austock report - $2.76 price target

COMPANY Resolute Mining Ltd | RSG | $1.32/share

RECOMMENDATION Buy | High Risk | $2.76/share target

EVENT September qtr production | Sept qtr beats us, suggestive hints of more good news coming

KEY POINTS

? Gold production was 18% better than expected at 81koz (inline with Jun qtr), with all operations good contributors, despite Syama mill outage. Cash cost was 5% higher than expected at A$914/oz (higher than A$785/oz in Jun qtr). We continue to see guidance as conservative and meant to be beat, we remain fixed on production but factor in a further A$20/oz cost reduction (Austock Revised: 377koz @ A$764/oz, Austock Previous: 377koz @ A$784/oz, Guidance: 380koz @ A$870/oz).

? We expect good exploration newsflow to continue for remainder of FY11 at all RSG operations and JV projects. Most impressive hits during the quarter continued to be from Welcome Breccia with 55m @ 10.54 g/t Au (450m depth). Welcome Breccia (40km trucking distance from Ravenswood) Resource modelling and scoping study to commence in Dec qtr post metallurgical test results due back in Dec qtr. We expect earliest potential ore production around 2 years away.

? RSG remains our high conviction buy pick of the space, and even moreso given it?s the largest ASX pure play gold producer and now 100% leveraged to the gold price post recent hedge close. We upgrade FY11 EPS +16% to 9cps for better than expected performance at Golden Pride.