Company Overview: Resolute Mining Limited (ASX: RSG) is a gold mining company with over 30 years of experience as an explorer, developer and operator of mines in Australia and Africa. The company owns three gold mines - Syama Gold Mine in Mali, Mako Gold Mine in Senegal and Bibiani Gold Mine in Ghana. The Syama Gold Mine is a long-life asset with a capacity to produce over 300,000 ounces of gold per annum from existing processing infrastructure. Mako is a high margin open pit gold mine with an average annual production of approximately 140,000 ounces of gold.

RSG Details

Growth Backed by Multi-Asset Production Base: 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, the Mako Gold Mine in Senegal and Bibiani Gold Mine in Ghana. As on 8 December 2020, the company’s market capitalisation stood at ~$838.95 million. In the past 30 years, the company has mined over 8 million ounces of gold from its mines in Australia and Africa, demonstrating the company’s significant operational expertise. The company’s flagship asset is the world-class Syama Gold Mine which is a long-life asset with both sulphide and oxide mines and dual processing circuits. The company’s Mako Gold Mine in Senegal is a high-quality, low-cost asset with outstanding throughput and recoveries generating decent free cashflow. Due to the addition of Mako gold mine to the company’s portfolio in July 2019, RSG’s overall production has significantly improved, rising from 176,236oz in H1FY19 to 217,946oz in H1FY20. 

Production Summary (Source: Company Reports)

Looking ahead, the company is focused on continuing its mining and processing operations at all mines while keeping its employees and staff member safe. Further, the company is focused on continuing its ongoing exploration for mine life extensions and evaluating accretive growth opportunities for the future. In the near-term, the company seeks to reduce its net debt to further strengthen its balance sheet. At Syama, the company intends to continue its high-margin oxide operations and is focused on increasing sulphide recoveries to +80%. At its Mako gold mine, the company is focused on maintaining high productivity and low-cost operations. Overall, the company expects its full-year FY20 results to meet FY20 guidance, as per which, the total production is expected to come between 400,000oz and 430,000oz at an AISC between US$980 and US$1,080/oz.

H1FY20 Result Highlights: For H1FY20, the company reported total gold production of 217,946 ounces, up from 176,237 ounces reported in the previous corresponding period (pcp). For the period, the company reported total gold sales of 212,668oz at an average gold price received of US$1,427/oz. Total revenue from the sale of gold and silver stood at US$305 million, up from US$229 million in pcp, driven by increased production following the repair of the roaster and a stronger gold price environment. During the period, the company completed the sale of the Ravenswood mine to EMR Capital Management Limited and Golden Energy and Resources Limited. Over the period, the company completed various balance sheet strengthening activities including successful equity raising, debt refinance, and the acquisition of the Mako third party financing royalty. For H1FY20, the company reported a total net profit after tax of US$36.29 million, up 32% on pcp, driven by the continued strong performance from Syama oxide and Mako operations, recovery from the Syama sulphide operations and the sale of Ravenswood.

Revenue Trend (Source: Company Reports)

Top 10 Shareholders: The top 10 shareholders have been highlighted in the table, which together forms around 53.86%. 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 9.0% and 34.7%, respectively. The company’s asset to equity multiple stood at 1.72x, lower than the industry median of 1.77x. The company’s current ratio stood at 1.63x in H1FY20, up from 1.19x in H1FY19, demonstrating that the company has improved its ability to pay short-term obligations.

Key Metrics (Source: Refinitiv, Thomson Reuters)

September 2020 Quarter Highlights: For the September 2020 quarter, the company reported total gold production of 87,303 ounces, down by 19% on the previous quarter, mainly due to the impact of industrial action at Syama. With regards to the Sulphide Operations, the company reported a 3% QoQ growth in underground mining tonnages despite disruptions from industrial action. At Mako operations, the company witnessed growth in mining volumes reflecting the arrival of a new mining fleet to accelerate waste stripping. During the quarter, the company continued its strategic review of the Bibiani Gold Mine (Bibiani) in Ghana and evaluated plans to recommission the mine. Over the quarter, the Tabakoroni Mineral Resource was upgraded to 7.4Mt at 4.4g/t Au at a 1.5g/t Au cut off for a total of 1.04Moz, an increase of 22% over the previous estimate. As at 30 June 2020, the company had cash and bullion of US$106 million with net debt of US$234 million.

Operating Performance Snapshot (Source: Company Reports)

Change in Substantial Holding of Manas Resources Limited: On 24 November 2020, the company reduced its holding in Manas Resources Limited (ASX: MSR) from 25.82% to 24.73%. RSG now holds 682,484,709 ordinary shares of MSR.

Key Risks: As a gold producing company, RSG is exposed to the risk associated with changes in the prices of gold. Further, the company is also exposed to the risks and uncertainties caused by the COVID-19 pandemic. RSG is also exposed to the risks associated with any adverse changes in Government fiscal or regulatory position.

Outlook: With significant regional experience, secure supply lines and robust relationships, the company seems to be well placed to navigate through the COVID-19 pandemic. Despite the reduction in September quarter gold production, the company has maintained its FY20 production and cost guidance and expects its full-year production to be at the lower end of the guidance of 400,000oz to 430,000oz and costs to be at the higher end of guidance of US$980/oz and US$1,080/oz.  At its Syama gold mine, the company is focused on achieving a mining rate of 2.4Mtpa and mill through-out of 2.4Mtpa. Further, it intends to continue its high margin oxide operations.  The company will continue the exploration and evaluation of the Tabakoroni underground mine during the remainder of 2020 and 2021.  The company is committed to make strategic investments in Africa to establish a portfolio of investments in emerging gold explorers to provide the potential for medium-term growth opportunities.

Key Valuation Metrics (Refinitiv, Thomson Reuters)

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

P/E Multiple Based 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 30.63% and is currently inclined towards its 52-weeks low price of $0.605, offering a decent opportunity for accumulation. On the technical analysis front, the stock has a support level of ~$0.73 and resistance of ~$1.02.  We have valued the stock using a Price to Earnings multiple based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For the purpose, we have taken peers like St Barbara Ltd (ASX: SBM), OceanaGold Corp (ASX: OGC), Westgold Resources Ltd (ASX: WGX), etc. Considering the company’s multi-asset production base, FY20 production guidance, future focus areas, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the current market price of $0.770, up by 1.315% on 8 December 2020.

RSG Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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