Resolute Mining (ASX:RSG) to recognise impairment charges in H1; Here’s why

Highlights

  • Resolute Mining expects to recognise a non-cash impairment charge in the upcoming half-yearly results.
  • Lower-than-expected price of gold in the short to medium term is one of the prominent reasons for the impairment charge.
  • The impairment charge does not impact the cash flows or EBIDTA, as it is a non-cash item.

Africa-focused gold miner Resolute Mining Limited (ASX:RSG) expects to recognise a non-cash impairment charge in its half-yearly report, scheduled to be released on 27 August 2021. The impairment charge is expected in the range of US$165-175 million.

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Related read: Resolute Mining (ASX:RSG) Shares Fall on Production and Guidance Update  

Resolute Mining has come up with the figures after assessing the carrying value of its assets and cash-generating units for impairment at end-June 2021. The Company has taken care of the current gold price outlook, increasing interest rates and revised production guidance during its assessment.

Understanding the impairment charge

Impairment charge is a relatively new term in the accounting world, in which a value is assigned to an asset. The asset may be intangible as well as fixed, and the Company can incur charges when the recoverable value of the asset is significantly lower than the assigned book value.

Copyright © 2021 Kalkine Media

Here in the case of Resolute Mining, the impairment charge recognised is entirely related to its Syama mine in Mali. The revised production and cost guidance for CY21 impacting Syama operations has led to the impairment charge.

Factors contributing to the impairment charge    

  • The lower-than-expected gold prices in the short to medium term with respect to the assessment done during December 2020. The prices have been 5-10% lower than estimates.
  • Hike in the risk-free rate, which affects the applicable weighted average cost of capital used in the assessment for impairment.
  • Resolute kept the current cost, processing and recovery assumptions constant for the assessment while excluding the improvement over the life of mine (LOM).

Related read: Evolution Mining (ASX:EVN) slashes dividend despite profit surge

Impact of the impairment charge on financials

As the impairment charge is a non-cash item, it does not have any effect on the Company’s cash flow r EBIDTA.  The Company has also clarified that there will be no impact on mine plans and gold reserves and resources.

Stuart Gale, Managing Director and CEO of Resolute Mining, has stated that the business focus remains on generating free cash flow and maintaining operational resilience while strengthening the balance sheet.

Also read: Top ten fully franked gold stocks with high dividend yield

“We have made significant changes in 2021 with an emphasis on people, process and systems which we believe will drive improvements to our production, cost and ultimately cashflow generation,” Gale added.

Share Price

The shares of RSG were trading at AU$0.47 around 11:30 AM (AEST) on 19 August 2021. The Company has a market capitalisation of AU$524.34 million.

Related read: How to invest in gold stocks in Australia?

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