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

Capital Management and Key Milestones: Resolute Mining Limited (ASX: RSG), a successful gold miner has over 28 years of experience of being an explorer, developer, and operator of gold mines in Australia and Africa. RSG’s flagship project is the Syama Gold Mine located in Mali, West Africa. Further, it is in the operations of the Ravenswood Gold Mine located in Queensland, Australia. RSG has mined more than 8Moz from 9 gold mines in Australia and Africa; and is exploring over 5,300km of potential world class tenure in Africa and Australia with opportunities for expansion and improvement in terms of operations. Meanwhile, RSG has signed a US$100m Revolving Loan Facility agreement with Investec Australia Limited. The company also acquired 16,182,480 shares in Orca Gold Inc through the issue of 8,953,421 RSG shares. RSG has acquired 79,290,000 shares in Manas Resources Limited through the issue of few RSG shares. The company has issued 2,012,466 RSG Shares to Arnold Kondrat in consideration for the acquisition of 25,000,000 shares in Loncor Resources Inc. Additionally, RSG has declared a 2.0 cents per share dividend for FY18. The dividend payment will total A$14.8 million which equates to 3.3% of RSG’s FY18 sales revenue of A$446 million. This represents an increased payout as a proportion of sales of 0.6% compared to FY17. RSG lately reported a weaker than expected 1QFY19 as production was impacted by maintenance, plant upgrades and weather. However, Syama underground project is on track with first stoping ore achieved lately and first SLC (Sub Level Caving) ore expected in December. Production outlook is expected to improve at the back of Syama Underground Mine ramping up and the Ravenswood Extension Project (REP) to be completed in FY20.


Financial Performance (Source: Company Reports and Thomson Reuters)

Achieved first stope ore production along with Major Syama Underground Mine development: As per an updated definitive feasibility study that led to an updated plan for the new underground operation at Syama (Syama Underground Mine), mine life at Syama has been indicated to be beyond 2032. This is also based on an underground Ore Reserves of 3.0Moz that are expected to generate life of mine AISC of US$746/oz. The Syama Underground Mine is in the final stages of development and it is scheduled to start sub-level caving in December 2018. The full automation and ramp-up is planned to occur in the first half 2019 and the mine is planned to reach run rate production in June 2019. Once the Syama Underground Mine is commissioned, the mine will be able to generate the annual gold production of approximately 300,000oz. The gold production at Syama during the September Quarter 2018 had totaled 37,101oz at an AISC of A$1,390/oz (US$1,016/oz). The quarterly production declined due to lower availability and throughput in both the sulphide and oxide processing plants. Gold production from sulphide operations was affected on the back of the planned 40-day biennial roaster shutdown in the September Quarter. The periodic major shutdown is necessary for regular maintenance on the roaster, that comprised of the refractory replacement. Moreover, underground ore production from long hole open stoping at the Syama Underground Mine had commenced during the September 2018 Quarter and accelerated the underground development ore. The company has produced underground ore during the September 2018 Quarter of 88,563 tonnes at 2.80g/t Au (June Quarter development ore 45,080t at 2.83g/t Au). Long hole open stoping (LHOS) had commenced on the 1130 level, which is situated at the northern end of the mine. This area is one of two LHOS zones, which is located north and south of the sub-level cave, and will supplement sublevel cave production over 14-year life of the Syama Underground Mine. The commencement of stoping is an important milestone for the ramp-up to full production of Syama. After achieving the first stope production, the production drilling is now underway in the 1105 sub-level, which is the first cave production level. The company has planned that the first cave ore will be extracted from this level in the December Quarter, with full production projected by mid-2019. Additionally, the development advance had accelerated in the September Quarter and the company posted a 20% expansion in total advance relative to the June Quarter. This increase was achieved due to lifting of previous restrictions imposed by construction activities and additional working areas were made available. Underground stope production commenced during the September quarter led to a doubling of total ore production compared to the June Quarter. The 1130 North long hole open stope represents an important milestone in the mine ramp-up.

Gravity Circuit related Updates: During the September Quarter, the company has progressed work on the installation of a gravity gold recovery circuit within the oxide processing plant. The new gravity circuit that comprised of a Knelson concentrator and Acacia reactor will allow RSG to efficiently recover coarse gold that is expected to occur in the Tabakoroni oxide deposit. The gravity circuit is expected to be commissioned early in the December Quarter.

Excellent high-grade drill results at Tabakoroni: At Tabakoroni, RSG got excellent high-grade drill results, of which the second set of drilling result was reported to the market at the beginning of the September Quarter. The drilling was concentrated on the depth extensions of the Tabakoroni Main Zone and the newly identified Tabakoroni Nord area. The company’s ongoing drilling at the Tabakoroni Main Zone has two diamond drill rigs in operation to fully define the underground sulphide potential. The company expects an updated and expanded Mineral Resource Estimate for Tabakoroni, including a maiden underground mineral resource,  by early 2019.


