RSG - Resolute Mining - Opinions Please

hotdogma

hotdogma

Active Member
Hi All -

I have been looking to get into an Australian gold miner and have spent the past week reading annual reports of Resolute, Newcrest, Medusa, Independance, Perseus, Oceana, Silverlake and Kingsgate. I don't have a huge knowledge of the history and markets love for each company, but according to my basic ratio analysis, Resolute would have to be my favorite. I am still starting out - but;

ROE: 0.1601
ROA: 0.1465
Margin: 0.1704 when most are posting losses
EPS: down, but still 0.13 on a share price of 0.84 for PE of 6.33
Good current ratio but only small revenue growth

What are you opinions of this stock? Appreciated, Regards; HD.
 
hotdogma said:
EPS: down, but still 0.13 on a share price of 0.84 for PE of 6.33
What are you opinions of this stock?
Click to expand...

I used to have RSG on my radar but gave up following it when it had a few bad years. Had a check at Skaffold which is still a fair way of getting a quick idea of past performance and I see RSG has had a jump in quality and performance for FYs 2011-13. Don't forget though that historical P/E is of very limited use when there is no certainty about future earnings, this especially so for a gold miner.

Looking forward however Skaffold see the stock as worth only 30c, 33c, and 26c for FY14-15, so grossly over-priced is their verdict. Much of the valuation comes from the current input of analysts forecasting earnings per share (eps) and consensus eps for FYs 14,15,16 is only 8c,8c,7c respectively.

Those eps estimates will further depend on their outlook for gold. Their range of eps estimates is wildly variable, there are 5 analysts contributing for RSG and eps ranges for FYs 14,15,16 are minus 1.3c- 15c, minus 1.7c-14c, and minus 1.2c-17c respectively. So one analyst at least anticipates losses for future years while another foresees good profits.

RSG is currently downtending but this might just be taking some of the profits of the rally since JUly - i.e. healthy. My view is the price should not have fallen below 85c for bullishness to be intact. If you lack fundamental conviction in RSG one cautious approach would be to wait for a break above the recent downtrend before buying and set a mental stop-loss not too far below the lowest point of the downtrend. Say it broke out firmly over the next few days. Your low point would be 75c and your stop loss for selling might be 70c

1893_rsg.gif
 
Hi Finicky -

Thank you for the detailed reply. I have been following your calls here and love your input.

I agree with a lot of your analysis, but the problem I have is, if Resolute isn't a buy, I cannot find an Aussie gold miner who is. Compared against earnings, margin, debt to equity, return on equity, current assets / current liabilities - they are better than the rest. Maybe lose a couple points on geopolitical due to Mali...

Seems most miners cannot turn net profit let alone have revenue cover cost of production - know what I mean... Like I said, I am still learning, so definitely talking about dipping the toes - not betting the farm.

I checked out Skaffold - had a demo run with a couple stocks. It seemed pretty scathing of Newcrest. Which Aussie Gold Miner does it say is best?

Kind Regards;
 
Two months ago I took a small holding in Newcrest and MML
Newcrest seems touchy ATM until this disclosure problem are sorted, most opinions I've herd is that people are awaiting management change

MML I just jumped out today, wait and see if POG drops further. For now I've doubled up in ABM (ABU) as I feel that it is my best chance of return for the short term

Ps, I'm no expert, just a battler trying to build wealth, maybe on a short path to losing it all
 
hotdogma said:
I checked out Skaffold - had a demo run with a couple stocks. Which Aussie Gold Miner does it say is best?
Click to expand...

Hi hotdogma, sorry for delay.

I'm a bit reluctant to bring Skaffold valuations into a post now but Skaffold is still a fair way of getting a quick idea of past performance. It's mostly limited for me now to see quickly how a stock I have little idea of has gone in past years. The forward valuations are wildly unreliable and unstable, the more so with small miners.

When they say 'consensus' eps what can that mean? It's just some arbitrary rough mid-point between disparate individual estimates.
For RSG Skaffold says FYs 14,15,16 are minus 1.3c- 15c, minus 1.7c-14c, and minus 1.2c-17c respectively, so the way I see it, users of Skaffold are thrown back onto their own devices trying to decide whether earnings ahead are more likely to be losses or bumper profits.

