Monday 11th November 2024:

Source: RSG-Company-Statement-regarding-Mali.PDF [11-Nov-2024: 9:20am]

Disc: Not holding RSG, as they have been at the top of my "avoid" list for Aussie gold companies working in West Africa, due to the significant sovereign risk there plus the sub-par track record of RSG management who have consistently failed to provide adequate TSRs for their shareholders, and part of that stems from a lack of competency to handle and mitigate risk in West Africa.

I hold Perseus (PRU) - and their performance over the years has been so far ahead of Resolute (RSG) that you would never guess they both operate in the same part of the world. Chalk and cheese.

If you think sovereign risk in gold mining outside of Australia is overblown, then what has happened to RSG over recent days in Mali and what had previously ocurred with Kingsgate (KCN) in Thailand should be kept front of mind when considering such companies as prospective investments. Danger Will Robinson, Danger!!

Hey @Chalky1610, I thought that short data had at least a two day lag - does that sound about right to you?  If anything, I would have thought that shorting would have increased with RSG since the Ghanaian government terminated their Bibiani lease.  As you and I have mentioned, they were not operating that mine, it was shut down, and they hold sold it, pending approvals from the Ghanaian government, which were obviously not forthcoming, however it's the sort of thing that shorters usually latch onto. 

RSG looks particularly cheap to me now, considering they have two good operating mines that are not in Ghana.  However, not cheap enough for me to buy them, simply because I do not like the West Africa exposure.  For people who have a higher risk tolerance and are happy enough with an ASX-listed gold producer operating in Mali and Senegal, RSG might be a good opportunity, particularly after this recent sell-off.

25-Mar-2021:  The announcement by RSG after the market closed yesterday evening is another reminder of the sovereign risk attached to companies operating in West Africa and other risky areas of the world.  In RSG's case, they only had one mine in Ghana (Bibiani) with their main gold mine, Syama located in Mali and their Mako Gold Mine in Senegal.  During the December 2020 quarter Resolute Mining (RSG) had announced that they had reached an agreement to sell the Bibiani Gold Mine for US$105 million in cash to Chifeng Jilong Gold Mining Co. Ltd (Chifeng). Proceeds from the sale were to be used to repay debt and strengthen Resolute’s balance sheet.  Debt is an issue for RSG, and this sale now falling through will be a big blow to them.  They were obviously keen to exit Ghana and now we know why. 

The proposed sale of the Bibiani Gold Mine to Chifeng, a Chinese company, could be a factor in the move by the Ghanaian Minerals Commission (on the instructions of the Ghanaian Honourable Minister of Lands and Natural Resources) to immediately terminate the Bibiani Mining Lease.  A change-of-control event could be reason enough for the Ghanaian Government to make that move. 

I have mentioned several times in various posts here that there are governments around the world who will quickly move the goalposts, change the rules, whatever you want to call it, and leave a company that has spent years building up a site and a resource with nothing to show for it except a long drawn-out court process and associated legal costs.  It happened to Kingsgate (KCN) who were trading at over $8/share in 2011 and are now trading at just over 80 cents per share.  Their Chatree mine in Thailand was closed at the end of 2016 amid allegations of bribery springing from an anti-corruption probe into Kingsgate's Thai operations.  You can say, "well, if they don't do anything wrong, and follow all of the local rules, they should be OK."  Yes, they should be, but they often are not.  The rules can be changed.  New rules pop up.  The legal framework is vastly different in some of these countries and the government of the day often has enormous power.  And the government can change.  So any agreements made with the previous government can be worthless.  It can be very risky indeed.

This once again reinforces that Perseus (PRU) is the superior exposure on the ASX to West African Gold.  I don't hold either PRU or RSG, because I like my gold miners to have the majority of their mines here in Australia.  I do not like gold miners who operate in West Africa, Indonesia, Malaysia, Thailand, the Philippines, or most of South Amercia.  PNG is also risky, but I do hold SBM who have one mine in PNG and the others in Australia and Canada.

Sovereign Risk - it's real, and it can make a company go from hero to zero quite quickly.

