Resolute Mining Limited

 

RSG Details
 
Q4FY19 Gold Production at 105,293oz, up 2,092oz on q-o-q basis:Resolute Mining Limited (ASX: RSG) operates in exploration and development of gold. The company has four mines namely Syama mine, Mako mine, Ravenswood mine and Bibiani mine. On 03 January 2020, the company reported forward selling of an additional 22,800 ounces of gold at an average price of US$1,553 per ounce, which will be executed through monthly deliveries of 3,800 ounces between July 2020 and December 2020.
 

RSG’s Portfolio (Source: Company Reports)
 
Q4FY19 Operational Update for the Period ended 31 December 2019: RSG declared its quarterly production results wherein, the company reported Gold production of 105,293oz, up 2,092oz on q-o-q basis.The Syama mine reported Gold production at 46,945oz, which includes 33,049oz from the oxide circuit and 13,896oz from the sulphide circuit. The business reported a cash balance of $181 million, followed by a total debt of $561 million as at 31 December 2019. During the quarter, the company reported completion of stage 1 of the Ravenswood Expansion Project.

For FY19, the company reported total production of 384,731oz, which denotes a variance of ~4% as compared to the annual production guidance of 400,000oz. RSG reported an unscheduled material loss of production from the Syama sulphide circuit, which was balanced by the outperformance of the Syama oxide circuit, and strong performance from the Mako Gold Mine and Ravenswood Gold Mine.
 
Valuation Methodology: EV/EBITDA Multiple Approach 

Enterprise Value to EBITDA Based Valuation (Source: Thomson Reuters)
 
Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: The stock of RSG is quoting at $1.260 with a market capitalization of $1.11 billion. The stock is trading at the lower band of its 52-week trading range of $0.965 to $2.120. The stock has delivered a negative return of 13.07% and 10.87% in the last three months and six months, respectively.

RSG intends to build the world’s first fully automated underground mine at Syama, which is likely to deliver a low-cost, large scale operation. The Mako Gold Mine produces high-quality, low-cost Gold with an average production of ~140,000 ounces of Gold annually. Considering, the aforesaid facts, we have valued the stock using one relative valuation method, i.e., EV to EBITDA multiple and arrived at a target price of higher single digit (in % terms). Looking at the current trading levels, price movements and improved Gold production, we recommend a ‘Buy’ rating on the stock at the current market price of $1.260, up 2.439% on account of production update as on 08 January 2020.

 
RSG Daily Technical Chart (Source: Thomson Reuters)

 
Saracen Mineral Holdings Limited

 

SAR Details

Completion of Retail Entitlement Offer:  Saracen Mineral Holdings Limited (ASX: SAR) is engaged in gold mining, processing & sales as well as mineral exploration. The market capitalisation of the company stood at $3.88 bn as on 8^th January 2020. The company recently announced that Mitsubishi UFJ Financial Group, Inc ceased to be a substantial holder in the company on 27^th December 2019. The company notified about the results of the retail component of its 1 for 5.75 accelerated non-renounceable entitlement offer. SAR received applications for entitlements under the retail entitlement offer amounting to around $37.37 million from eligible shareholders. The following picture provides an idea of group production and AISC for the September 2019 quarter:


Group production and AISC (Source: Company Reports)

What to Expect: The company is expecting production in the range of 350,000oz to 370,000oz at an AISC in the ambit of $1,025 to $1,075/oz. With respect to Carosue Dam Operations, gold production in FY20 would be mainly sourced from the Karari/Dervish underground mines and potentially the Deep South underground mine with the balance coming from third party ore purchase agreements as well as various ore stockpiles.

Valuation Methodology:P/E Multiple Approach

P/E Based Valuation (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, NTM-Next Twelve Months
 
Stock Recommendation: Net margin of the company stood at 16.6% in FY19 as compared to the industry median of 11.7%. This reflects that the company has better capabilities to convert its top-line into the bottom-line against the peer group. Return on equity of the company stood at 21.2% in FY19 in comparison to the industry median of 12.4%, demonstrating better returns to shareholders. Current ratio of the company stood at 2.43x in FY19 against the industry median of 1.75x. This implies that the company is in a decent position to address its short-term obligations. We have valued the stock using P/E based relative valuation approach and for the purpose, we have taken the peer group - Northern Star Resources Ltd (ASX: NST), Independence Group NL (ASX: IGO), Evolution Mining Ltd (ASX: EVN), etc. As a result, we have arrived at a target price offering an upside of lower double-digit (in percentage terms). Thus, in the light of decent liquidity position, better returns to shareholders, favorable outlook and valuations, we give a “Buy” recommendation on the stock at the current market price of $3.640 per share, up 3.409% on 08 January 2020.

 
SAR Daily Technical Chart (Source: Thomson Reuters)

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