Resolute Mining Ltd

Resolute Mining Ltd (LON: RSG) is a Perth, Australia-headquartered gold producer, which has operations in Africa and Australia, spanning across three gold mines.

Investment Rationale – Speculative Buy at GBX 29.00

• As of 7 April 2021, RSG unveiled that the Syama Life of Mine has reflected a production of between 250,000 to 300,000 ounces at an AISC (All-In Sustaining Cost) of nearly US$1000 ounce (oz) to 2029. In 2020, production was 214,360 ounces at an AISC of US$1,203 per oz.
• Over the past two years (FY18 to FY20), revenue and gross profit have surged at a CAGR of around 93.41 and 142.63%, respectively.
• From a technical standpoint, 14-day RSI (46.49) is supporting the upside potential.
• RSG reaffirmed its capex and production guidance, while the Company has decent liquidity to manage its accelerated debt repayment schedule.

Risk Assessments

• RSG has hefty debt to be repaid which can attract heavy interest costs and create a significant liquidity risk.
• The scale and continually evolving nature of the COVID-19 pandemic are causing unprecedented disruption to the supply chain. It can lead to reduced gold production as small-scale refineries and fabricators also halted their operations in FY20.

Recent News

19 April 2021: RSG received a notice from Chifeng Jilong Gold Mining Co. Ltd for the termination of Bibiani Gold Mine sale agreement. Previously on 14 April 2021, RSG affirmed that the Bibiani Gold Mining related lease has been restored by the Lands and Natural Resources Minister of Ghana, Samuel A Jinapor.

Market Update (as on 31 March 2021)

• Syama and Mako gold operations remained on track to meet FY21 cost and production guidance.
• The expected operating cash flows support the target debt repayments of US$50 million in FY21.
• The Company has also scheduled the minimum debt repayment of US$25 million in September 2021.
• As of 31 December 2020, the Company had a cash and bullion balance of US$106 million.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

In FY21, RSG estimating production guidance of 350,000 to 375,000 oz at an AISC of 1200 to 1275 per oz. Moreover, it has a robust operating cash flow generation to ensure the accelerated debt repayment. The transaction of Bibiani Gold Mine transaction is consistent with the strategic focus on its core operating assets together with balance sheet improvement. The Company is also encouraged by the results of Tabakoroni Underground Mineral Resources as Syama sulphide production is expected to increase with lesser AISC in FY21 against FY20. The stock made a 52-week High and Low were GBX 81.07 and GBX 23.00, respectively.

Based on the reaffirmed guidance, robust cash generation, and support from the valuation conducted above, we have given a “Speculative Buy” recommendation on Resolute Mining Ltd at the current market price of GBX 29.00 (as on 22 April 2021, at 09:10 AM GMT) with lower double-digit upside potential based 0.77x EV/NTM Sales (approx.) on FY21E Sales (approx.).

Metal Tiger PLC

Metal Tiger PLC (LON: MTR) is a FTSE AIM All-Share listed Financial Services Company, which provides business and financial support for expanding the natural resources interests.

Investment Rationale – Speculative Buy at GBX 19.65

• The Kalahari Metals Limited (wherein MTR holds a 50.01% stake) expects to commence drilling at Kitlanya East by early May.
• MTR invested AU$1.413 million, as a part of AU$6.7 fundraising conducted by Cobre, to fund drilling activities for Kalahari Metals Limited.
• From a technical standpoint, 14-day RSI (43.37) is supporting the upside potential.
• In the past 1-year, MTR has yielded a stellar return of around 35.72% in stock price.

Risk Assessments

• MTR’s financial reports are over six months old, while the Company has a low market capitalisation.
• Political uncertainties and macroeconomic headwinds continued to create market turbulence.
• It is a lossmaking entity, and unavailability of substantial funds can affect the growth trajectory.

Recent News

21 April 2021: MTR subscribed for 7,142,860 shares in Antipa Minerals Limited for a consideration of nearly £166,176.

19 April 2021: Southern Gold (wherein MTR holds 17.72% interest), updated encouraging results regarding soil sampling results at Deokon Project.

Unaudited interim results for the six months ended 30 June 2020 (as on 30 September 2020)

 (Source: Company Website)

• Net asset value per share declined year-on-year in H1 FY20, while the market capitalisation significantly increased from the previous years’ position.
• However, MTR could not generate any revenue and reported net losses in H1 FY20.
• Adjacently, the Company unveiled its intentions for dual listing on Australian Stock Exchange as well.
• The Company continued to make investments in existing and new entities to diversify portfolio investments.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

The recent investment in Corbre shall support the commencement of exploration activity at Kalahari Metals, which shall create significant shareholder value. During H1 FY20, financial performance declined significantly while the profitability remained in the negative territory. However, the board is confident about the positive outlook as it has strengthened the management position by hiring David Royle and the financial position by the equity derivative collar financing facility. Moreover, it continued to focus on Botswana with interests in KML and holdings in Sandfire. Stock 52-week High and Low were GBX 29.00 and GBX 13.10, respectively.

Based on the factors discussed above, we have given a “Speculative Buy” recommendation on Metal Tiger PLC at the current market price of GBX 19.65 (as on 22 April 2021, at 10:10 AM GMT).

*All forecasted figures and Peer/Industry Information have been taken from Refinitiv, Thomson Reuters.

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