An interesting article re Resolute and Syama. Emphasises the...

An interesting article re Resolute and Syama.
Emphasises the importance of a successful commissioning of the sulphide circuit at Syama.

FatMan






Resolute Mining Can Now See The Light At The End Of The Tunnel On The Syama Gold Mine In Mali


By Our Man in Oz



It’s been a hard grind in more ways than one for the team at Australian-based Resolute Mining. But some time in the next few weeks the team ought to be cracking the bubbly. The primary reason for champagne will be to celebrate success at the troublesome Syama gold mine in the central African country of Mali. A secondary reason will be that Resolute has found a way through the financial logjam which has bedevilled world financial markets for the past year. “It has been a bit of a heavy lift,” says Resolute’s persistent chief executive, Peter Sullivan, describing the company’s third attempt to master the challenge that has been Syama. Fooled before him were BHP Billiton and Randgold Resources. Both of these earlier owners were unable to crack the code to unlock the mine’s tricky metallurgy.
Using the knowledge and experience accumulated by the two previous owners, Resolute’s plan has been to bypass a full roast of Syama’s ore, switching instead to the production of a gold-rich concentrate. Both BHP Billiton and Randgold stumbled at the expensive roasting step, which they tried at a time when the gold price was a fraction of today’s US$900 an ounce. But, offsetting Resolute’s advantage of being able to study earlier mistakes, has been the problem of re-developing a mine in the middle of Africa at a time of sharply rising construction costs and critical shortages of skilled professionals. This situation is now changing as the global slowdown pushes good people onto the labour market and costs tumble.

Sullivan acknowledges that work at Syama has been hit by delays and cost blow-outs which have added the best part of US$40 million to the price tag. At the very least that’s an annoying set of circumstances when capital and debt markets are on strike. But it was this over-run which forced Resolute to approach its shareholders for a capital top-up at what must have been the worst imaginable time, late November last year, when the bankers of the world were performing a collective impersonation known as the dance of the headless chicken.

Little wonder then that even the best friends of Resolute struggled to support the company’s request for an extra A$72.5 million, despite the offer of extremely generous terms on the convertible notes which made up the lion’s share of the raising and the news that the first gold pour from oxide ore at Syama had taken place. What happened after the capital raising was announced was painful to watch. On 2nd January, five weeks after it opened, Resolute closed the raising, having attracted just A$54.7 million. Of that amount, A$51.7 million flowed into the notes which carry a rather attractive 12 per cent interest rate. The rest went to buy new shares issued at A40 cents each.

However, after the official fund-raising closing date, and with the gold price rising, cash continued to arrive at Resolute’s front door. On 23rd January another A$6 million was raised via a placement at A40 cents, and on 3rd February A$3 million more came from a placement – bringing the total raised to A$63.7 million. That put Resolute close to the original target, which was then passed on 5th February when Resolute sold a US$20 per ounce royalty held on production from Dominion Mining’s Challenger mine for A$11.6 million.

Armed, finally, with the cash, Sullivan and his team are now moving quickly to finalise the most difficult part of Syama, the sulphide ore processing circuit. If that goes well, the Mali mine will be on its way to hitting an annual production target of 250,000 ounces of gold. “Syama is our key asset,” Sullivan says, while also acknowledging the importance of production from the company’s mines at Golden Price in Tanzania, and Mt Wright/Ravenswood in the Australian state of Queensland.

“It’s largely Syama and its location which has been a drag on our share price and investor support”, he continues. “The chequered history of Syama means we cop a discount from the mine itself and a discount from being in Africa. A sort of double-whammy with investors saying they’ll believe it when it happens”. That seems a opening for Minesite’s Man in Oz to serve up the obvious question: Is it happening? “We’re at the tail end of it, put it that way,” Sullivan answers in bluntly pragmatic fashion. “Commissioning and ramp up will take place over the next few months. We’ve effectively finished construction.”

He continues: “The first part of construction, the oxide phase, was completed last year, leading to that first gold pour in November. That’s a small aspect to the overall development. We’ve been commissioning that with oxide and transition material that doesn’t need roasting. By pushing the early material through we’ve been able to iron out any bugs in that part of the process. It hasn’t been smooth going, with issues to do with materials handling and the other things that you find when re-starting an old plant.”

Sullivan says the combination of delays to construction, high costs and the slower-than-forecast delivery of gold from the oxide phase led to the extra capital raising occurring at just the wrong time. However, now that he has the capital in hand, and the gold price looks like staying attractively high, Resolute is poised to switch on the money-making sulphide-phase of Syama, just as costs fall and skilled professionals become available. “The next two months are critical,” he says. “We are over the hump from a construction perspective. We haven’t yet started the commissioning ramp-up, which is the final hump.”

For followers of Resolute the next few months promise to be an interesting, and potentially profitable time. The sulphide phase of Syama is expected to produce gold at around US$400 an ounce, pointing to a theoretical margin of close to US$500 an ounce. Investors, having ignored Resolute as it struggled through the high-cost phase of the boom, are now starting to recognise that the company is coming out the other end. Anyone who took up the A40 cent a share capital raising completed just a few weeks ago is already looking at a 42.5 per cent profit, now that stock is trading around A57 cents. On Monday you could even have taken profits at A62 cents, a 50 per cent gain in the space of a month. And that’s not too shabby in today’s distressed equity markets.

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