Another thing I don't like about Skaffold is that its revaluations trail by significant time lapses results that companies announce to the asx . Let alone significant non half yearly announcements -they don't register.

Also we don't even know who the analysts providing forward earnings estimates are! Just that they hail from major brokers/investment banks.

But I've been through a few of the goldies I'm interested in and you wouldn't buy one of them if going by Skaffold alone. They are mostly either rated below investment grade (often 'C4', C3) or if rated 'A2' like Northern Star (NST) are calculated as being priced well above their forward year intrinsic values. Northern star (NST) is viewed as rising in value but still only worth 72c by FY16!

The other thing that stands out is the extreme range of eps estimates for all of them are, including RSG as discussed. Northern Star (NST) too has wide range of eps. I am interested in Doray Minerals (DRM) and Skaffold only rates this as 'C4' for quality and FY13 performance. However its intrinsic values for FY14 and FY15 are calculated as well above the current price ($2.20, $1.21 for FY14, FY15) But again the range of the individual eps estimates - for DRM its 18-26c, 15-22c for FY14, FY15. Only 2 analysts contributing eps input

Or another I'm interested in, but only at a low price: Saracen Minerals (SAR), a C4 rated stock priced above FY14 value but well below FY15, FY16 values (42c, 54c)
Hugely ranging eps estimates 1.7-6.5c, 1.9-11.8c, 4-13c for FY14, FY15, FY16. So which one is right, if any?

Regis Resources (RRL): A1 quality and performance, but again overpriced, and again huge range of opinion as to future eps

Silverlake (SLR): C4, massively overpriced, stupendous range of opinion eps estimates

Beadell resources (BDR): C5, under-priced CAL 2014 but over-priced going out to CAL 2015, big range of opinion as to future eps

Troy Resources (TRY): B3, priced about right FY14, but overpriced FY15, FY16, huge eps est range

Medusa (MML): A2, under-priced FY14 with value rising FY15, FY16, big but not huge range of future eps ests, about 5 analysts covering. Sovereignty risk.

Kingsrose (KRM): overpriced, only one analyst

And all these estimates can change drastically in reaction to just one half yearly report :|
 
Hi Finicky;

Thanks for the detailed reponse. I appreciate your opinions and take your point on Skaffold - but I suppose all research has to start somewhere - so why not there.

I looked into all of the companies you mentioned, but couldn't find the latest annual reports for any except Northern Star - and it looks to be a winner I agree.

Ratio comparison between Resolute and Northern Star below;

RESULTS Resolute Northern Star
Return on Equity 0.160101002 0.256745366
Return on Assets 0.146595418 0.233728845
Profit Margin 0.1704537 0.196400344
Gross Margin 0.48966864 0.577359328
PE Ratio 6.334841629 13.33333333
Sales Growth Rate 0.072825653 0.449243909
Current Ratio 1.842873268 2.575518626
Quick Ratio 0.336041348 2.118427355
Cash Flow Ratio 1.147190744 2.427945024
Debt to Equity 0.373542179 0.426102325
Debt to Assets 0.271955376 0.298788044
Leverage Ratio 1.373542179 1.426102325
Interest Cov Ratio 76.12686567 47.15


So Northern Star has bettern ROE, ROA, Gross and Net Margins, Sales Growth Rate etc - looks like a good company to me.
Obviously from PE - that strength is priced in, relative to Resolute and Debt to Equity is higher. But all in all, will be going on to my watch list.
Looking forward to getting the annual reports for the other miners you listed.

Kind Regards; HD.
 
Resolute finally breaking upward last week, after suffering from the Van Eck ETF rebalance in June and poor gold stock sector sentiment for much of this year.

RSG_weekly_3sept2017.png
 
RSG done very well since bottoming a couple of weeks ago in mid 90s. Pretty much anything below $1.04 Support has been good buying over last 6 months (see previous chart above).
RSG now north of 200(d) sma (around $1.15) which to hold as Support short term.

January & February historically RSG's strongest time of the year.
DSk3I9UV4AACYoM.jpg

Jan:
2017: + 13%
2016: +30%
2015: +37%

Feb:
2017: +9.9%
2016: +60%
2015: -15%

Move so far similar to this time last year, where RSG went from 94c to over $1.91 in about 2.5 months.
 
