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Questor: we’ve yet to strike gold with our miners but this Australian business could be the answer
Questor share tip: QE is back in earnest and gold could be the beneficiary so Resolute, which recently added a London listing, is worth a look
This column’s attempts so far to find a gold miner that could be a gold mine for investors have yet to deliver anything that could be described as riches.
Avesoro Resources encountered all sorts of problems and Centamin continues to steer down production forecasts at the Sukari mine in Egypt. Having given up on the former we shall stick to the latter and have another bash with Resolute Mining, a recent entrant to the London market.
We are going back to the well in the knowledge that gold miners are not to everyone’s taste. But we do so because this column’s faith in gold remains undimmed, even if the metal is trading back below the $1,500-an-ounce mark after a strong run earlier in the year.
The European Central Bank’s return to quantitative easing, at the rate of €20bn (£17bn) a month, and the relaunch of something that looks like it (despite denials) by the US Federal Reserve at $60bn (£47bn) a month suggest that the direction of travel is clear: more money creation at the first sign of trouble in the financial markets, let alone in the real economy.
It surely cannot hurt to seek some means to protect wealth from this, and from the relentless credit expansion that may well come with it.
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Already listed in Sydney, Resolute Mining joined London’s main market in June.
The company, run by former Australian rugby international John Welborn, is an established gold producer. In the first half of 2019 Resolute’s output was 176,237 ounces with an “all-in sustaining cost” (AISC) of A$1,173, or US$828, from three sites: Ravenswood in Australia, Syama in Mali and Bibiani in Ghana.
The long-term goal is to increase annual production toward 500,000 ounces and then 750,000 ounces. Mr Welborn, a director of the World Gold Council, has every incentive to deliver on this plan, since he owns 4.5m shares.
In the first half, the average price it received for gold was A$1,800 or US$1,275 an ounce, so Resolute made a profit, although it still consumed cash after A$38m (£20m) of capital investment and A$95m in mine development spending.
There is also A$232m in debt on the balance sheet, including leases, but interest cover was 4.4 times in the first half and if production and cost targets are met this should not be a concern. It will become more of a worry if gold prices slide or output disappoints so, like all miners, Resolute is not a suitable pick for widows and orphans.
The firm’s acquisition in August of a fourth mine, the low-cost, open-pit Mako site in Senegal, has raised Resolute’s target for output this year to 400,000 ounces with an AISC of US$960; costs are rising because of investment across the mines, notably Syama, where an automation drive should help take it towards full production by the end of the year.
There are clear risks, notably gold price volatility, any operational problems that the firm may encounter at its mines and any jurisdictional or political risk in west Africa, a problem that tripped up Avesoro in nearby Burkina Faso.
Resolute needs to deliver on the ramp-up at Syama and show how Ravenswood can expand and Mako can extend the life of its mine. But if central banks keep the monetary taps on and gold rallies back above $1,500 as a result, that could be a catalyst for performance.
The next news from the company will be a quarterly activity report on Thursday*, so investors might like to read that in depth as part of their research into the company, as the shares have fallen heavily since the announcement of the Mako deal.
All miners come with risk and Resolute is no different but gold bugs may take a shine to it.
Questor says: buy
Ticker: RSG
Share price at close: 68p
*The original version of the article incorrectly stated that the report was due on Oct 30
Russ Mould is investment director at AJ Bell, the stockbroker
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