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#Bull Case
Last edited 4 months ago

26-Jan-2020:  Resolute are an ASX-listed gold producer who own and operate a small number of high-margin & low-cost gold mines in West Africa (post-Ravenswood-divestment).  They've sold Ravenswood (in Western Australia) and Bibiani (in Ghana) is also under review.  Their future will likely be based around Syama in Mali and Mako in Senegal.  They gained Mako via their recent acquisition of Toro Gold (in the second half of CY2019) and they are in the process of fully repaying the bridging loan facility (to Taurus) for the cash component of that acquisition. 

Syama is arguably one of the most advanced (automated) gold mines on the planet, which certainly does reduce their ongoing costs (since they have a much smaller workforce than their peers - and the vast majority of the cap-ex required for the automation has already been spent), although probably also presents a few risks and potential issues that will be particular to that mine - and its high level of automation.  Computer-controlled mining is only as good as the software that controls it, and computers have advantages (like consistency and accuracy) but also limitations (like lateral thinking, experience, and problem solving in unexpected situations).  Syama is also off-grid.  They have their own state-of-the-art hybrid power station.  Being self-sufficient is an important advantage of operating in Africa where relying on outside services can be a bit hit-and-miss.  RSG's FY20 Guidance for Syama is 260,000oz at an AISC of US$960/oz (A$1,391/oz based on A$1=US$0.69 - the conversion rate used in RSG's latest presentation).  Syama has a 14 year mine life, a Mineral Resource of 8.5 million ounces (Moz) of gold, a 3.4 Moz Ore Reserve, a Life-Of-Mine (LOM) AISC (All-In Sustaining Cost) of US$746/oz (A$1,081/oz), Target Production of 300 kozpa (thousand ounces per annum), and a Plant Capacity of 4 Mtpa (million tonnes of ore per annum).

Mako is another low-cost African gold mine with FY20 Guidance of 160,000oz at an AISC of US$800/oz (A$1,159).  RSG own 90% of Mako and the Senegal Government own the other 10% and receive a royalty of 3% + an additional 2% when the gold price exceeds US$1,150/oz, so they're currently receiving a 5% royalty on all gold produced.  The Senegalese Government is therefore (understandably) very supportive of the mine.   Mako has a 7 year mine life, a Mineral Resource of 1.2 Moz, a 0.9 Moz Ore Reserve, a LOM AISC of US$780/oz (A$1,130/oz), Target Production of 140 kozpa and a Plant Capacity of 2.3 Mtpa, so it's smaller than Syama, with half the mine life, but with comparable low costs.

Ravenswood is being sold (for up to $300m, but most of that won't be paid up-front) and Bibiani is under review with bids and/or expressions of interest having already been received from interested buyers.  I would expect Bibiani to be sold shortly.

That would leave RSG with just Syama in Mali and Mako in Senegal, plus a number of adjoining tenements and quite a few exciting exploration opportunities, plus equity holdings in a number of small gold explorers:

  • 9% of Oklo Resources (ASX: OKU);
  • 15% of Mako Gold (ASX: MKG);
  • 16% of Orca Gold (TSX-V: ORG);
  • 26% of Manus Resources (ASX: MSR); and
  • 27% of Loncor Resources (TSX: LN).

So there are a number of possible avenues there for future growth for Resolute.  They also have some good hedging in place.  Their latest hedging announcement can be read here.  They advised that they have just forward sold an additional 37,200 ounces of gold at an average price of US$1,562/oz (A$2,264/oz) in scheduled monthly deliveries of 1,200 ounces between July 2020 and December 2020 and scheduled monthly deliveries of 5,000 ounces between January 2021 and June 2021.  This hedging secures price certainty for a portion of the US$ revenues generated from Syama and Mako.  The additional US$ hedging extends Resolute’s existing US$ forward gold sales program which consisted of 77,800 ounces of gold forward sold at an average price of US$1,522/oz (A$2,206/oz) in scheduled monthly deliveries to December 2020.  Resolute maintains a hedging policy of committing to modest short-dated forward deliveries of a percentage of the Company’s gold production to take advantage of elevated gold prices. Resolute’s total gold hedge book as at 20 January 2020, including the new US$ gold hedges, consists of 215,000 ounces in monthly deliveries out to June 2021 representing less than 3% of Resolute’s Ore Reserves.

The biggest risks, as I see them, are mostly:

  1. Debt:  RSG are currently raising US$135m (A$196m) via Placements and an SPP which will be used to fully repay the US$130m (A$188m) Taurus bridging loan facility that was used by RSG to acquire Toro Gold last year (and the Mako mine).  However, this potentially reduces their net debt from A$387m to A$191m.  $191m of net debt is still significant.
  2. Sovereign risk:  All of their mines/operations are going to be in West Africa.

Further reading:

Equity Raising Investor Presentation

December 2019 Quarterly Activities Report

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#Bear Case
Last edited 4 months ago

26-Jan-2020.  Happy Australia Day everybody!  I've just posted a "Bull Case" straw for Resolute Mining (RSG), an ASX-listed gold producer who are soon going to have their mines and operations 100% in West Africa (apart from offices in Perth and London).