Tabakoroni Main Zone Long Section (Source: Company Reports)

Added 30,000 ounces from Syama to gold hedge book: RSG has forward sold an additional 30,000 ounces of gold at an average price of US$1,250 per ounce with scheduled monthly deliveries of 5,000 ounces between January 2019 and June 2019. The company has taken advantage of strength of recent US$ gold price volatility to add to the Company’s US$ gold hedge positions. The company’s objective of this hedging is to secure US$ revenues from the company’s Syama Gold Mine in Mali (Syama) during the ramp-up phase of the Syama Underground Mine. The company has established the US$ gold price certainty at these levels and this is a prudent economic decision as the company has now entered the ramp-up phase of the Syama Underground Mine. Syama provides exposure to US$ capital and operational expenditure and the hedging program provides a level of certainty to the company’s future cashflows and project returns. Further, the additional 30,000 ounces of forward sales extend the existing US$ hedge positions established in September 2017 of monthly deliveries of 6,000 ounces at US$1,330 per ounce which run to December 2018. RSG’s total gold hedge book as at 29 October 2018, including the new US$ gold hedges, consists of 115,000 ounces of gold out to December 2019, which represent approximately 26% of RSG’s expected gold production over this period.


Production Outlook (Source: Company Reports )

Maintains FY 19 Outlook: RSG has reaffirmed the company’s FY19 production guidance of 300,000oz at an AISC at A$1,280/oz (US$960/oz). Further, at Syama, the access to the higher-grade sulphide ore is anticipated to accelerate in the second half of FY19 and provide an immediate and significant improvement in the production. Moreover, during FY19, high grade underground ore is planned to include development ore, long hole stope ore, and from December onwards sublevel cave ore. After this, the Syama Underground Mine will able to provide an increasing proportion of high-grade material. By mid-2019, the underground ore is anticipated to provide 100% of sulphide plant feed. The sulphide circuit is planned to continue to rely on stockpiled ore during the current quarter. However, an increasing proportion of underground mill feed, and 100% availability of the roaster, will result in the improvement of grade and associated recovery for the sulphide plant. This improvement is anticipated to be incremental on a quarter on quarter basis as the Syama Underground Mine ramps up to steady state by the end of the FY 19. Additionally, Development of the Syama Underground Mine remains the highest priority at RSG. The Syama Underground Mine work during the December Quarter is planned to complete the autonomous decline to the 1055L, then long hole open stoping on the 1130 and 1200 levels, while ore development is planned of the 1130, 1105 and 1080 sub level cave production levels, etc. Furthermore, the production of oxide ore from the Tabakoroni satellite operation, will accelerate in the December Quarter and will provide the majority of the oxide plant feed for the remainder of FY19. The mined ore tonnes from Mt Wright are anticipated to continue at similar levels through FY19. Overdraw from higher level draw-points will provide tonnages exceeding the initial expectations, thereby further extending Mt Wright operations. The improvement of mill grades and crusher availability are projected to result in higher gold production and lower AISC in the December Quarter. Overall, all approvals are now in place for the REP with mining and processing of the Buck Reef West open pit and an associated upgrade to processing capacity planned to commence in FY20.

Stock Recommendation: RSG stock has fallen 27.6% in three months as on November 13, 2018 and is trading at a reasonable P/E of 11.13x with resistance noted around $ 1.00. Resolute Mining Limited has delivered significant rise in the company’s Annual Group Ore Reserve and Mineral Resource Statement as at 30 June 2018. The Global Ore Reserves rose by 17% to 5.9 million ounces (Moz) of gold and Global Mineral Resources (inclusive of Ore Reserves) rose by 35% to 16.5Moz. Further, the Company has planned a pathway for the annual gold production in excess of 500,000oz from a Global Mineral Resource base of 16.5 million ounces. While the group is facing certain challenges in view of latest quarterly result and volatile market scenario, RSG is expected to be back on track with the planned ramp up in terms of production. Historical EV/ EBITDA is averaged around 8x and forward 12-month EV/EBITDA is estimated to be below mid-single digit with forward 12-months PE ratio staying on the lower side. With activities delivering as per the plan, the stock might witness a single digit to low double digit rise (%) in next 2 years; though the gold price scenario will be playing a role on the performance and the stock price movement. In view of the trading levels with planned developments and milestones, and long term positive view on RSG’s flagship assets, we give a “Buy” recommendation on the stock at the current price of $0.96 (i.e., around the support levels of $0.96).
 

RSG Daily Chart (Source: Thomson Reuters)

 
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