Overview: Resolute Mining Ltd (“Resolute”, “the Company”) is an Australian gold mining company with operations in Australia and Africa. The Company’s primary focus is on three assets across West Africa and Queensland. The Syama Gold Mine in Mali and the Ravenswood Gold Mine in Queensland are operational, producing approximately 300k oz of gold per annum. The company also owns the Bibiani Gold Project in Ghana. Resolute’s assets have total reserves of 5.3 Moz of gold. We initiated coverage with a ‘buy’ recommendation on 18 February 2016 at $0.46 and our last advice was to ‘hold’ in June 2016 at $1.16.
Catalysts: Syama and Ravenswood are on track to produce ~300koz of gold at sustaining costs of less than US$1,000/oz and have the potential to generate ongoing free cash flow throughout the mine life of 12 years+. Resolute has a strong balance sheet with a cash net of debt of $150 million and little gearing. The updated feasibility study for Bibiani, due in the March quarter, is designed to confirm the commercial viability of the project and enable the development decision after a 40% resource upgrade in October 2017.
Hurdles: Whilst Resolute has a track record of successful mine operations, there is no guarantee it can execute the underground mine plan at Syama or operate Bibiani more efficiently than the previous owner. With a strong focus on West Africa, the Company is subject to geopolitical risks. Global gold prices are volatile and any cyclical decline may negatively impact Resolute’s financial performance and commercial viability of its assets.
Investment View: Resolute offers profitable exposure to the gold mining industry through a portfolio of assets in Australia and Africa. We are attracted to the Company’s production profile and balance sheet and delivery of the updated feasibility study is expected to re-risk the Bibiani project. Exploration and geopolitical risks, as well as the volatile gold price, are principal hurdles. The short-term performance was negatively impacted by increased expenditure, but we remain attracted to the magnitude of the Company’s assets and ability to expand its low-cost production to the benefit of shareholders. We resume coverage and reiterate our ‘buy’ recommendation at $1.22 following a period of share price consolidation.