Resolute Mining Limited

RSG Details

Repaid US$20 million Debt: Resolute Mining Limited (ASX: RSG) is a gold mining and exploration firm with operations in New South Wales and Western Australia. The market capitalisation of RSG stood at ~$596.10 million as of June 28, 2021. On 18 June 2021, RSG announced that Baker Steel Capital Managers LLP became a substantial holder in RSG with 5.003% voting rights and 55.231 million ordinary shares on 15 June 2021.  On 9 June 2021, RSG announced the early first debt repayment of US $20 million. With this voluntary repayment, RSG has decreased its outstanding revolving credit facility (the RCF) to US$130 million and reduces its borrowing costs. RSG has decided to repay the entire term loan via its operating cash flows.

March Quarter (Q1FY21) Financial Highlights: RSG reported 85,668 oz of gold production in Q1FY21, down by 5% QoQ. Its sulphide gold production from the Syama mine for Q1FY21 stood at 37,217oz, the highest since 2016. The Syama mine oxide production was up by 44% on a QoQ basis. The production was at an All-In Sustaining Cost (AISC) of $1,239/oz for Q1FY21, in sync with the FY21 guidance.

RSG reduced its net debt from $230.4 million in Q4FY20 to US$222.8 million in Q1FY21. It has updated the mine life with an extended production profile and considerable upside exploration potential. It reported a cash balance of US$87.2 million as of 31 March 2021.

Revenue and Net Income Trend from FY17-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces change in gold prices, demand, and production levels. It is exposed to the exploration risks and COVID-19 uncertainties causing disruptions in the business operations.  

Outlook: RSG has confirmed its estimation for gold production in the range of 350,000-375,000 oz at an AISC ranging from US$1,200-$1,275/oz, including the corporate overheads for FY21. RSG will focus on operational stability, cash generation and debt reduction in FY21. RSG is undertaking a mineral resource estimation study from Tabakoroni to Porphyry Splay pit. In addition, it will continue to identify mineralisation extensions to the underground project. For the Bibiani gold mine in Ghana, RSG will consider all options for its sale or development and update accordingly.

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 positive return of 13.18%in the past three months and a negative return of 33.11% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.415- $1.497. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). However, we believe that the company can trade at some discount than its peer median, considering its lower production, sales, and higher AISC in Q1FY21, and the risks associated with the pandemic and change in the gold prices. For the purpose, we have taken peers like Regis Resources Limited (ASX: RRL), Red 5 Limited (ASX:  Red 5), and others. Considering the low trading levels, continued drilling planned at Tabakoroni, focus on debt repayment and cash operational steadiness, valuation, and associated risks of change in gold prices and production, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.515, down by 4.630% on 28 June 2021.

RSG Daily Technical Chart, Data Source: REFINITIV

Latin Resources Limited

LRS Details

Positive Results from the Rock Chip Samples: Latin Resources Limited (ASX: LRS) is involved in the exploration and mining projects in Brazil, Argentina, Australia, and Peru. As of 28 June 2021, the market capitalisation of LRS stood at ~$68.46 million. On 25 June 2021, LRS announced the issue of 16.5 million fully paid ordinary shares and 4.125 million options under the LRSOC code and expiring on 31 December 2022 at $0.051 per share. The securities and options issued were subject to the completion of JORC milestones and acquisition of Electric Metals. On 24 June 2021, LRS announced positive results from the 57 rock chip samples analysed from the Peep O’Day Prospect at the NSW Yarara joint venture project. It has affirmed the gold mineralisation deposits in the prospect zone. 

March Quarter (Q1FY21) Results: During Q1FY21, LRS conducted many drilling campaigns for 4,431 metres and 197 holes. The returned drilling samples affirmed a blanket of white kaolinite. It also confirmed the presence of high-grade halloysite mineralisation spanning the drilled area. At the Burdette-Manildra gold project (NSW), the company has received an exploration licence application (ELA6145) in the Lachlan Ford Belt (LFB). In addition, it invested in ELA6024, a new tenement adjacent to the Manildra in Q1FY21. 

LRS terminated a convertible funding contract with Lind Partners New York (Lind) and paid the debt entirely. LRS held a cash and cash equivalent balance of $4 million as of 31 March 2021 and a 27% share in Westminster Resources Limited (TSX-V: WMR), equivalent to an investment of $1.25 million. 

Net Income Trend from FY17-FY20; (Analysis by Kalkine Group)

Key Risks: The company faces exploration and mining-related risks on its projects. It faces the ongoing risk of the COVID-19 restrictions and uncertainty. In addition, it is exposed to regulatory changes, funding issues to conduct exploration and develop projects.

Outlook: LRS is undertaking a surface soil sampling to plan further on-ground exploration at the Yarara project. The company will also run a detailed drone-magnetic survey to identify target zones for mineralisation at the project. At the Noombenberry Halloysite Project, LRS has planned to conduct a preliminary 400m x 400metres campaign extending north of the existing drill holes in the Q2 2021. It had planned for a JORC resource estimation at the Noombenberry project to be completed in May 2021. On its Catamarca concessions in Argentina, the company expects to start the fieldwork in 1H 2021.

Stock Recommendation: The stock of LRS gave a positive return of ~77.77% in the past six months and a positive return of 140% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level of $0.006-$0.100. Considering the low trading levels, no debt reported in Q3FY21, drilling and JORC resource completion planned at the Noombenberry project in 2021, and associated risks of exploration, joint venture issues, and regulatory delays, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.048, down by 4.001% on 28 June 2021.

LRS 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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