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

Resolute Mining Limited (ASX: RSG) is engaged in the mining, exploration, development, and production of gold properties in Africa and Australia. The company is also involved in the prospecting and exploration of minerals and has Syama Gold Mine in Mali, West Africa, as its key flagship project. The group lately reported a lower than expected September quarter performance, however, the new underground mine at Syama, new pit at Tabakoroni and beneficiation of low grade ore at Ravenswood speak for better future potential. Mainly, 1QFY19 witnessed production impact from maintenance, plant upgrades and weather adversities. The catalysts for growth however, come from infill and extensional drilling at Nafolo, Tabakoroni shaping well and extension of Syama’s long mine life. The group is expected to post updated resources for Tabakoroni and Nafolo in early 2019; and with higher production, and revenues and lower costs, EPS is expected to improve drastically in FY19 and FY20. The group also seems to have a comfortable working capital position.


RSG Portfolio (Source: Company Reports)

Added 30,000 ounces from Syama to gold hedge book: RSG has mined more than 8Moz from 9 gold mines in Australia & Africa. Meanwhile, RSG reported about forward sale of an additional 30k ounces of gold at an average price of US $ 1,250 per ounce, and this has been set with scheduled monthly deliveries of 5k ounces between the period of January 2019 and June 2019. Particularly, RSG has taken advantage of the strength of recent US $ gold price volatility for adding to its US $ gold hedge positions; and the company’s objective of this hedging is to secure US $ revenues from Syama Gold Mine in Mali during the ramp-up phase of the Syama Underground Mine. RSG has been able to establish the US $ gold price certainty at the levels indicated and the move has been significant as a prudent economic decision with the company under the ramp-up phase of the Syama Underground Mine. Syama basically provides exposure to US $ capital and operational expenditure; and thus the hedging program gives a level of certainty to RSG’s future cashflows and project returns. Further, the additional 30k ounces of forward sales extend the existing US $ hedge position established last year in September as monthly deliveries of 6k ounces at US $ 1,330 per ounce which now run to December 2018. As at 29 October 2018, RSG’s total gold hedge book including the new US $ gold hedges, now consist of 115,000 ounces of gold out to December 2019, which represents about 26% of its expected gold production over the period.


Financial Performance (Source: Company Reports and Thomson Reuters)

Decent rise in the company’s Reserves and Resources: Resolute Mining Limited has delivered significant rise in the company’s Annual Group Ore Reserve and Mineral Resource Statement as at 30 June 2018. The Global Ore Reserves rose by 17% to 5.9 million ounces (Moz) of gold and Global Mineral Resources (inclusive of Ore Reserves) rose by 35% to 16.5Moz. The company’s Ore Reserves rose on the back of successful exploration and an updated development plan at the Syama Gold Mine in Mali. The Syama Underground Probable Reserves increased to 3.0Moz of gold at 2.7g/t after the completion of a Definitive Feasibility Study Update, that had reduced the Life of Mine All-In Sustaining Cost to US$746/oz. Further, the Ore Reserves at Ravenswood have reduced by 50,000oz driven by the mining depletion and minor adjustments, while Ore Reserves at Bibiani remained unchanged from 30 June 2017. Moreover, Managed Mineral Resources increased due to the addition of 1.8Moz at Syama, including a maiden Inferred Mineral Resource at the Nafolo discovery. Bibiani’s Mineral Resources has increased by 40% to 2.5Moz on the previous estimate at 3.6g/t gold.

Developments & Activities during the September Quarter: During the September quarter, RSG has produced gold of 55,508oz at an AISC of A$1,560/oz (US$1,141/oz). The company has received average gold price of A$1,727/oz (US$1,262/oz) from total gold sales of 61,064oz. The company during the September quarter, had achieved the crucial Syama Underground Mine development milestone in the path towards full production with first stope ore production at 1130 level. The company is now preparing for the commencement of sub-level caving in December 2018, then will implement full automation as the company ramp-up to steady state production by June 2019. Further, in the September quarter, the company had made significant progress towards installing critical ventilation and pumping infrastructure which will support production until at least 2032. The production and cost performance during the September Quarter had reduced due to the scheduled biennial roaster shutdown at Syama. The company had successfully completed the Roaster maintenance over a 7-week period during the Quarter which resulted in significantly lower production from the Syama sulphide circuit than RSG would generally achieve. Syama had also experienced significantly higher than average rainfall during the Quarter, which was approximately 500mm above average year-to-date. This presented challenges from a materials handling perspective. Excess rainfall at Syama had limited the ability to process transitional ore through the sulphide circuit to supplement production during the roaster shutdown. Moreover, Ravenswood is also in the path of achieving crucial milestones in its transformational journey after the completion during the September Quarter of the essential tie-in of the new beneficiation plant. The work had resulted in reduced milling time, lower production and higher than normal costs on a quarterly basis. The mine’s beneficiation plant is now operational and initial results reflect the operations as per the expectations. Beneficiation is one of a number of innovations applied as part of the Ravenswood Expansion Project which will help Ravenswood deliver an average production of approximately 115kozpa at AISC of A$1,097 per ounce over a 14 year mine life which is expected to extend operations to at least 2032.

