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) is into the gold mining, exploration, mine development, and production of gold and minerals, and the company operates in Africa and Australia, predominantly. The company’s flagship project is the Syama Gold Mine, in West Africa; and it also has Ravenswood Gold Mine in Australia along with Bibiani Mine in Ghana among key mines. We have lately seen that the group is getting strength from developments at Tabakoroni in terms of Syama oxide operation while production has been below expectation but RSG has been able to demonstrate efforts towards possible ramp-up of the underground operation to full capacity in 2019 with stabilization of sub-level cave and roll out of mining fleet. RSG has also been able to improve on its debt position. There is potential in the stock, though the London listing that the company is preparing for along with some transitional changes might lead to few adjustments for project related developments.
 
Strong Operational Performance During the December 2018 Quarter: RSG stock rose 4.82% as on 29 January 2019 after the company reported strong performance for the December 2018 quarter. During the December quarter 2018, RSG has achieved 33% increase in the production to 74,000 ounces against what was seen in September 2018 quarter. The gold company has attained a 13% decline in all-in sustaining cost (AISC) of A$1,360 per ounce (US $ 975 an ounce) against the prior quarter; and RSG sold 67,211 ounces of gold at an average price of A$1,739 (US $ 1,246) per ounce. During the December 2018 Quarter, the gold production at Syama has totalled 56,207oz at an AISC of A$1,160/oz (US$831/oz). Syama’s quarterly production has increased by more than 50% on the prior quarter; and this entailed production of 21,554oz from Syama Sulphide operations and 34,653 oz from Syama Oxide operations.

Summary of Milestones Achieved: RSG has now achieved the key Syama Underground milestone as extraction of first ore has been done from the southern end of the 1105 level of the sub-level cave. This has been as per schedule and budget highlighted for sub-level caving. The next step is to put in place a fully-automated mining system in order to have full production rate of 2.4 Mtpa by June of this year. Further, during the December 2018 quarter, RSG had signed the Joint Development Agreement (JDA) with Ignite Energy Projects Pty Ltd (Ignite Energy), for developing more than 40 megawatt (MW) of world’s largest fully integrated solar hybrid power plant at Syama. This solution is expected to save about 40% of operating costs at Syama in terms of power usage. This is also expected to reduce reliance on, and exposure to, diesel prices, and is projected to be fully operational by the end of 2020. Moreover, at Ravenswood, an extension with regards to the support from Queensland Government has been sought and thus, the Prescribed Project status of the Ravenswood Expansion Project (REP) now runs through to 30 November 2020. The company is thus, in a better position when it comes to proactive expansion related approaches on regulatory approvals and is looking for enhanced opportunities with support from key approvals that are already in place. The company has slated to have processing of the Buck Reef West open pit along with an upgrade on capacity for year 2020.

Updates on strategic review of the Ravenswood Expansion Project: After the end of the December 2018 Quarter, RSG initiated the strategic review of the Ravenswood Expansion Project (REP) and has been aiming to enhance the project economics. This is expected through reduction in capital and operating costs while opportunities for further growth will be explored. Thus, the company aims to focus on processing expansions, enhancement of production capacity, and extensions of mine life. In fact, the group has identified new targets for exploration and opportunities for plant expansions and improvement in environmental outcomes at Ravenswood and RSG plans to incorporate the enhancements of the strategic review as an update on Life-of-Mine plan that is expected for finalization in 2019. On the other hand, with regards to speculation made on many media platforms including Australian Business Review on the Ravenswood Gold Mine, RSG has updated the market that any decision on sale or spin-off of the Gold Mine has not been made.

Corporate Updates: During the December 2018 quarter, the Total Cash, Bullion and Listed Investments has risen to A$116.6 million compared to A$115.1 million posted for the September quarter 2018. The cash outflows reflected payment of AUD 15.2 m against dividends and an amount of AUD 77.6 m with regards to development expenditures associated with Syama Underground Mine.

