Resolute Mining Limited

RSG Details

Change in Substantial Holding: 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. On 30 November 2021, one of the company’s substantial shareholders, L1 Capital Pty Ltd, reduced its holding in the company from 8.34% to 6.48%.

September 2021 Quarter Highlights: For the quarter ending 30 September 2021 (Q3FY21), the company reported total production of 76,336 ounces (oz) in line with the prior quarter. Some other key highlights of the quarter are as follows:

• Completed Sale of Bibiani Gold Mine: Over the quarter, the company completed the sale of Bibiani Gold Mine for US$90 million in cash with an initial US$30 million received and two further instalments of US$30 million expected in February and August 2022.
• Increase in Gold Sales: For Q3FY21, RSG reported total gold sales of 89,326oz, up 31% on the previous quarter.
• Rise in Average Realised Price: For the quarter, the average realised price stood at US$1,738/oz, slightly up by 1% on the previous quarter.
• 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.

Production Summary (Source: Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The company is also exposed to the risks related to the uncertainties surrounding the COVID-19 pandemic as it could impact the company’s operations and its results.
• Volatility in Gold Price: RSG is exposed to the risks related to the fluctuations in the gold price as it could impact its financials.

Outlook: In a recently held Macquarie Australia conference, the company highlighted that it is focused on maintaining disciplined capital management to simplify balance sheet and unlocking near mine exploration potential and value. For the full year FY21, the company expects its total production to be in the range of 315,000oz to 340,000oz with an AISC of between $1,290/oz to $1,365/oz.

Valuation Methodology: EV/EBITDA 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: Over the last three months, the stock has corrected by 23.36% and is currently trading lower than the 52-weeks’ average price level band of $0.335 -0.870. The stock has been valued using an Enterprise Value to EBITDA 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 the risks associated with the COVID-19 pandemic, labour movement, gold price volatility. For the purpose of valuation, few peers like Resolute Mining Ltd (ASX: RMS), Regis Resources Ltd (ASX: RRL), Westgold Resources Ltd (ASX: WGX), etc., have been considered. Considering the decent performance in September 2021 quarter, decrease in net debt, modest outlook, indicative upside in valuation, current trading level, and associated risks with the business, we give a ‘Speculative Buy’ rating on the stock at the closing price of $0.35 as on 6 December 2021.

RSG Daily Technical Chart, Data Source: REFINITIV  

Brightstar Resources Limited

BTR Details

Completed RC drilling Program at Cork Tree Well: Brightstar Resources Limited (ASX: BTR) is an emerging gold development company that operates three major development projects, namely - Cork Tree Well, Beta and Alpha. On 3^rd December 2021, the company announced that it has completed the RC drilling program at Cork Tree Well, and it also shared significant gold grade results from the drilling. Notably, the gold assays received so far have provided confidence that the Resource is robust and will convert to higher confidence JORC Resource categories.

Acquisition Of Comet Well: On 1 December 2021, BTR announced that it has completed the Binding Agreement for the acquisition of prospective exploration licences in Western Australia, E38/3500 and E38/3504 (Comet Well) from Milford Resources Pty Ltd (Milford).

September 2021 Quarter Highlights:  

• Operating Cash Outflow Update: For the September 2021 quarter (Q1FY22), the company reported total operating cash outflow of $738k, comprising $285k spent on exploration and evaluation activities, $15k on production activities, $112k on staff costs, $326k on administration and corporate costs.
• Cash Balance Update: As at 30 September 2021, the company had cash and cash equivalent of $272k, down from $1,010k as at 30 June 2021.
• Drilling Program Update: On 10 September 2021, the company commenced 12,000m drilling program at CTW, and as of the 30th September 2021, 24 holes had been completed for 3,430m.

Cash and Cash Equivalent Trend (Source: Analysis by Kalkine Group)

Key Risks: The ongoing COVID-19 pandemic has the potential to impact or delay the company’s exploration programs. Further, the company is also exposed to the risks related to the fluctuations in gold prices.

Outlook: The company is planning to recommend further drilling at Cork Tree Well to grow the existing Resource.  The company is in discussion with DMIRS to ascertain timelines and develop strategy for permitting requirements in line with Brightstar’s near-term production plans.

Technical Note: On the weekly chart, BTR price witnessed a breakout of the horizontal trend line resistance at AUD 0.040 level on October 11, 2021. Since the breakout, prices are sustaining above the horizontal trend line. Moreover, the leading indicator RSI (14-period) is trading at ~53.88 level, indicating bullish momentum. The prices are trading above the trend-following indicators 21-period SMA and 50-period SMA, which may act as crucial support levels. An important support level for the stock is placed at AUD 0.038 while the key resistance level is placed at AUD 0.055.

Stock Recommendation: Over the last one month, the stock has corrected by 24.99%. The stock is currently trading lower than the average 52-week price level band of $0.024 - $0.079. Considering the recently received significant gold grade results from the drilling at Cork Tree Well, the company’s ongoing focus on growing existing resource, ongoing exploration programs, current trading level, technical levels mentioned above, and key risks associated with the business we give a “Speculative Buy” rating on the stock at the closing price of $0.045, down by ~2.174%, as on 6 December 2021.

BTR weekly 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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