I think $1.30 is the key ST. If $1.30 breaks as Resistance, very good chance that momentum will continue, as it will be a break of the long sideways pattern (stage 1) and a clear Stage 2 will begin.

Also, RSG after having a couple of months chopping through 200 daily SMA, and has stayed above it for a while is a positive sign.
 
Yes, weekly RSG chart looking good, last week confirming a higher high after a higher low. Volume fell on the recent downstroke and rose on the upstroke. The last year or so has seen it making a bowl shaped base. Doesnt preclude a pullback, but downside seems limited with the $1 zone looking nailed down. Agree that it needs confirmation of a break above the 1.25 zone to be sure.

The presentations read so well with the company meeting or exceeding its past guidances, the long life mine plans, the intended use of highly mechanised cave mining at Syama (Mali), the embrace of technological innovation. And it doesn't hurt that one of my fave fa posters on hc is backing it.

Been caught out by sovereign risk before though; most recently by Kingsgate (KCN) in Thailand, but also Highlands Pacific (HIG) and Frontier Resources (FNT) in New Guinea - never touch anything with the McNeils in it. Also almost went into Oceana (OGC) which has headwinds from Philippines government (Duterte is s'posed to have said to foreign miners, "I will tax you to death"), almost bought into an Indonesian asset (Intrepid Mines) that was seized. So wouldn't be comfortable with Africa now myself.

RSG Weekly
RSG WKLY.gif
 
re HC: I'm guessing your talking about Eshmun? He has some good insights into various gold companies. Not always right, but not afraid to tell it how he sees it (which is exactly what most social media sites need more of). He's been spot on about ARV during the watermelon seed nugget craze.

With RSG. It's been quite misunderstood by the market for 18+ months. It lost complete traction with the Van Eck ETF debacle a year ago (hurt more than any other ASX company).

RSG is a growth story, few other ASX gold companies can offer. It's been spending a lot on CAPEX on its 2 existing mines (Mali & in Qld) with a 3rd project ready to go soon.

Current money being spent on U/G Syama should bring very substantial cashflow back to RSG. Sub-level cave method will be a game changer.
Ravenswood will be a game changer once they transition from stockpiles.

Good audio rundown by MD in late Jan, including some Q&A at the end. The Q&A is quite interesting. Highlights how various parts of what RSG is doing is misunderstood by investors.
http://www.openbriefing.com/OB/2798.aspx

In terms of near term growth and lowing of ASIC, few come close to RSG. Also that is has 2 mines is much better than all the 1-mine operations out. Too many have had operational &/or political risk in recent years. The list is long in the gold space. IAU was one I had a hard lesson on. Since then a lot more political risk in SE Asia in particular, but increasingly so in other jurisdictions.
 
Yes, eshmun. I also pay close attention to posts from plough and nordesmic when it comes to mining/exploration nuts and bolts. Plenty of others well worth a read though of course. I thought plough won the debate with eshmun over DRM, but more time will be the ultimate judge of that - eshmun put enough doubt in my mind to not recommend DRM as a buy, although I do hold.
 
Yeah I have some DRM as well, but it's a good example of the high risk nature of the junior end of the gold market. The former MD Kelly completely bungled DRM on his way out - a time when major transition was occurring with Deflector being built and Andy Well struggling to find enough ounces. The key lesson is that bad news by gold juniors is almost always followed by a string of bad news and turnarounds can take years (if ever). For DRM most of the bad news should now be well behind it. The recent cap raise (to reduce debt) proves Eshmun's point that Deflector hasn't hit the ball running enough yet.

And Andy Well never developed enough reserves before going into production. There just seemed to be an expectation that lots of gold would be found (there probably is a fair bit more, but requires a lot more $$ to drill).

The current gold and copper coming out of Deflector has to start substantially improving DRM's balance sheet for the market to take it seriously. Current MD Junk has made some tough decisions with the hand he was initially dealt with, but Deflector must outperform now. It just can't afford to have lacklustre results from here or its SP will never go anywhere.

More and more I believe in the multiple mine strategy to mitigate risk. eg. the likes of RSG, RMS, AMI (2 mines each). Probably a key reason why the larger end of town (except disaster-prone NCM) is performing so well lately like EVN, NST, SBM. AUD Gold at about 20 month high right now (& USD gold still looking alright), so a lot more ASX gold stocks might get more attention now.
 
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