RE:A new gold producerI agree this stock opportunity should garner interest and warrants increased DD. The risk vs reward is significant. I agree that the Q1 & Q2 reports will be pivotal to see what the real cost structures are and how the company is managing operations & logistical supply chains.
I have gone through the 43-101 Report for the Segilola Gold Deposit. I’ve gone through all the material on the website, Financials, MD&A, Ownership History, Corporate Structures, Management Team.
This is an extremely high risk/reward investment opportunity due to the following:
Pros:
1) Well educated professional Management teams (London School of Mines & Other UK & CDN degreed staff) with experienced professionals who have real world project success. 26% Insider ownership (9% Directors + 17% Africa Finance Corp), 32% Institutional, 18% Family Trusts, 24% Retail Investors
2) Highly economic 4.5 gm/t open pit mining project (1 gm/t = economic). 1st Commercial gold mine in Nigerian. Ramp up started June 2021, low grade feed in Q3, first gold pour in Nov 2021. Commercial Operations started in late Dec 2021.
a. Dec Prod = 61,128 tonnes resulting in 6,119 Au Ounces (3.11 gm/t recovery)
b. Jan Prod = 75,714 tonnes resulting in 7,041 Au Ounces (2.89 gm/t recovery)
~ low grade ore is used when starting a new mine (don’t waste higher grade)
3) LOM = 5 yrs based on current mine plan. Opportunity to get in in 2022, get out at the end of 2022, get back in in Q3-4 of 2023 and back out again in 2024 or 2025. This could change as they have a second advanced project.
4) Mine is running above design capacity, recovery is improving 94% with target at 97%
5) Additional advanced projects in Senegal (also economic grades)
6) 2 Shareholders have strong gov’t ties (20+ years)
Cons:
1) Nigerian Property = Political Risk & Corruption Culture
2) 2 Shareholders have strong gov’t ties (20+ years)
3) Tropical Area with a rainy season from May- Oct (tropical rains could dilute heap leach pit)
4) Single roads in/out create risk for robbery & blockades
5) 37 Million Option/Warrant overhang @ 12-14 cents. But 9 million were exercised in Jan 2022 and it appears they were not sold by the key insiders; I see this as a significant commitment by insiders but also shows the company needed some liquidity to pay bills
6) Significant AP (10 million) Current Debt (35 Million = 15 Gold Stream Royalty + 20 AFC=Africa Finance Corp – Significant shareholder (quasi friendly))
~ The company needs to produce about 66,300 ounces @ 10.27% Streaming Royalty = 6,808 ounces to pay the $15 million Royalty due in 2022 (production is on track, but don’t forget the rainy season May-Oct)
7) Long Term Debt = $64 Million over 5-6 years mostly due on again to Royalty Streaming (22 Million), AFC (37 Million) and Others (5 Million)
This Investment is both High Risk & potential High Reward (Asymmetric Expected Return).
When making investments I look to average between 15% (Actual Excellent Capital Financier Returns) and 35% (Typical Target Return for Capital Market Finance Groups)
The company should mine 80,000 Au Ounces in 2022 and generate about 80-100 million of Free Cash Flow ($0.12-$0.15/sh) based on current published materials (43-101). Low multiple = 4-6 times FCF High Multiple = 7-10 times FCF
@ 4 times FCF = $0.48-$0.60/share – ROI = 71%-114%
@ 6 times FCF = $0.72-$0.90/share – ROI = 157%-221%
@ 7 times FCF = $0.84-$1.05/share – ROI = 200%-275%
@ 10 times FCF = $1.20-$1.50/share – ROI = 329%-435%
~ These share price figures are attributed to the Segilola Mine (Nigeria) FCF. The value of the Douta Project (Senegal) and Central Hounde (Burkina Faso) are not included in this analysis.
Sustaining Capital for Segilola is only $1.5 million/yr. Remediation total is $4 million. Segilola still has exploration upside potential along strike for the open pit and 7 higher grade underground mining extensions (all open down dip).
Looking forward to the 1st 2 sets of financials where the company is in comercial production.