New year's Resolute holds promise

The setback saw the company miss 2019 production guidance of 400,000 oz, with 384,731 oz of gold produced across Resolute’s four mines. This lower production was also 14 per cent more expensive than forecast, at an all-in sustaining cost (AISC) of $1,090 an oz. Syama’s AISC for the last three months of 2019 was a sky-high $2,157 an oz. 

The first weeks of 2020 have been much more promising, however. Resolute said last year’s problems at Syama were over and has set overall guidance of 500,000 oz in 2020 and AISC at $980 an oz. It has just sold its Ravenswood mine in Queensland for A$300m (£160m), although only A$100m will be paid upfront under the agreement with the buyer, a consortium led by EMR Capital. 

To be fair to Resolute, opening a mine is no easy task. New mines often have production issues as equipment is bedded in and the company gets a fuller picture of the rock it is digging up. Resolute has added to the challenge by going high-tech at Syama with autonomous vehicles underground. The upcoming solar plant to reduce use of the diesel generator adds to Resolute’s innovation credentials. 

The new-fangled technology is not where the problem lay at Syama, however. Production in the three months to 31 December was hit by a crack in one part of the processing circuit in which ore mined is made into a paste and then concentrate, from which it is smelted into a rough gold bar. This was an expensive equipment failure, but the work Resolute did to fix the roaster at least means it has been able to push back a scheduled maintenance shut down from May this year to January 2021. This is useful because the mine has continued to run while the roaster was being repaired, adding to the ore stockpile waiting to be processed. 

While Syama was the main focus last year as the production ramp-up faltered, there have been other changes to Resolute’s portfolio. The saving grace for the period was another new mine addition, Mako. Bought for $274m (£212m), split evenly between cash and shares, from private company Toro Gold, it is low-cost and producing consistently. Resolute forecasts 160,000 oz to come from the mine at an AISC of $800 an oz. 

On top of the higher production forecast for 2020, there is some security if gold crashes in the coming months, as Resolute can still sell plenty of gold at current prices. In the first week of 2020, it added 22,800 oz in forward sales at $1,553 an oz to be delivered in the second half of the year, alongside the 55,000 oz at $1,510 an oz to be delivered monthly between February and December. 

Brokers are forecasting a significant step-up in profits in 2020 as reflected in our table. The forecasts used in the table do less to reflect the dividend potential, though. Strikingly, the dividend is not linked to cash profits or free cash flow, but the policy is that a minimum of 2 per cent of annual gold sales will be handed over to shareholders. The yield is around half that of Centamin (CEY) and below gold leaders Barrick Gold (CAN:ABX) and Newmont (US:NEM), but those miners would be hard pressed to get the kind of earnings growth forecast for the Australian company.