Serabi Gold PLC

Serabi Gold PLC (LON: SRB) is an FTSE AIM All-Share index listed mining Company based out of London and is involved in producing and exploring gold in the Brazilian region.

Investment Rationale – SPECULATIVE BUY at GBX 55.15

• Gold Prices: As Covid-19 cases are resurging globally, investors are turning to the safe-haven asset, and therefore, the Gold was trading above the $1,800 level.
• Pleasing Production: SRB has achieved a 6% growth in gold production in Q4 FY21, thus resulting in total gold production for FY21 of 33,848 ounces (remains in line with guidance), a year-on-year growth of 7%. Further, the total ore mined in FY21 at 170,261 tonnes at a grade of 6.59 g/t gold showed a healthy improvement of 17% in mined grade compared to the average for 2020.
• Push-Forward Development Activities: SRB has completed 3,318 metres of horizontal development in Q4 FY21, which led to the year-to-date total to 12,694 metres. Besides, the ramp development on the Serra orebody remained on track at the Coringa gold project.
• Decent Top-line Business: SRB demonstrated a decent year-on-year jump of about 2.95% in the total revenue during 9M FY21. Moreover, the bottom-line profitability grew by around 3.23% during 9M FY21.
• Robust Balance Sheet: The Company remained well-equipped to fund further projects as it increased the cash balance from USD 6.60 million as of 31 December 2020 to USD 15.20 million as of 30 September 2021.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, Price/Earnings, and EV/EBITDA multiples and Price/Book multiples of the Serabi Gold PLC are currently lower than the median the Basic Materials industry.

Risk Assessments

• Failure to Discover Substantial Reserves: The failure in discovering substantial reserves could adversely affect the SRB’s future performance as exploration and development are capital-intensive activities.
• Financial Risk: SRB is exposed to the financial risks of fluctuations in foreign exchange & interest rates, availability of adequate working capital, and credit defaults.

Financial and Operational Highlights (for the three- and nine-months periods ended 30 September 2021 as on 30 November 2021)

 (Source: Company Website)

• Decent Revenue Growth: In the first nine months of FY21, the revenue witnessed a marginal increase of around 2.95% from USD 45.40 million during 9M FY20 to USD 46.74 million during 9M FY21.
• Net profit: The Company’s net profit remained USD 7.66 million for the first nine months of 2021, while it was USD 7.42 million during 9M FY20.
• Balance Sheet: SRB had strengthened its balance sheet by showing a significant increase in the net cash from USD 6.60 million as of 31 December 2020 to USD 15.20 million as of 30 September 2021.

Share Price Chart

 (Data Source: REFINITIV)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

*Peers: Central Asia Metals PLC, Jubilee Metals Group PLC, Griffin Mining Ltd, Petra Diamonds Ltd, EVRAZ Plc, and Gem Diamonds Ltd.

*All selected peers are LSE listed Companies from the Metals & Mining sector.

*1.00 US Dollar = 0.75 British Pounds. 

Conclusion

SRB remains focused on pushing forward with its exploration campaign to drive resource growth. The company intends to complete approximately 700 metres of horizontal development in the next six months, of which over 400 metres will be ore developed within the Serra Zone. Furthermore, driven by robust Q4 FY21 has resulted in the meeting its guidance as it exits FY21 with approximately 34,000 ounces of gold production, a growth of 7% on 2020 production. Besides, the company has achieved the first intersections in the Serra Zone with the three veins intersected by underground development at its Coringa Gold Project. Moreover, the high gold price and favourable foreign currency movements resulted in an EBITDA of USD 15 million during 9M FY21.

Based on the decent improvement in production, financial growth, substantial reserves, solid balance sheet, and supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Serabi Gold PLC at the current market price of GBX 55.15 (as on 28 January 2022, at 8.16 AM GMT).

*All forecasted figures and Peer Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.  

GoldStone Resources Ltd

GoldStone Resources Ltd (LON: GRL) is a FTSE AIM All-Share listed exploration and development entity with projects in Ghana.

Investment Rationale – SELL at GBX 9.27

• Completed its Second Gold Pour: The company completed its second gold pour at the Homase mine. The first pour yielded ~14.46 kilos of gold doré, and the second pour has yielded 28.50 kilos of gold doré. These two pours result in refined gold bullion of 40.67 kilos and 1.71 kilos of refined silver bullion.
• Loan Repayment: The company successfully honoured Gold Loan repayments to Asia Investment Management Services Limited for October, November and December 2021, indicating sound financial health and creditworthiness.
• Positive Outlook: The ability to deliver an incremental value is underpinned by the commissioning of the elution plant, enhanced liquidity with share placing, continued advancement of the Homase Mine, and increased net assets in the recent updates.

Key Risks

• Gold Price Fluctuations: The rising treasury bond yield, and US Dollar strengthening can dent the gold prices. The long-term bond yields are likely to rise moderately in 2022.
• Small Market Capitalization: It is trading as a penny stock, while the Company does not generate any revenue yet.

Financial and Operational Highlights (for the six-months periods ended 30 June 2021 as on 30 September 2021)

 (Source: Company Website)

• Approval Received: In February 2021, the company received approval from the Ghanaian Environmental Protection Authority and the Minerals Commission regarding the Environmental Permit, Operating Permit and Water Permit.
• Proceeds Received: The company received US$4.8 million of proceeds in H1FY21 from the exercise of Warrants from supportive existing shareholders.
• Balance Sheet: Net assets grew to US$15.5 million (31 December 2020: US$10.8 million).

Recent News

• Operational Update: On 4 January 2022, GRL affirmed that it continued to progress and maintain its low-cost base strategy. The company has collected 108,000 tonnes of ore at the grade of ~1.7g/t, equating to ~184kg of contained gold.
• Issue of Export Permit: On 2 December 2021, GRL announced that it has received an export permit from the Ghanaian Ministry of Lands and Natural Resources for sell, export, or dispose the gold produced from its mining operation on the Homase Mine in the Ashanti Gold Belt.

Daily Price Chart

 (Data Source: REFINITIV)

Conclusion

On 17 January 2021, the company agreed with AIMS that from 1 January 2022 interest on Gold Loan shall accrue at 14% per annum and repayment of the Gold Loan and interest shall be done in full on or before 30 September 2022. This repayment arrangement provides sufficient time for the company, however, if the operational performance changes adversely, then the company would be at difficult spot for the repayment of interest and loan amount.

Considering the technical analysis, recent returns, risks associated, and current trading levels, we believe it is prudent to book profits in the stock. Thus, we give a “Sell” recommendation on the stock at the current market price of GBX9.27 per share as of 28^th January 2022 (United Kingdom Time: 8.23 AM (GMT)). 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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