally, the dividend policy of the company of giving a minimum of 2% of sales as a dividend will continue based on a 31 December financial year going forward. On this basis, a dividend for the year ended 31 December 2019, if declared, will be given in March 2020. The company is having a robust balance sheet along with the exceptional growth prospects. During the six-month period, the company has continued deployments towards future growth. Resolute Mining expects to continue as profitable dividend paying gold miner. The management is very optimistic about Resolute’s value as they ramp-up the Syama Underground to full production, increase the profile with respect to global capital markets via listing on London Stock Exchange, and deliver on the growth agenda. The company is focused towards implementation of the fully automated mining system and delivering the full production rate of 2.4 million tonnes per annum by June 2019.
 

Quarterly Production through FY19 (to 30 June) (Source: Company Reports)

Stock Recommendation: Over the past few months, the stock of Resolute Mining has delivered decent returns which attract market players’ attention. In the span of the previous 6 months, the stock posted 14.42% return and, in the past one month, it posted an 8.37% return. From the valuations perspective, the company’s stock seems to be slightly undervalued as its P/B ratio stood at 1.3x as compared to the industry median (Metals & Mining) of 1.4x which reflects that the stock is offering a decent buy opportunity. Moreover, the company is expected to be supported by its robust financial position and decent liquidity levels. The sound financial standing might help the company in completing the investment phase designed to deliver long life, low cost mines at Syama, Ravenswood, and Bibiani. Also, RSG plans to list the company on the London Stock Exchange in the first half of 2019, which will significantly increase the shareholder’s participation & the company’s value. For this, the company will be synchronizing the reporting period with the African subsidiary companies’ accounts, and the reporting period will be shifted from a 30 June year end to a 31 December year end. Meanwhile, during the first half of 2018, the company had progressed for completing the Syama Underground Mine in Mali plan to achieve full production in 2019, and is investing continuously for the Expansion of Ravenswood Project in Queensland and is preparing for Bibiani Gold Mine’s re-commissioning in Ghana. The company at Syama plans to build the world’s largest fully integrated hybrid power plant. From Syama, RSG has achieved significantly better production and cost performance for the December quarter 2018 versus September quarter 2018. Based on the foregoing, we give a “Buy” recommendation on the stock at the current market price of A$1.225 per share (down 0.407% on 27 March 2019).

 
RSG Daily Chart (Source: Thomson Reuters)

 
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