Improving stance on Capital Management: In July 2018, RSG has undertaken a revolving credit facility, which was underwritten by Investec Australia Limited upto a limit of USD 100 m. RSG has been able to effectively syndicate the facility with BNP Paribas, Investec, Nedbank and Citibank, and now it will be able to enhance the revolving credit limit to USD 150 m. Initially, a three-year term has been set with respect to fees and terms, in a flexible and competitive manner. While the facility can be used by the company as and when required for corporate funding purposes, there can be an extension to the credit limit and tenor given the conditions at hand. RSG can also now access low-cost funding for other growth initiatives. Meanwhile, the company’s other borrowing facilities comprise of an unsecured bank overdraft that are held by RSG’s Malian subsidiary, Société des Mines de Syama S.A. with the Bank of Mali as the company has been using Bank of Mali facility since the commencement of the Syama mine for many purposes including liquidity requirements. Group’s total borrowings, as at 31 December 2018, were reported to be AUD 173 m including USD 100 m drawdown on the Facility and net balance of unsecured overdraft facility with the Bank of Mali and in-country receivables.

Hedging Status: RSG has hedged 30,000oz of gold at an average price of A$ 1,783/oz; 30,000oz of gold at an average price of US$1,250/oz; and 35,000oz of gold at an average price of A$1,728/oz, as at December 2018. RSG aims to hedge Australian dollar in order to protect projected returns from the Ravenswood Gold Mine in Queensland; and this has been a key strength for the growth.


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

Listing on London Stock Exchange: RSG has been focusing on the elementary work for preparing the application with regards to listing of ordinary shares on the London Stock Exchange (LSE). The key aspect is that RSG aims to make an impact on global front and trading on main market for listed securities through LSE channel will give an advantage; however, this is subject to required regulatory approvals from the UK Financial Conduct Authority and LSE. Resolute plans for LSE admission during 1H of 2019.

Decent Outlook: RSG has reaffirmed the guidance to be of 300,000 oz at an AISC at A$1,280/oz (US$960/oz) for the year to 30 June 2019; and mined ore tonnes from Mt Wright are projected to continue at similar levels through CY19. The company aims to find support from better throughput along with crusher availability, as this would help in enhancing gold production at a lower AISC in the upcoming Quarter. The key approvals received for the Ravenswood Expansion Project (REP), and scheduling of the mining and processing of Buck Reef West open pit with associated capacity upgrade in 2020, are significant developments for the company. Additionally, the exploration drilling at Tabakoroni is expected to continue throughout in 2019. Resource estimation work planned for 2019 with maiden Underground Resource at Tabakoroni as expected in the March Quarter are other key things that the group is targeting efforts towards. In addition, RSG’s highest priority is implementation of the fully autonomous fleet and achievement of the full production rate of 2.4Mtpa.



Quarterly Production through FY19 (to 30 June) (Source: Company Reports)

Stock Recommendation: RSG stock has risen 11.16% in three months as on January 29, 2019; and the group is on track to achieve the full year production guidance through to 30 June 2019 at an All-In Sustaining Cost of A$1,280/oz. For 2019, the company intends to ramp-up of the Syama Underground to full production and enhance the profile in global capital markets. Looking at the fundamentals, the net margin of Resolute Mining Limited stood at 17.5% in FY 2018 which happens to be higher than the industry median of 13.0% which clearly reflects that the company has been efficient in managing its costs as compared to the broader industry. This further builds confidence in the company’s strategies which are focused towards the cost management. Moreover, the company’s net margin has also improved in the span of previous five years (FY 2014-FY 2018). In FY 2014, its net margin was 6.4%.

In addition, the company’s operating margin has also witnessed an improvement in the span of previous five years. In FY 2014, Resolute’s operating margin was 8.4% while in FY 2018 it stood at 18.4%. The company’s current ratio stood at 2.31x which is higher than the industry margin of 1.69x implying that the company happens to possess decent position when it comes to liquidity. This could support the company in carrying out its short-term commitments which might bode well for the company’s long-term growth prospects. Additionally, over the span of previous five years, the company’s current ratio has improved. The company’s return on equity (or ROE) stood at 9.5%. Considering a forward 24 month EPS of about AUD 0.2, RSG stock is expected to witness a high single digit to low double digit share price rise. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price of $ 1.14.


 
RSG Daily Chart (Source: Thomson Reuters)
 

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