On track with improvement in Syama: RSG produced 107,183oz at an AISC of US$1,033/oz in the June quarter, with production 7% above our forecasts and costs 12% below our forecasts. Both operations contributed to the improvement, with Mako providing the upside on production and the Syama oxide circuit helping in lowering the costs relative to our forecast. The sulphide circuit and underground operations at Syama are set to improve as the year progresses. The oxide operations in the second half will process more stockpiled material and some higher-grade ore will be available in the fourth quarter. We have adjusted our forecasts accordingly. RSG has maintained its full-year guidance of 430,000oz of gold at an AISC of US$980/oz, which is better than our forecast of 412,000oz at US$1,032/oz.
Mako life-of-mine plan – our over exuberance has seen a downgrade: As outlined by RSG, the new life-of-mine plan updates and upgrades the original DFS. We had previously factored in an increase in the gold produced by Mako through the conversion of resources to reserves and condensed the production over the original mine life. RSG’s mine plan spreads production over an additional two years and the production profile is less front-ended than we had previously modelled. Our estimated costs were also lower than RSG is forecasting. As a result, our Mako valuation has decreased from 57cps to 39cps.
Investment view: After updating our forecasts for the June quarterly production and operating cost statistics, the current balance sheet, the new life of mine plan for Mako announced this week and a mark to market of our gold and FX forecasts, our valuation has fallen 26cps to $1.10ps. Given RSG’s success in controlling the impact of COVID-19 at its African operations, we are moving to utilising a 5% WACC to determine the price target. As a result, our PT has only decreased marginally to $1.34 (prev. $1.36). Our rating has moved from Buy to HOLD on the back of recent share price appreciation. The next catalyst for a change in our valuation and price target will be the announcement of the life-of-mine plan and five-year outlook for Syama, including the Syama and Tabakaroni undergrounds as well as additional oxide resources, due in mid-late August. Click here to read full report