This back-to-basics miner is about to bounce

Before Resolute listed in London in 2019, adding to its primary Australian listing, it had an expansionist approach across West Africa and a legacy mine in its home country. Troubles with processing and getting consistent grades of ore out of the ground pushed the share price down between 2020 and 2023.

Things are turning around, however. It now has only a handful of early-stage exploration projects and two operating mines: its flagship Syama gold mine in Mali and the Mako gold mine in Senegal.

The company pruning has included selling one mine, Bibiani, for $90mn (£68mn), which the previous chief executive John Welborn had said in 2018 was likely to produce over 100,000 oz a year over 10 years, with an all-in cost of just $765 per oz. Four years later, the mine was for sale – so much for the “key growth asset” initially pitched to shareholders. Other investments proved similarly ill-fated. 

The new management team has also spent nearly three years reworking the Syama plant and paring back some of the grander ambitions for the mine. A hybrid solar/heavy fuel oil electricity system has become a fuel oil plus battery system, while automated underground mining machines have been abandoned in favour of having workers run the machines. This shift happened under chief executive Terry Holohan, who joined in 2021 as chief operating officer before taking on the top job in 2022. 

Syama’s plant has been reworked, and the company has literally changed the way it approaches the orebody underground – it has altered the angle in order to better access the gold reserves. This work has not yet delivered major growth or lower costs, but has improved stability, and the company now has the base from which to grow output. 

That was reflected in the 2023 results. Production was down compared with 2022 at 331,000 oz, but Resolute ended the year in an adjusted net cash position. At the end of 2021, its net debt was $229mn.

The other mine, Mako, also had a fair bit of maintenance work done to it last year. Waste stripping, where rock that does not contain gold is removed, went up in the middle two quarters of the year “which should see improved production and lower costs in 2024 and 2025”, according to Liberum analyst Yuen Low. 

Costs have been an issue for years at Resolute’s two mines. Last year, the all-in sustaining cost (AISC) was $1,470 an oz, which is well above fellow African gold miner Centamin (CEY), which reported AISC of $1,220 an oz. The company has guided for improvement on this front this year though, with costs heading for $1,300-$1,400 an oz. 

Richard Hatch from Berenberg said last month that the company had completed a “successful turnaround with room to grow”. He predicted that the drop in costs in 2024 would lift the Ebitda margin from 26 per cent to 32 per cent, and he sees it climbing again in 2025 to 38 per cent. 

Near-term outlook

A turnaround suggests you might end up going back where you came from. But the Resolute bosses have plenty to keep them occupied for the next few years. The current orebodies at Syama and Mako do not have long left, so mining will have to shift to new areas nearby to keep production going. In addition, the company is expanding the processing capacity at Syama from 2.4mn tonnes a year to 4mn tonnes a year. 

This will be completed in just over 12 months. There are two processing plants at the mine, with the sulphide ore from the underground workings going to that 2.4mn-tonne plant and oxide ore from an open-pit mine (1.6mn tonnes a year) going to a smaller carbon-in-leach system. 

In terms of new gold resources, Syama is on firm footing. Resolute has already defined a resource of 2.7mn oz at the Syama North site. This orebody is shallower than the current sulphide ore going into the larger plant, and so will be mined with an open pit.

“The overall objective is to increase the production profile of Syama to over 250,000 oz per annum and reduce the cost profile by up to $200 an oz,” the company said. The Syama underground mineral reserves are still at 2.4mn oz, so there are plenty of years left there too. 

Further ahead, Syama North will also “underpin” the phase II expansion, according to Holohan, which could take Syama to 400,000 oz a year. 

The situation at the Mako mine is more uncertain. Mako has just two-and-a-half years left from the current orebody, and needs more to stay in operation. Holohan said it was a “three-horse race” for which satellite orebody is going to feed in to the plant next. The leading candidate, Tomboronkoto, has a resource of just 403,000 oz (or four years of production at the current capacity), but exploration continues. 

Beyond 500,000 oz

“The big prize… which we're all here for, is to take the Syama operation up to far larger number and make this company a 500,000 oz operation,” Holohan told investors last month. 

But for Resolute to get beyond half a million oz, it will need to build out one or more of its exploration properties – a serious investment. To continue the geographic spread, its key pre-revenue projects are not in Mali or Senegal, but in Guinea. Closest to turning into a mine is Mansala, in the north of the country. A first estimate of the contained gold is expected in the coming months. 

This is where the company has to watch its step. Building up new operations is difficult and Resolute shareholders have already been burned once by management looking for significant growth and loading up the balance sheet.

But the base is stable, and the high gold price means the near-term work, such as expanding the Syama plant, can be done from cash flow. The cost of the current phase of Syama expansion – the plant upgrade – is expected to be $55mn for this year. The cost of the phase II Syama work will be sketched out in a scoping study later this year. 

Analysts have noted the turnaround, but some wariness remains. Hatch at Berenberg has a price target of 27p, while Panmure Gordon is slightly more ambitious at 33p a share, as per FactSet.

Hatch used a valuation ratio of 2.8 times enterprise value to Ebitda to arrive at his target. For a gold miner, this is low. Centamin trades at just under four times, while Endeavour Mining (EDV) has traditionally sat around five times, although its recent share price weakness has pushed the figure higher. 

Positioning Resolute amongst the other London gold miners is tricky, but it should be higher in the valuation rankings. The hard work is done at Syama, by getting the processing and block cave underground mining right, and a new pit at Mako should feed into existing operations without too many issues in 2026-27.

This should be the moment investors get back into the company, therefore. Buying into a company at five times forward earnings that offers over 300,000 oz a year with falling costs is a golden opportunity.