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

Resolute Mining Limited (ASX: RSG) has recently updated the market about production of 74.7koz over the fourth quarter of FY18 and this was a good quarter in the year given the guidance. The group’s production ramp-up at Syama’s underground mine with other key projects led RSG to set a base line production outlook to over 500koz by FY22. Thus, the catalysts entail timing for Syama’s progress and resource updates from other assets including Tabakorani while Ravenswood is expected to transition from underground to open pit operations. The portfolio is decent with multiple strategic investments in 3 mines while the group aims to improve margins with AISC reduction.

Controlling costs: Resolute Mining Limited (ASX: RSG) during the June 2018 (fourth) quarter has produced 75,000 ounces of gold at an AISC of A$1,303/oz (US$986/oz). In FY 18, the gold production has been indicated to be 284koz at AISC of A$1,355/oz (US$1,051/oz), which is ahead of the revised guidance of 280koz at A$1,360/oz.  Further, Syama Underground mine development is on track and is due for project completion and commencement of full sub-level caving in December 2018, with ramp up to occur in 2019. Syama DFS Update showed materially lower costs (LOM AISC of US$746/oz) and extension of mine life to 2032. Moreover, the update on Ravenswood Expansion Project reflects an optimized mining and processing schedule, a revised processing and tailings management strategy, and the incorporation of new technologies to improve efficiency. Ravenswood will now, on average, produce approximately 115,000 ounces annually at a Life of Mine All-In Sustaining Cost of A$1,097 per ounce (US$823 per ounce) through to 2032. The company has received Bibiani Environmental Permit Authorization and the operational readiness phase will commence in FY19. Additionally, RSG has made strategic investment in TSX-listed, Sudan-focused developer, Orca Gold Inc. The company has received an average gold price of A$1,703/oz (US$1,320/oz) from total FY18 gold sales of 262,381oz. RSG’s cash, bullion and listed investments as at 30 June 2018 is of A$113m (US$84m). The Company has also acquired an additional 3% interest in Manas through a share swap agreement. These transactions resulted in the issue of ~11.28 million new RSG shares. Furthermore, as at 30 June 2018, RSG had an estimated recoverable gold in circuit inventory of 64,815oz, having a market value of approximately A$110m (US$82m). The majority of this circuit stocks is comprised of carbon enriched concentrates stockpiled at Syama.



Fourth Quarter Performance (Source: Company Reports)

Gold Forward Sales Contracts: The group’s gold forward sales contracts have been flagged to be 36,000oz as at 30 June 2018 as compared to December 2017 of 54,000oz, at an average price of US$1,330/oz for physical delivery between July 2018 and December 2018. They also hold 48,000oz at a price of A$1,715/oz for physical delivery between July 2018 and June 2019 as compared to December 2017 of 60,000oz. As at 30 June 2018, the group has an estimated recoverable gold in circuit inventory of 64,815oz with a market value of over A$110m or US$82 million. While the levels may be low, the group is putting efforts to track back to the earlier levels.


Current Committed Hedging Forward Sales in A$ and US$ (Source: Company reports)

Borrowings, Cash, Bullion and Listed Investments: RSG’s total borrowings include the unsecured bank overdraft held by RSG’s Malian subsidiary, Société des Mines de Syama S.A. with the Bank of Mali. This highly flexible in-country facility has been operational since the starting of the Syama mine and is used for managing local Mali liquidity requirements. As at 30^th June 2018, the total borrowings were A$33.3m compared with A$38.7m at 31^st March 2018. Moreover, during the June 2018 quarter, cash outflows included A$112.5m in development expenditures, principally the Syama Underground as well as cash outflows associated with the acquisition of strategic stakes in Orca Gold Inc, Loncor Resources Inc (Loncor), and Manas Resources Limited (Manas). The working capital movements were largely due to the variation in the timing of payments to suppliers. As at 30^th June 2018, the company’s cash, bullion and listed investments were of the order of A$113 million.