Business Development during the September Quarter: During the September Quarter, RSG has increased its interests in Oklo Resources Limited (by 0.54% to 10.29%), Manas Resources Limited (by 2.92% to 22.82%) and Mako Gold Limited (by 3.64% to 19.45%) through a combination of on-market purchases and share swaps. Resolute is actively monitoring their strategic investment portfolio, which is as per the company’s exploration budget and provides exposure to future exploration success.

Cash, Bullion, Listed Investments & Borrowings: As at 30 September 2018, cash, bullion and listed investments is of A$115m (US$86m). The company’s cash outflows comprised of A$100m in development expenditures, that is principally associated with the development of the Syama Underground Mine. Working capital movements were largely on the back of variation in the timing of payments to suppliers. Moreover, the company’s total borrowing facilities comprised of an unsecured bank overdraft held by Resolute’s Malian subsidiary, Société des Mines de Syama S.A. with the Bank of Mali, and a flexible US$100m revolving credit facility. This in-country Bank of Mali facility has been operational since starting of the Syama mine and is used for managing local Mali liquidity requirements. As at 30 September 2018, total borrowings of RSG were A$132m compared with A$38.7m at 30 June 2018.


Total Cash, Bullion and Listed Investments (Source: Company Reports)

Gold in Circuit at the end of September Quarter: As at 30 September 2018, RSG had an approximately recoverable gold in circuit inventory of 68,210oz with a market value of approximately A$112m (US$81m). The majority of the circuit stock includes the carbon enriched concentrates, stockpiled at Syama.

Dividend: RSG has declared a 2.0 cents per share dividend for FY18. The dividend payment will total A$14.8 million which equates to 3.3% of RSG’s FY18 sales revenue of A$446 million. This represents an increased payout as a proportion of sales of 0.6% compared to FY17.

FY 19 Outlook: RSG has reaffirmed the company’s FY19 production guidance of 300,000oz at an AISC at A$1,280/oz (US$960/oz). Further, at Syama, the access to the higher-grade sulphide ore will accelerate in the second half of FY19 and provide an immediate and significant improvement in the production.

Stock Recommendation: RSG stock has fallen 18.29% in three months as on October 30, 2018 and is trading at a reasonable P/E of 11.86x. The stock has support around $ 1.019 and resistance around $ 1.071. The performance of the September Quarter was broadly consistent with the company’s overall operating plan from a production and cost perspective as the company continued to progress a 3-year transformation journey at Syama and Ravenswood. RSG is building new long life low cost mines at both operations and the plans remain on track. At Syama, access to the higher-grade sulphide ore is expected to accelerate in the second half of FY19 and will provide an immediate and significant improvement in production. RSG has reaffirmed the full year guidance to be at 300,000 ounces of gold at an All-In Sustaining Cost of A$1,280 per ounce (US$960 per ounce). Moreover, RSG has entered the final stages of development and is commissioning at Syama, which is the world’s first customized fully automated underground gold mine. The achievement of first stope ore and production drilling in the first level of the sub-level cave were crucial steps on the company’s journey. The new Syama Underground Mine has a mine life to at least 2032 with life-of-mine AISC of US$746 per ounce. Once in production, Syama will be capable of delivering more than 300,000 ounces gold per annum and will support RSG’s growth pathway to a low cost 500,000 ounces producer. The group has reported lower return on equity and margins; however, retention ratio has more or less been maintained closer to industry median. Forward 24 months estimate reflect improvement in EPS and a low double digit upside in price given the developments at hand. Therefore, we give a “Buy” recommendation on the stock at the current price of $ 1.04.
 

RSG Daily Chart (Source: Thomson Reuters)

 
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