Company Overview: Resolute Mining Limited is engaged in gold mining, and prospecting and exploration for minerals. The Company operates through three segments: Ravenswood, Syama and Bibiani. It operates over two mines, the Syama gold mine in Africa and the Ravenswood gold mine in Australia. The Syama gold mine is approximately 30 kilometers from the Cote d'Ivoire border and over 300 kilometers southeast of the capital Bamako. The Ravenswood gold mine is approximately 95 kilometers south-west of Townsville and over 60 kilometers east of Charters Towers in north-east Queensland. Its key development focus is in Mali. It has a portfolio of open pit oxide resources located in various satellite pits to the north and south of the main Syama pit. In Ghana, it owns over 90% underground Bibiani Gold Project. It is exploring over 10,800 square kilometers of prospective tenure across two continents and holds Birimian age greenstone tenure in West Africa, with tenements across Mali, Ghana and Cote d'Ivoire.


RSG Details

New Gold Hedging Program to Cap Gold Price Volatility Risks: Resolute Mining Limited (ASX: RSG) has entered into forward selling for 72,000 ounces of gold at an average price of A$1,715 per ounce with monthly deliveries of 4,000 ounces between December 2017 and May 2019. The average gold price the group locked in for the forward sales contracts was A$1,715 per ounce which is a solid upside against their budgeted gold price of A$1,600 per ounce. The group intends to leverage this gold price to hedge for their Ravenswood Expansion Project. Given the volatility in the gold prices, the group intends to protect their project returns during the development phase of the 13-year mine life of the Ravenswood Expansion Project. They are in a transition phase at Ravenswood as underground mining at Mt Wright comes to an end and the operation returns to large scale open pit mining. The group has already earlier hedged further forward sales of 84,000 ounces at an average price of US$1,330 per ounce to support their Syama Underground Mine development program. Overall, the group’s hedged position accounts for over 30% of the potential gold production in the next 18 months. Management believes that the gold price is locked during the capital-intensive development phase offering a clarity in the group’s potential cash flows and project returns. The group’s present hedge book accounts for 30% of the forecasted gold production to May 2019 and less than 5% of Group Ore Reserves.
 
FY17 Performance: The group’s net profit after tax slipped to A$166 million during fiscal year of 2017 as compared to A$201 million in the prior corresponding period (pcp). This weakness is because of the drop in gold and silver sales to A$541 million as compared to A$555 million in the prior corresponding period. The group reported a return on equity of 49% while their diluted earnings per share reached 18.61 cents. Their net cash flows from operations fell to A$186 million as compared to A$193 million in the prior corresponding period. The net investing cash outflows rose to A$128 million during the period as compared to A$43 million in pcp. On the other hand, the group reported net financing cash inflows of A$136 million as compared to a cash outflow of A$79 million over pcp. RSG’s Syama in Mali and Ravenswood in Queensland produced 329,834oz of gold. The group raised A$150 million in new equity in September 2016 and is well positioned to finish their planned capital investments and growth projects. RSG had reported for cash, bullion and listed investments of A$290 million in FY17.
 

FY17 Performance (Source: Company reports)
 
Guidance: The group expects their gold production to be a minimum of 300,000oz for fiscal year of 2018 at All-In Sustaining Costs of A$1,280/oz (US$960/oz). For Syama, the sulphide head grade would be managed to maintain an average feed grade of more than 2g/t Au to the sulphide plant through blending from the current sulphide stockpiles, mined ore from satellite deposits, and ore produced from the underground mine during development. The development ore production has started from the underground mine with pre-production underground ore of over 1.3Mt forecasted to be mined prior to finishing the sublevel cave development in the quarter ended December 2018. Syama sulphide gold production is expected to be a minimum of 130,000 ounces at an AISC of A$1,050/oz and Syama oxide gold production is forecast to be a minimum of 90,000 ounces at an AISC of A$1,260/oz. For Ravenswood, mined ore tonnes from Mt Wright are forecasted to decline on the back of the number of available draw-point falls over the remaining life of the underground mine. Mine production from Nolans East is forecasted to be finished in late-2017 and throughout the rest of FY18 while the ore feed would be sourced from Nolans East stockpiles, current Sarsfield stockpiles, and the rest production ore from Mt Wright. Ravenswood gold production is expected to be a minimum of 80,000 ounces at an AISC of A$1,520/oz. At Bibiani, a new resource is expected to be undertaken which would form a foundation for a feasibility study to be finished by 2017. The group expects to incur a capital expenditure of A$162M (US$122M) and has enhanced the exploration budget to A$38M (US$29M).
 

New discovery at Nafolo adjacent to Syama (Source: Company Reports)
 
Outlook: The group is currently focusing on their flagship project at the Syama Gold Mine in Mali. Production was offered from stockpiled open pit ore processed through the sulphide plant during fiscal year of 2017, and the mining of satellite open pits providing ore feed for the oxide circuit. They started development of the Syama Underground mine while the underground mine, when fully commissioned during FY19, would offer a low cost 12-year underground mine life and enhanced total annual site production to 250,000oz of gold. The group is pursuing the potential to implement a fully automated loading and haulage system, which could form a new standard for underground safety and productivity. In Queensland at the Ravenswood Gold Mine, the group’s expansion plans are ongoing while the group is currently operating with the confidence of a long mine life future ahead. At the Nolans East open pit, mining has started which would boost production from the Mt Wright Underground mine. Mt Wright has exceeded its earlier forecast and would stop operations in the final quarter of FY18. The successful sub-level cave management led to a major overdraw from the present production levels. Nolans East open pit mining was forecasted to be finished by the end of this year. The group continues to refine the Ravenswood Expansion Project which involves a staged expansion of the Nolans Process plant back to its former capacity of 5 million tonnes per annum to secure a 13-year operating life for this asset.
 

Syama Underground Mine’s Potential (Source: Company reports)
 
Stock performance: The shares of RSG have been under pressure this year at the back of volatile gold prices with the stock losing over 14% (as of December 22, 2017). On the other hand, the group was able to deliver an overall gold production at an All-In Sustaining Cost (AISC) of A$1,132/oz for fiscal year of 2017, which is a major performance as compared to their estimates of an AISC of $1,280/oz. This result is particularly impressive given 2017 being a transformational year at both Ravenswood and Syama. The group started the Syama Underground project and continued mining satellite open pits while depleting large stockpile reserves. They started open pit mining at Nolans East, initiating the Ravenswood Expansion Project while mining continued at the Mt Wright Underground mine. The group expects fiscal year of 2018 to be another year of transition as the Syama Underground starts ramping up to full production and Ravenswood transitions to a long future of open pit mining beyond the closure of Mt Wright. They are in the process of building a large-scale sublevel caving operation at Syama which would be one of the world’s first few fully automated underground truck haulage mines. On the other side, the group is aiming to be in the lower quartile of the global AISC curve (~US$750/oz). They gave long term returns from >10 years mine life. RSG has built a diverse portfolio to spread production risk and enabled a portfolio optimization with technology-driven cost savings. RSG stock recovered over 10.5% in the last four weeks and the bullish sentiment is expected to be seen in the coming months. Trading at a very low level, we give a “Buy” recommendation on this gold player at the current price of $1.150


RSG Daily Chart (Source: Thomson Reuters)

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