Led by a former rugby international, shares in Resolute Mining have jumped by a third since it listed in June
Thursday 22 Aug 2019 Author: Yoosof Farah

As gold continues to hit the heights, it would seem one miner of the shiny metal timed their entry to the market perfectly.

Australian miner Resolute Mining (RSG) listed on the Main Market of London Stock Exchange in June, at a time when gold was hitting five-year highs of $1,385 per ounce. As we write the precious metal is around the $1,500 mark, a six-year high.

ESTABLISHED PRODUCER

An established gold producer with mines in Australia and Mali, and another in Ghana soon to reach full capacity, £926m market cap Resolute is already listed on the Australian Securities Exchange and didn’t need to raise any new money as part of its London market debut.

Resolute chose London as it thinks it will get a fair rating and will be more likely to find investors who understand African-focused miners. That means its share price over here should be priced more fairly, or at least as the company see it.

The firm’s chief executive, former Australia rugby international John Welborn, tells Shares the company wants to be known as a ‘multi-mine, low-cost, African-focused gold producer’.

FOCUS ON SHAREHOLDER VALUE

He says, ‘Ultimately we’re a gold company that exists purely to create value for our shareholders.

‘We’ve been doing this for over 30 years as an explorer, developer and operator of gold mines. We’re successful, and importantly, we’re dividend paying.’

As far as the numbers go, Resolute has certainly done plenty to make itself known to investors. Gold production for the 12 months through to 30 June this year stood at 305,436 ounces of gold produced at an all-in sustaining cost (AISC) of $924 an ounce.

That exceeded the firm’s guidance of 300,000 ounces, with $924 per ounce AISC below the $960 it had forecasted, particularly pleasing for the company and investors alike given the current gold price. For reference, any AISC below $1,000 is considered decent by the market.

Taking advantage of the current gold price, Resolute has forward sold 30,000 ounces of gold at an average price of $1,519 per ounce this month, on top of the 50,000 it forward sold in June at a price of $1,337 per ounce.

The figures help explain why Resolute’s shares have jumped by more than a third since it listed in London. The company shares ended their first day of trading on 20 June at around 66p, and are now hovering around the 110p mark.

AMBITIOUS PLANS

While the numbers are strong, the firm is ambitious and wants to grow further. Welborn says Resolute hopes to have one to three additional mines in the next three to five years with a focus on assets with a life of   over 10 years.

The firm has already started making good on those plans, recently acquiring Toro Gold for $274m, a Senegal-based miner which already has a gold mine which produced 157,000 ounces of gold last year at a barely believable AISC of $655 per ounce.

At $274m, Resolute might’ve found a slight bargain given $300m was the figure bandied about before Resolute entered into talks with Toro.

However, Toro’s Mako mine in Senegal only has an initial mine life of seven years, and while Welborn claims there is ‘lots of potential’ to extend the mine’s life, he concedes ‘you never get everything you’re looking for all of the time’.

UPGRADED OUTPUT GUIDANCE

But the deal has led Resolute to revise up its full year production guidance from 330,000 to 400,000 ounces of gold at an AISC of $960 per ounce, taking it closer to its aim to produce 500,000 ounces a year, and eventually 750,000 ounces a year.

Another thing which will help Resolute’s production is the Syama mine in Mali, which first fully automated mine. Welborn says it should be at full capacity by end of this year, ultimately producing 300,000 ounces of gold a year at an AISC of what Resolute hopes will be less than $750 per ounce.

Such automation will allow Resolute to significantly reduce costs, as well as improve safety and the efficiency of digging gold out of the ground. It begs the question in this day and age why more mines aren’t automated.

‘The problem is’, Welborn explains, ‘when you’ve done something one way and had success that way, people think why would you change? But we think, why wouldn’t you change?’


Political risk takes shine off gold miners

One important thing to consider with miners is jurisdictional and political risk. Particularly for gold miners, many of whom operate in West Africa, which has huge reserves of gold but can be volatile from both a political and security viewpoint.

This was all too clear when Canadian miner Avesoro Resources (ASO:AIM) had to suspend one of its two mines, the Youga mine in Burkina Faso, after it was stormed by armed strongmen looking to steal gold ore.

Its shares plunged from 65p to 50p following the news, and are hovering around 55p with the mine still suspended amid reports the miners are reluctant to go back to work.

 

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