14-Oct-2020:  Diggers and Dealers Presentation   plus   Tabakoroni Underground Update

Recent announcements include:

28-Sep-2020:  Syama Update and Guidance

23-Sep-2020:  Gold Forum Americas Presentation

Those last two are directly from RSG's own website, so do not have the ASX's "FOR PERSONAL USE ONLY" watermark stamped over the top of the text along the left hand edge, as the first two documents have.  The first two links (at the top of this straw) are to the ASX's modified documents because RSG have not yet uploaded those docs to their own website at this point.  In time, companies like RSG will need to leave adequate margins on the left side of their documents to avoid this issue, or else the ASX will have to go back to using a proper shadow-type watermark that does not obscure text in announcements.  The current situation is far from ideal.

[I do NOT hold RSG shares, because of where their gold mines are located.]

10-Sep-2020:  Syama Update

[I do not hold RSG shares.  They operate in West Africa.  Not one of my favourite places to mine gold.]

28-August-2020:  Half Year Financial Results Summary   and   Half Year Financial Results Presentation   plus   Half Year Financial Results and Accounts (Appendix 4D)

Also, recently:  25-August-2020:  Operational Update   and 19-August-2020:  Operational Update

Resolute Mining (RSG) are an Australian-listed and Australian-headquartered gold miner who have all of their gold operations located in West Africa, which is why I don't hold RSG shares.  The following links will provide you with some background on the issues and risks of operating in Mali:

https://foreignpolicy.com/2020/08/21/mali-coup-history-violence-collapse/

https://www.hrw.org/world-report/2020/country-chapters/mali

Despite these challenges and the sovereign risk associated with operating in Mali (and West Africa in general), RSG have reported very good H1 numbers:

• Half Year Underlying EBITDA up 96%
• Gold production up 24%
• Revenue up 33%
• Net Profit after tax up 32%

Despite their first half All-In Sustaining Cost (AISC) being US$1,020/oz (well up on their H1 19: US$828/oz), RSG are maintaining full year 2020 production guidance at 430,000oz at an AISC of US$980/oz (A$1,348.50/oz at today's exchange rate of US$1=A$0.73).  RSG's FY ends in December, so they still have one half left to report on for FY20.  They'll need an even better 2nd half to meet that cost guidance.

RSG have recovered off their March lows, but at $1.11 (where they closed yesterday), they're still -34% below the $1.68 level they were at 12 months ago, so shareholders haven't done well over the past year in RSG.

RSG is a top-12 gold producer (of the pure-play gold producers who are headquartered here in Australia), and only two others out of that 12 have failed to gain ground in the past 12 months.  Those other two are the biggest, Newcrest (NCM), with their inferior management and their suite of the good (Cadia), the bad (Lihir) and the ugly (Telfer), who are also down over 12 months, and OceanaGold Corp (OGC) who are roughly treading water - they are trading at about the same levels that they were one year ago.  Interestingly, OGC also don't operate any gold mines here in Australia either (same as RSG).  OGC's mines are in NZ (north and south islands), the USA and in the Philippines, and their Philippines mine, Didipio, is the source of their main issues at the minute.  Once again, sovereign risk! 

My preference is to stick with the gold producers with good management (with positive track records of good-to-excellent total shareholder returns - TSRs - and good capital allocation) who operate in the safest and least risky geographical locations, preferably with the majority (if not all) of their gold mines here in Australia.  On that basis, I have avoided NCM, OGC, PRU and RSG, and I currently hold NST, EVN, SAR, RRL, SBM, RMS and GOR - out of those top 12.  SLR is also in there, and they're OK, but I just don't hold them currently - I have in the past.  They're not currently one of my preferred exposures is all.  

However, horses for courses.  Everyone has a different and unique style, risk tolerance and outlook (including investment time horizon).  If you look at PRU (Perseus Mining), who also have their gold mines located in West Africa, they have risen from 78c/share to $1.42 over the past 12 months (+82%), so they've almost doubled.  So it is often high risk/high potential reward, if you're prepared to accept that level of risk.  PRU worked out well for their shareholders.  RSG has not, at least not in the past 12 months.  They may do so in the future.  But I won't be a shareholder of either company.

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

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.

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.