Resolute Mining Limited

RSG Details

1HFY21 Result Highlights: Resolute Mining Limited (ASX: RSG) is a gold mining firm that operates multiple long-life, high-margin assets, including the Syama Gold Mine in Mali and the Mako Gold mine in Senegal.

• Decline in Production: RSG reported 163,118oz of gold production in 1HFY21 versus 217,946oz in 1HFY20 due to lower oxide production at Syama mine and the open pit cutback at Mako mine.
• Lower Revenue: RSG posted US$261.3 million revenue in 1HFY21 versus US$305.3 million in 1HFY20. The gold sales stood at 151,503oz at US$1,723/oz of the average gold price realised in 1HFY21.
• Decline in Bottom Line: RSG incurred a net loss after tax of US$219.8 million in 1HFY21 versus US$36.29 million net profit after tax in 1HFY20.
• Repaid Debt: RSG repaid US$29.7 million debt comprising of US$20.0 million of debt repayment on Revolving Credit Facility voluntarily in advance in 1HFY21. The net debt reduced from US$230.4 million in 1HFY20 to US$219.8 million in 1HFY21.
• New Appointments: RSG appointed new Board members and leading executives in essential CEO, COO and CFO positions during 1HFY21.
• Sale Completed: On 19 August 2021, RSG completed the divestment of the Bibiani Gold Mine, Ghana, to Asante Gold Corporation for US$90 million cash.
• Liquidity: RSG held US$88.8 million cash and bullion as of 30 June 2021.

Net Cash Inflows from Operating Activities from 1HFY20-1HFY21; (Analysis by Kalkine Group)

Key Risks:

• COVID-19 Uncertainties: The COVID-19 pandemic can potentially disrupt the company’s operations as it could cause temporary suspension of mining activities.
• Forex Risk: RSG conducts operations in South Africa which exposes the firm to forex headwinds.

Outlook: RSG expects the FY21 gold production between 315,000oz to 340,000oz with AISC/oz in the range of US$1,290-US$1,365/oz, including corporate overheads.

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 negative return of 22.68% in the past three months and a negative return of 27.55% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.415 - $1.150. The stock has been valued using Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). The company can trade at a slight discount than its peers’ average, considering its lower production, revenue, and net loss after tax in 1HFY21 and the risks associated with COVID-19, regulatory changes, volatility in gold prices and production. For the purpose of valuation, peers like Perenti Global Limited (ASX: PRN), St Barbara Limited (ASX: SBM), Regis Resources Limited (ASX: RRL) and others have been taken. Considering the current trading levels, positive net cashflows from operating activities, valuation, and the early debt repayment of $20 million, we give a ‘Buy’ rating on the stock at the current market price of $0.460, down by ~1.076% as on 1 September 2021.

RSG Daily Technical Chart, Data Source: REFINITIV 

Poseidon Nickel Limited

POS Details

Close of SPP: Poseidon Nickel Limited (ASX: POS) is a nickel sulphide exploration and development firm that owns the Windarra, Black Swan, and the Lake Johnston Nickel projects. On 25 August 2021, POS closed the heavily oversubscribed SPP (Share Purchase Plan) with the receipt of ~$13.5 million applications, more than the targeted $3 million capital. The Board has decided to accept $6 million in applications as per the terms of the SPP and decided to issue ~54.5 million new shares. On 1 September 2021, POS issued and allotted 54.54 million ordinary fully paid shares to shareholders at $0.11 per share as declared under the SPP.

Assays from the Golden Swan Resource Drilling: The company announced the assay results from the Golden Swan Resource drilling program on 31 August 2021. POS reported good grades and widths from the final assays. The company has started measuring the initial resource and expects to complete estimation in late September 2021.

Q4FY21 Highlights:

• POS started the Resource Definition drilling program at the Golden Swan in late April 2021. POS completed a 465 metres Golden Swan drill drive at the Golden Swan mineralised zone. The drilling is advancing well with the return of assay results and high-grade nickel intersections.
• Black Swan Scoping Study: POS completed a study in July 2021 to restart the Black Swan processing plant. The company evaluated two processing capacities - 1.1mtpa for the lower grade ores via the Black Swan Plant and 150ktpa for high-grade ores via its Silver Swan Plant.
• Windarra Tailings Project: POS completed a Definitive Feasibility Study (DFS) in Q4FY21 and published the results, subsequently reflecting strong project economics.
• Termination of State Agreement: During Q4FY21, POS continued to advance on the termination of the Windarra State Agreement. POS and the State expected to sign the termination documents in August 2021. POS expects the repealing of the State Agreement to occur before the end of the next quarter. After the existing State Agreement termination, the Windarra Tailings Project will operate under the WA Mining Act.
• Liquidity Position: POS held $7.9 million cash as of 30 June 2021, down from $15.4 million as of 31 March 2021.

Current Ratio from 1HFY20-1HFY21; (Analysis by Kalkine Group)

Key Risks:

• Exploration Related Risks: The company faces the risk of gold exploration and mining at its projects.  
• Nickel Price Changes: POS faces the nickel price changes impacting the top and bottom line of operations.

Outlook:

• The company is advancing well with the Golden Swan Drilling Resource program ahead of schedule and budget and expected to estimate the initial resource in late September 2021.
• POS continues to drill on the Southern Terrace, exploring for more Golden Swan style high-grade mineralised zones.
• POS has commenced the Silver Swan Reserve Upgrade drill program to increase the nickel mining stock at Black Swan and drill testing for exploration and extensions.

Stock Recommendation: The stock of POS gave a positive return of 85.71% in the past nine months and a positive return of 124.13% in the past year. The stock is currently trading closer to its 52-weeks’ high level of $0.160. On a TTM basis, the stock of POS will be trading at a price to book value of 6.0x, higher than the industry (Metals & Mining) median of 2.7x, and thus seems overvalued. Considering the current trading levels, significant returns in the past nine months and the past year, valuation on a TTM basis, we suggest investors Book Profit and give a ‘Sell’ rating on the stock at the current market price of $0.130, as on 1 September 2021, 12:59 PM, (GMT+10), Sydney, Eastern Australia.

POS 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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