Apart from the gold-price risk that comes with owning shares in any gold miner, the company-specific risks associated with owning RSG shares, as I see them, are mostly:

Debt:  RSG are currently in the process of raising US$135m (A$196m) via Placements and an SPP (which will be open during February for existing shareholders to each buy up to $30k of new RSG shares @ A$1.10/share - RSG closed on Friday [24-Jan-20] at $1.17), which will be used to fully repay the Taurus bridging loan facility that was put in place to enable RSG to acquire Toro Gold last year (and the Mako mine).  However, this potentially reduces their net debt from A$387m to A$191m, and $191m is still a significant amount of debt, particularly when a number of our larger ASX-listed gold miners have comparable costs and produce just as much gold but with zero net debt. The ones who do have net debt generally have lower gearing than RSG.

Sovereign risk:  All of their mines are going to be in West Africa which is a riskier place to mine than Australia;  While we can have unexpected policy (and tax/royalty/levy) changes here in Oz, most would argue that Indonesia, the Philippines, parts of South America and much of Africa is a lot riskier and a lot more unpredictable.  It should be noted that Resolute have mitigated some of that risk.  For instance, with 10% of their Mako mine in Senegal being owned by the Senegal Government (who also receive royalties of between 3% and 5% - currently 5% - of all gold sales), they have a very supportive shareholder and stakeholder in the Senegalese Government.  However, people can get greedy sometimes and want more of a good thing - as a number of Australian mining companies who operate overseas have found out.  Agreements can be renegotiated, leases come up for review periodically, licences to operate can also be reviewed or modified at times.  Things happen.  And they tend to happen more O/S than they do here in Oz - in my experience. 

Currency Risk:  All of RSG's revenue from their African gold mines is received in US$, not A$, but then the bulk of their costs are also in US$ so there is some mitigation there against the currency exposure.  It is still worth noting that RSG do pay dividends in A$, and if the US$ depreciates against the A$ (or, looking at it the other way, if the A$ appeciates against the US$) then RSG's profits from their US$ African mines will be worth less in A$'s.

Business Plan/Execution Risk:  Firstly, I can understand what RSG are trying to do.  They're selling Ravenswood, which had the highest AISC of their 4 mines, and Bibiani (in Ghana) is under review, and could also be sold.  I expect they will try to offload Bibiani to further reduce their debt.  However, things don't always go to plan.  Also, the deal with selling Ravenswood to a consortium comprising specialist resources private equity group, EMR Capital, and Singapore-listed energy and resources company, Golden Energy and Resources, has been touted as "Resolute will receive cash proceeds of up to A$300 million", however the breakdown of that is:

  • A$100 million of upfront proceeds consisting of A$50 million of cash and A$50 million in promissory notes;
  • Up to A$50 million linked to the average gold price over a four-year period (gold price contingent payment); and
  • Up to A$150 million linked to the investment outcomes of Ravenswood for the EMR Fund (upside sharing payment).

As you can see, not much of that $300m is being paid upfront, and the rest is conditional and will take a number of years to eventuate (if indeed it does eventuate).  I'm not sure that is such a great deal for RSG for a mine that has more than 10 years of mine life left, a 5.9 Moz Mineral Resource, a 2.7 Moz Ore Reserve, a LOM AISC of US$823/oz (A$1,193, with the current spot gold price being almost double that), and a 5 Mtpa processing plant (larger than Syama, Mako or Bibiani).

If you want exposure to West African gold production via a decent-sized ASX-listed company, there is really only RSG and PRU - Perseus Mining - with their Edikan gold mine in Ghana, and their two gold mines in Côte d’Ivoire, Sissingué and Yaouré.  PRU's SP has risen +193% (from 38c to $1.115) in the past 11 months so you can certainly make money with these companies when things do go right for them, but go in with your eyes wide open, knowing the risks.

Personally I prefer goldies who have the majority of their mining operations here in Australia, and I currently hold shares in NST, SAR, EVN and SBM with much smaller positions in PNR and RVR (RVR are diversifying into gold, but mostly mine zinc). I recently sold out of IGO who own 30% of the high-grade Tropicana gold mine in WA. I also like to play the better service providers to the gold industry.

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#ASX Announcements
Added 6 months ago

05-Dec-2019:  Excellent Drilling Results at Mako Gold Mine in Senegal

And that's how you get your stock price to go up +9.57% on a day when the ASX's largest gold miner, Newcrest Mining (NCM), went down -1.65%.

Disclosure:  I don't hold either of them.  In the gold sector, I currently hold SBM, NST, EVN, and a very small position in PNR.  I also play the sector via service providers GNG, LYL, MAH and MLD.  GNG & LYL design and build gold processing plants, and MAH & MLD are mining contractors who specialise in gold mining (the majority of their clients are gold miners).  That's the "picks and shovels" play IMHO.

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#Missed Guidence
Added 5 months ago

For the year ended Dec. 31 gold production was 384,731 ounces. The company had previously guided for 400,000 ounces.

The company said it achieved the production growth despite the sulfide circuit at the Syama Gold Mine in Mali being offline for most of the fourth quarter.

Driven by plant disruptions at its Syama mine in Mali. "Whilst we see both valuation and cash flow appeal for Resolute, we balance this against the near-term balance sheet and rampup risk associated with Syama Sulphides," 

  •  Mining Net Debt Totalled A$380 Million at End-Dec
  •  Mining Cash, Bullion, Investments Totalled A$181M at End-Dec

Once Syama reaches steady-state production, free cash flow should be more compelling

Major impactor on SP will be the Gold Price: if upward trend continues this should see the SP trend back up


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