Company Overview: Resolute Mining Limited (ASX: RSG) is a gold mining company that operates multiple long-life, high-margin assets, including the Syama Gold Mine in Mali and the Mako Gold Mine in Senegal. The company also owns Bibiani Gold Mine in Ghana.  Mako is a high-quality, open-pit gold mine that RSG has owned and operated since August 2019. The company is currently listed on the Australian Securities Exchange (ASX) as well as on London Stock Exchange (LSE).

RSG Details

Q3FY21 Performance Highlights:

• Production Update: For the quarter ending 30 September 2021, the company reported total production of 76,336 ounces, slightly down by 1% on the previous quarter.
• Rise in Gold Sales: Gold Sales for the quarter stood at 89,326oz, up 31% on the previous quarter. Average realised price for the quarter stood at US$1,738/oz, slightly up by 1% on the previous quarter.
• Completed Sale of Bibiani Gold Mine: One of the important highlights for the quarter was the completion of the sale of Bibiani Gold Mine for US$90 million in cash with an initial $30 million received and two further instalments of US$30 million each is expected in February and August 2022.
• Decline in Net Debt: Over the quarter, the company’s net debt reduced by US$6.9 million to US$212.9 million as at 30 September 2021. Notably, the company repaid US$53.6 million of debt over the quarter.

1HFY21 Results Highlights:

• Decline in Gold Production: For H1FY21, RSG reported total production of 163,118 ounces of gold, down from 217,946 ounces produced in 1HFY20, mainly due to lower oxide production at the Syama mine and the open-pit cutback at the Mako mine.
• Higher Realised Prices: RSG recorded gold sales of 151,503oz in 1HFY21 versus 212,668oz in 1HFY20. The average realised price of US$1,723/oz in 1HFY21 was higher than US$1,427/oz in 1HFY20.
• Improved Operating Cashflows: Cash inflow from operating activities stood at US$39.98 million in H1FY21 as compared to cash outflow of US$11.2 million in the pcp.

Key Metrics: For H1FY21, RSG reported a gross margin of 14.9%, up from 9% in H1FY20. EBITDA margin for H1FY21 stood at 24.7%, down from 34.7% in H1FY20. Current ratio for H1FY21 stood at 1.60x, slightly down from 1.63x in H1FY20. Debt to equity ratio for H1FY21 stood at 0.51x, up from 0.43x in H1FY20.

Gross Margin Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 53.93% of the total shareholding, while the top four constitute the maximum holding. ICM Limited and L1 Capital Pty Ltd. are holding a maximum stake in the company at 12.58% and 8.34%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Risks:

• Fluctuations in Gold Price: The company is exposed to the risks related to the fluctuations in the gold price as it could impact its financials.
• Foreign Currency Risk: The company is exposed to the risk related to fluctuations in foreign currency exchange rates as it could impact the company’s financial results.

Key Appointments: In the recent update, RSG has appointed Mr. Simon Jackson as a Non-Executive Director with effect from October 29, 2021. Mr. Jackson will replace Ms. Yasmin Broughton, who resigned from the board on October 28, 2021.

Outlook: Looking ahead, the company is focused on continuing disciplined capital management to simplify the balance sheet. For FY21, the company expects the production to be in the range of 315,000oz to 340,000oz with AISC between US$1,290/oz to US$1,365/oz. At its Syama Sulphide operations, the company is focused on implementing key systems and processes to improve consistency, production and cost performance. RSG is of the view that there is significant exploration potential at Syama and Mako. It expects the Tabakoroni Underground to commence upon oxide production completion in 2024.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of RSG gave a negative return of ~17.62% in the past three months and a negative return of ~20.64% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.385 -0.875. The stock has been valued using an Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers, considering its lower production, and the risks associated with the pandemic, labour movement, and forex changes. For the purpose of valuation, few peers like Ramelius Resources Ltd (ASX: RMS), Dacian Gold Ltd (ASX: DCN), St Barbara Ltd (ASX: SBM), etc., and others have been considered. Considering the current trading levels, decrease in net debt, higher net operating cash flows, valuation, and associated risks with the business, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.425, as on 9 November 2021, 10:30 AM, (GMT+10), Sydney, Eastern Australia.

RSG Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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