Company Overview:  Resolute Mining Limited (ASX: RSG) is an experienced 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. RSG also has a portfolio of strategic investments in highly prospective, well-managed, African-focused gold exploration companies, which provide a pipeline of future development opportunities. The company’s vision is to be an innovative, multi-mine, low-cost, African-focused gold producer. The company is currently listed on the Australian Securities Exchange (ASX) as well as on London Stock Exchange (LSE), providing RSG improved access to gold and African-focused institutional investors.

RSG Details

Multi-Asset Production Base: Resolute Mining Limited (ASX: RSG) is a gold production company with over thirty years of experience as an explorer, developer and operator of gold mines in Africa and Australia. The company’s exploration portfolio includes long-life, low-cost, large scale assets that provide a significant resource base to the company. RSG currently owns multiple gold mines including the Syama Gold Mine in Mali, the Mako Gold Mine in Senegal and the Bibiani Gold Mine in Ghana. In March 2020, the company completed the sale of its Ravenswood Gold Mine in Queensland which provided immediate liquidity and exposure to the future success of the Ravenswood Expansion Project. Over the last one year, the company has witnessed a significant increase in its overall production, mainly due to the contribution from Mako Gold Mine which was added to the portfolio in July 2019. Mako has contributed significantly to the company’s production and margin growth and has expanded RSG’s footprint into Senegal. From H2FY18 to H1FY20, the company has witnessed a material increase in its total production figures, rising from 129,199oz of gold in the H2FY18 to 217,946oz in H1FY20. Over the same period, the company’s revenue has also improved, mainly driven by increased production and a stronger gold price environment.

Production Summary (Source: Company Reports)

Looking ahead, the company is focused on maintaining its operations at all mines while keeping its employees and staff member safe. At its Mako gold mine, the company is focused on maintaining high productivity and low-cost operations. At its Syama gold mine, the company intends to continue its high-margin oxide operations. With decent production in H1FY20, the company seems well-placed to achieve its full-year production guidance. In the near-term, the company seeks to reduce its net debt to further strengthen the balance sheet. Further, the company is focused on continuing its ongoing exploration for mine life extensions and evaluating accretive growth opportunities for the future.

FY19 Results Highlights: For the year ended 31 December 2019, the company reported total production of 384,731 ounces of gold at an all-in sustaining cost of A$1,577/oz. For the full year, the company reported revenue of A$770 million and underlying net profit after tax of A$21 million. The company incurred a net loss of A$112.86 million in FY19, compared to a profit of A$34.09 million in FY18, mainly due to one-off adjustments for non-recurring items. During FY19, the company achieved many strategic objectives, including listing on London Stock Exchange (LSE) and significant portfolio optimisation through acquisitions and divestments. During the year, the company achieved exploration success across its portfolio with particularly exceptional results at Tabakoroni.

FY19 Results Highlights (Source: Company Reports)

H1FY20 Results: The company entered FY20 in a decent position to deliver on the full potential of its asset base and generate long-term value for its shareholders. For the half-year ended 30 June 2020, the company reported total production of 217,946oz of gold, up 24% on the previous corresponding period (pcp). The growth in revenue was driven by increased production following the repair of the roaster and a stronger gold price environment. Due to the increased production, the company’s operating revenue grew by 33% to US$305 million, compared to pcp. Further, the company’s underlying EBITDA grew by 96% to US$107 million, reflecting solid operational cost performance.

Over the half-year period, the company undertook balance sheet strengthening activities including a successful equity raising and debt refinance, the sale of Ravenswood, and the acquisition of the Mako third party financing royalty. At the end of H1FY20, the company had cash, bullion, additional liquid assets and a promissory note valued at US$35 million. Further, the company had total borrowings of US$307 million.

H1FY20 Results Highlights (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together form around 53.68%. ICM Limited and Van Eck Associates Corporation hold the maximum interest in the company at 13.14% and 8.37, respectively.

Top 10 Shareholders (Source: Refinitiv, Thomson Reuters)

Key Metrics: For H1FY20, the company’s gross margin and EBITDA margin stood at 9% and 34.7%, respectively. The company’s asset to equity multiple stood at 1.72x, lower than the industry median of 1.78x. The company’s current ratio stood at 1.63x in H1FY20, up 37.1% on the pcp, demonstrating that the company has improved its ability to pay short-term obligations.

Key Metrics (Source: Refinitiv, Thomson Reuters)

Covid-19 Update: In response to COVID-19 pandemic and associated challenges, RSG has implemented new protocols and operating procedures at all of its operations. These measures have helped the company to maintain its full-year production and cost guidance for Syama and Mako. As per the recently released half-year report, the company’s gold production has not been impacted by the pandemic. Notably, RSG has committed more than US$1 million to support African host governments in Mali and Senegal in their response efforts to combat COVID-19. 

Reinstatement of FY20 Production Guidance: On 9 September 2020, the company had informed about a 10-day strike at the Syama Gold Mine from the Local Union Committee of the Union Nationale des Travailleurs du Mali SOMISY-SA (the Union). The Union was demanding for the reinstatement of Syama workers who have been stood down on full pay due to the company’s COVID-19 protocols. Due to this, the company had to withdraw its production and cost guidance for FY20. However, on 28 September 2020, the company announced negotiations with the Union, resulting in the signing of a conciliation agreement which confirmed the cancellation of further planned strike action at Syama. The operations at Syama have returned to normal level and all parties have agreed to the framework of a win-win partnership. Due to the cancellation of the strike, the company has reinstated its FY20 production guidance.

What to Expect: Due to the industrial relations dispute and strike actions at Syama Gold Mine, the company expects a delay in the production of around 15,000 ounces of gold during the September 2020 quarter. The company expects its full-year production to be in the range of 400,000 ounces to 430,000 ounces of gold at an all-in sustaining cost of between US$980 per ounce and US$1,080 per ounce.

From Syama gold mine, the company expects the production to be around ~260,000oz in FY20. The company intends to continue high margin oxide operations at Syama. From Mako gold mine, the company expects its annual production to be around 140,000oz in FY20 at an AISC of US$900/oz. The company plans to maintain high productivity and low-cost operations at Mako. In the second half of FY20, the company is focused on reducing its net debt, in order to further strengthen its balance sheet. With a multi-asset production base, improved financial position, flexible, low-cost balance sheet, the company seems to be well-placed for future growth and development.

Key Valuation Metrics (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Over the last three months, the stock of RSG has corrected by 20.34% and it is currently trading slightly below the average 52-week price band, offering a decent opportunity for accumulation. On the technical analysis front, the stock has a support level of ~$0.903 and resistance of ~$1.321. We have valued the stock using the price to earnings multiple based illustrative relative valuation method and have arrived at a target price of lower double-digit upside (in % terms). For the purpose, we have taken peers like St Barbara Ltd (ASX: SBM), OceanaGold Corp (ASX: OGC) and Westgold Resources Ltd (ASX: WGX). Considering the company’s multi-asset production base, decent H1FY20 production and financial results, FY21 production guidance, future focus areas, and valuation, we give a “Buy” recommendation on the stock at the current market price of $0.960, up by 2.128% on 6 October 2020.

Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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