Quarterly cash reconciliation (Source: company reports)

Received Environmental Permit Authorization to recommission Bibiani Underground mine & secured US$100M revolving credit facility: While Resolute Mining Limited’s production update could not meet the consensus expectation at large; however, the group got Environmental Permit Authorisation (EPA) to recommission the Bibiani Underground mine and processing plant at Bibiani by the Ghanaian Environmental Protection Agency. EPA is valid for a period of 18 months but could be renewed by application to the Agency. The company has completed the Feasibility Study Update which reflects the potential for a long life, high margin project. The Bibiani Mineral Resource was upgraded by 40% to 21.7 million tonnes (Mt) at 3.6 grams per tonnes (g/t) gold (Au) at a 2g/t Au cut off for a total of 2.5 million ounces (Moz). This mine has the potential for production of approximately 100,000 ounces of gold annually over a ten-year life of mine and the All-In Sustaining Costs is projected to be between US$700 per ounce to US$800 per ounce for Life of Mine (LOM) production of ~ 1Moz of gold. On the other hand, RSG has secured a US$100 million Revolving Loan Facility with Investec Australia Limited with flexible access to low cost funding for new growth initiatives. This new revolving facility has an initial term of three-year years. Further, the new facility is currently undrawn, can have future extension, and will allow RSG to pursue growth opportunities as they arise.

Positive DFS update for Syama: Syama Underground mine All-In Sustaining Cost was cut to US$746/oz as compared to US$881/oz) while the Underground Probable Reserve rose 38% to 3.0Moz (35.2Mt at 2.7 g/t). The mine life has been extended by four years from 2028 to 2032. The group’s adoption of mining would lead to a lower average mining costs, while improvements to site power generation facilities would cut processing costs. As a result, AISC has fallen from US$881/oz to US$746/oz, while LOM capital intensity fell from $186/oz to $177/oz. For the ongoing quarter, Syama underground development would focus on finishing the autonomous decline to the 1055L and breaking the second portal through in September 2018. They formed the truck haulage level on the 1055L while making an Ore development on the 1130, 1105, 1080 levels which would be speeding as more headings would become available.
 

Syama Development Schedule (Source: Company Reports)

Outlook: In the first half of FY 19, the development of the Syama Underground would continue, which would lead to a better contribution to sulphide processing from high grade development ore. The development and production of ore from the Tabakaroni satellite operation was lately flagged for commencement. The higher grades and sulphide content from the underground ore, along with the commissioning of Project 85, would lead to a better overall recovery from the sulphide circuit. Moreover, for FY 19, RSG expects gold production to be 300,000oz. AISC is expected to be A$1,280/oz (US$960/oz). The capital expenditure for growth projects at Syama Underground and Ravenswood Expansion Project are expected to be A$150m (US$112m) and exploration expenditure is expected to be of A$21m (US$16m) in FY 19. Additionally, RSG in 2019 would expedite Tabakoroni sulphide resource drilling, upgrade Nafolo resource to indicated status, will seek small high-grade deposits at Ravenswood and commence exploration in Egypt and Sudan. On the other side, mined ore tonnes from Mt Wright are expected to continue at similar levels through FY19. Overdrawing of higher level drawpoints continues to provide tonnages exceeding expectations, which is further extending Mt Wright operations. Mine production and processing from Nolans East are expected to continue until the end of the September 2018 quarter. Ore feed will continue to be sourced from Nolans East, existing Sarsfield stockpiles, and Mt Wright.



Production Outlook (koz) (Source: Company Reports)

Stock Recommendation: RSG stock surged 11.84% (as on July 31, 2018) in the last three months and is trading at a low P/E of 8.20x. RSG is building a portfolio through strategic investments in 6 African-focused explorers. The group now expects valuation upside from Syama development and ramp-up. RSG also finds support from its other assets and the growing resource base. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 1.325 (up 3.92% on August 01, 2018).
 

RSG Daily Chart (Source: Thomson Reuters)

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