RESOLUTE Mining confirmed the sale of its 54,500 ounce a year Ravenswood mine in Australia’s Queensland to a consortium led by EMR Capital for A$100m ($69m) of which half would be in cash and the balance in promissory notes.
In terms of the agreement with the consortium, which also consists of Golden Energy and Resources, listed in Singapore, Resolute will share in the prospects of Ravenswood. Up to A$50m can be paid out to Resolute if the gold price averages A$2,100/oz over four years. If the gold price averages A$1,900/oz, some A$10m will be paid.
A further A$150m can be paid to Resolute if EMR Capital – an equity fund management firm which would quite probably have a view on a long-term exit strategy – decided to monetise its stake in Ravenswood either through a listing or on-sale.
The promissory notes yield a 6% coupon rate with maturity of some seven years or in the event Ravenswood is listed or wound-up.
Essentially, the benefit of selling Ravenswood is to bring focus to Resolute, and remove the need for some A$150m in expenditure on the Ravenswood expansion project that had been contemplated.
The A$50m in cash would also help Resolute take down net debt a notch. Net debt was $267m as of December 31 which the company vowed to tackle by 2021 partly through the refinancing of a $130m loan but also through improved cash flow.
Resolute had targeted 200,000 oz/year from Ravenswood, but the mine did not seem to be as high on the firm’s strategic list when set against the underground development of its Syama mine in Mali, the further development of Senegal’s Mako gold mine, or even additional merger and acquisition activity.
Asked about the M&A market, Resolute MD and CEO, John Welborn, said there was still value to be had in development and exploration assets. Higher values were being applied to near-cash and cash generating assets as evidenced by Centamin’s rejection of Endeavour Mining’s £1.5m all-share merger proposal.
Resolute has targeted production this year of some 500,000 oz of gold. Welborn said a potential shortfall in production as a result of the Ravenswood sale would be, at least partially, made up with the optimisation of the Mako gold mine, and further benefits that might flow through from Syama underground’s development.
“We’re not fixated on volume,” he said.
Once Ravenswood is out of the picture, Resolute will be 100% African focused and raises the question as the firm’s approach to the final asset about which there’s uncertainty: Bibiani, a mine in Ghana with a mineral resource of 2.5 million oz that had been slated to produce 100,000 oz/year.
In mid-2018, Resolute won the right to build an expansion project underground at Bibiani but last year decided to take a breath whilst it assessed its options. “We are running a strategic process in which we could bring in a partner or look at a divestment,” he said.
Given that Resolute was looking for long-life and scale assets, and would probably need a fitter balance sheet in order to achieve this, it might opt for a divestment especially as the company has raised its asset quality over the last 18 months.
