Resolute Mining Limited

RSG Details

Highlights of Q2FY21 (June Quarter): Resolute Mining Limited (ASX: RSG) is engaged in the exploration, development, and operation of gold mines in Africa and Australia. RSG operates Bibiani mine in Ghana, Mako in Senegal, and Syama mine in Mali.

• A Decline in Production: The company reported 77,450 ounces (oz) of gold production, down by 10% QoQ, due to lower mined grades at the Syama operations, extended mill maintenance and temporary power supply disruptions.
• Increase in AISC: In 2QFY21, RSG’s total operating costs came in line with Q1FY21. The decline in gold production led to an increase in the All-In Sustaining Costs (AISC) unit cost to $1,319/oz in Q2FY21 versus $1,239/oz in Q1FY21.
• A Decline in Net Debt: RSG repaid $20.0 million debt voluntarily earlier than slated, thereby reducing the borrowing costs. The net debt was reduced from $222.8 million in Q1FY21 to $219.8 million compared to Q2FY21.
• New Leadership Appointed: RSG announced the appointment of new key management executives and Board members. The company appointed a new CEO, COO, and CFO.
• New Construction: RSG completed a new Hybrid Power Station construction and a bulk fuel storage facility at the Syama project in Q2FY21. The station is estimated to generate cost savings of up to 40% and reduce carbon emissions by ~20%.      

Revenue & NPAT from FY18-FY20; (Analysis by Kalkine Group)

Key Risks:

• Change in Gold Prices: RSG faces the risk of change in gold prices, which can impact the company’s financial performance.
• COVID-19 Uncertainties: The company is exposed to COVID-19 disruptions such as stoppage of mine operations, reducing staff capacity, and other necessary protocols due to the pandemic.
  

Outlook:

• For FY21, the total production has been lowered to 315,000 - 340,000 oz of gold versus 350,000 - 375,000 oz given previously.
• The AISC has been revised between $1,200-$1,275/oz in FY21 instead of $1,290-$1,365/oz declared previously.
• For FY21, RSG aims to achieve cash generation, operational consistency, and a robust balance sheet.
  
  

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 14.73% in the past three months and a positive return of 22.69% in the past six months. The stock is currently trading lower than the 52-weeks’average price level of $0.415 - $1.415. 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). We believe that the company can trade at a slight discount than its peer average, considering the lower production and sales of gold, higher ASIC in Q2FY21, key risks associated with the lower processed grades and ore availability in the quarter, forex headwinds, and COVID-19 disruptions. For this purpose, we have taken peers like Red 5 Limited (ASX: RED), Aeris Resources Limited (ASX: AIS), Sandfire Resources Limited (ASX: SFR). Considering the current trading levels, reduced net debt, in sync production from the Mako mine, record level of mining and processing of sulphide and oxide from the Syama mine, expected electricity cost savings of up to 40% from the Syama Hybrid Power Station, expanded Bulk Fuel Storage Facility, valuation, and associated risks of COVID-19, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.545, up by ~0.925% as of 2 August 2021.

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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