Resolute Mining Limited (ASX: RSG) was among the worst performers on the ASX 200 on Tuesday, with shares down 5% to $1.26 after the release of the company's quarterly update.
In the first three months of 2018, Resolute produced 67,000 ounces of gold, a 25% decline from the previous corresponding period that induced the company to lower its production guidance for FY2018 from 300,000 ounces to 280,000 ounces.
A new underground mine is under construction at the company's main project of Syama in Mali, which currently operates at a reduced capacity processing stockpiled ores.
Resolute is also seeking to expand its Ravenswood mine in Queensland, and finalised a promising feasibility study for the undeveloped Bibiani project in Ghana. When all three projects will be at their maximum capacity, production may grow up to 500,000 ounces of gold per annum.
The other negative highlight of the quarter is the all-in sustaining cost (AISC) of production: $1,332 per ounce, a 22% increase from the previous corresponding period. In the March 2018 quarter, industry peers Saracen Mineral Holdings Limited (ASX: SAR) and Regis Resources Limited (ASX: RRL) reported an AISC of $1,181 and $906 respectively – with low-cost player Evolution Mining Ltd (ASX: EVN), producing at $768 per ounce.
Resolute received a relatively high average price of $1,714 for an ounce of its product, but this wasn't sufficient to generate a positive cash flow. Over the six months to March 31, the company's cash balance shrunk by 38% to $139 million.
Foolish takeaway
I find this result negative, but not alarming. While the annual output target of 500,000 ounces is still far ahead, Resolute should be able to resolve the current production shortfall and improve cost metrics by this time next year with the upgrade of its Syama project.
In the meantime, investors interested in gaining exposure to gold miners can look at companies with higher operating margins, such as Evolution Mining and Regis Resources.
