Greenstone Resources II LP’s Injection Of New Finance In Serabi Gold Plc, Solidifies The Company’s Long Term Prospect

Serabi Gold Plc

Serabi Gold Plc (LON: SRB) is a London based gold mining company engaged in mining activities in the state of Para on northern Brazil.  Its management has significant experience in gold mining and has been involved in the development of mining projects across the world.  This experience has enabled the company to achieve considerable success in a very short space of time

Serabi earlier this month reported that full-year production was over 40,000 ounces which represented a new record level for the Company and its management indicated that for 2020 they expected production would increase to between 45,000 and 46,000 ounces.  The recent operational success of the company has coincided with the strengthening gold prices, and the strong cash flow that it is generating from its production, that has allowed it to undertake some very successful exploration work in the area which should in time expand its gold resources and provide an opportunity for further growth.

The company has two major project areas.  The first, the Palito Complex is in production, where the Company is mining two high-grade ore bodies and is the source of its current production.  The second, the Coringa gold project is located quite close by, and the company is developing and obtaining the necessary permits for his mine which it expects to be in production during 2021.This could be transformative for the company as an independent study indicated that this Coringa project would support the production of an average of 38,000 ounces when operating which would almost double Serabi’s existing production.  The company hopes to be in the position to start the development of the Coringa gold project during 2020.

The Debt equity ratio of the company has improved over the years as it has been able to retire its debts through earnings accruals as well as fresh capital raising. Most recently, the company has raised fund through the issue of convertible notes to reduce its debt further.

The Coringa Gold Project

(Source – Company’s Website)

Convertible Loan Notes Subscription By Greenstone Resources II LP

The company on 22 January 2020 announced the conditional subscription of US$12 million worth of Convertible Loan Notes by Greenstone Resources II LP (“Greenstone”). The major highlights of the development are as follows:

  • The convertible loan notes are being issued to Greenstone Resources II LP to raise gross proceeds of approximately US$12 million.
  • The proceeds will be used partly to progress the development and settlement of the final acquisition payment for the Coringa project. Some of the funds are also planned to be used for the repayment of loans owed to Sprott Resource Lending Partnership and the rest for company’s general working capital needs.
  • Greenstone, at any point of time when any of the loan notes remain unpaid, will have the option to convert them into ordinary shares at an exercise price of £0.76 per Ordinary Share. Should Greenstone not exercise this option within sixteen-months of issue of these convertible loan notes, they shall be converted by the company.
  • Greenstone Resources II LP along with persons associated with it, currently have a beneficial interest in 14,887,971 Ordinary Shares of Serabi Gold Plc, representing 25.27 per cent of the company’s Existing Ordinary Shares. Should the Convertible Loan Notes option be exercised by Greenstone Resources II LP, they would receive approximately 12,145,749 Ordinary Shares of Serabi Gold Plc, if the exchange rate and other conditions do not vary. The conversion thus would result in Greenstone Resources II LP’s holding of Estimated Enlarged Ordinary Share Capital of Serabi Gold Plc, increasing to around 38.0 per cent.
  • The Company has agreed to pay interest on the full amount from the date of issue at London Interbank Offered Rate (LIBOR) of plus 13 per cent/annum.

Performance At The London Stock Exchange

Source – Thomson Reuters (one-year price chart)

At the time of writing the report at 10.52 AM GMT on 23 January 2020, the shares of the company were trading on the London Stock Exchange at GBX 75.25, the shares of the company during the past 52 weeks of trading at the London Stock Exchange have registered a high of GBX 92.80, while registering a 52-week low of GBX 24.00. The total outstanding market capitalisation of the company stood at around £45.33 million on the London Stock Exchange at the time of writing this report on 23 January 2020.

The beta of the stock of the company as on the reported date was 0.65, which reflected lower volatility when compared to the benchmark index. In the last month, the shares have generated a return of +12.32 %, and +19.23% on a year to date basis.

Outlook

The development of the Coringa gold project is going to be a major development for Serabi Gold. The project which is currently estimated to have the potential to produce 38,000 ounces of gold per year would nearly double the production capacity of the company.

The issue of these convertible notes not only displays the Greenstone’s firm belief in company’s long-term prospect but would also make the company’s balance sheet much stronger by reducing its debt levels. In the base case scenario of the Coringa PEA, the total capital requirement for its development has been estimated at USD24.7 million. The fund generated from the note issue along with the existing cash will provide the company with enough flexibility to part-fund the development of Coringa. The funds will also support the initiation of the preliminary underground development, to access the Coringa ore-body in the current year.   Meanwhile, for the remaining capital requirements, the company is looking for debt funding along with projected cash flow from Palito. The present development with the company is a logical progression and is in line with its long-term value creation objectives.