The Resolute Mining Limited (ASX: RSG) share price has been smashed in 2021.
After crashing 26% lower on Thursday, the gold miner's shares are now down 45% since the start of the year.
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Why is the Resolute share price down 45% this year?
It has seemingly been a case of Murphy's Law for Resolute Mining this year – anything that could go wrong, has gone wrong.
Disruption at its Syama operation in Mali, a disappointing FY 2020 result, and weak guidance for FY 2021 were already weighing heavily on the company's shares before this week's bombshell.
That bombshell was news that the the Ghanaian government has terminated its Bibiani Gold Mine licence. The miner has been told to cease all activities and operations at the site with immediate effect.
While this would be bad news at any point, the timing of it was particularly bad. That's because the asset is currently being sold to Chifeng Jilong Gold Mining for US$105 million and was expected to complete in the coming weeks.
This sale now looks very unlikely to complete, at least on current terms.
Are its shares good value now?
Analysts at Goldman Sachs believe the selloff has been an overreaction and see a great deal of value in the current Resolute Mining share price.
According to the note, the broker has reaffirmed its buy rating and $1.30 price target on its shares.
This price target implies potential upside of approximately 180% over the next 12 months.
What did Goldman say?
The broker ascribes very little value to the Bibiani asset and hadn't included its sale in estimates. As a result, it doesn't see this latest news as an issue.
In light of this, it feels Resolute Mining's shares are dirt cheap when compared to its overall net asset value (NAV) of $1.30 per share.
The broker explained: "We value Bibiani at US$40mn (A$0.05/sh) as part of our US$150mn (A$0.18/sh) group exploration value. We do not include the Bibiani sale in our estimates, pending deal closure. The sale of Bibiani is not required to meet any debt or liquidity obligations in our view, and we do not view this as an issue currently on our forecasts."
Strong free cash flow to cover debt repayments
The broker also notes that its current operations should comfortably generate enough cash flow to make debt repayments.
"Resolute's net debt at the end of 2020 was US$270mn (inc. leases), with US$89mn cash on hand. The first repayment (US$19mn) on the US$150mn term loan is due at the end of September 2021, with 6-monthly payments thereafter. Given strong free cash flow generation from Syama and Mako, we expect RSG will comfortably meet any near-term debt obligations on our forecasts."
Finally, Goldman notes that the Resolute Mining share price is trading at the largest discount to NAV across its gold coverage.
"After today's sell-off, RSG is trading at 0.4xNAV (A$1.30/sh), the largest discount across our gold coverage. In our view, the current share price implies no value is being ascribed to any asset apart from Syama Sulphides, which we conservatively model at Reserves only. We retain our Buy rating," it concluded.
