Here’s why Resolute Mining Limited shares are going nuts today

Credit: Mark Herpel

It has been a great day for shareholders of the gold miners, but an even better one for Resolute Mining Limited (ASX: RSG) with its share price skyrocketing by over 18% today.

As well as getting a leg up from the rise in the gold price at the end of last week, the share price is higher after drilling results released from its Syama Gold Mine this morning confirmed a major extension to the Syama orebody in Mali.

According to the release, further broad, high grade intercepts confirm the consistency and continuity of mineralisation below the current underground reserve and emphasise the possibility of future expansion to the gold mine.

Much like shareholders, Resolute Mining’s managing director and CEO Mr John Welborn was unsurprisingly delighted by the results. He stated that:

“Syama is a world class orebody and these results highlight the exceptional size and quality of the deposit. Resolute has commenced development of an underground mine at Syama which the recently released Definitive Feasibility Study demonstrated will deliver strong margins for Resolute over an operating life of more than 12 years. Site production from Syama is expected to reach 250kozpa based on our existing models. The DFS is based on the current underground reserve which has not yet been updated with results reported from the deep drilling program. We expect to materially increase the Syama underground resource in due course. In addition to opportunities for a substantial increase in the already impressive mine life, we will consider the potential to expand future production.”

I believe this is a game-changing announcement for the gold miner and one which looks set to provide it with the potential to expand production beyond the currently planned rate of 2.4 million tonnes per annum. This will no doubt be a big boost to earnings if the gold price remains favourable in FY 2017.

Today’s gain means the share price has now increased by an incredible 684% so far in 2016, making it far and away the best performer amongst the larger gold miners such as St Barbara Ltd (ASX: SBM), OceanaGold Corporation (ASX: OGC), and Newcrest Mining Limited (ASX: NCM).

Whilst Resolute Mining is undoubtedly positioned for bumper profits, I would be hesitant to make an investment in it today at the current price. As with all the gold miners, where its share price goes from here is largely down to where the gold price goes. Unfortunately that is something we can only speculate on, which makes it too much of a risk in my opinion.

Finally, instead of investing in the gold miners I would highly recommend investors look at these three fantastic growth shares instead.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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