Amended Subscription by Greenstone Resources II LP ("Greenstone") for US$12 million Convertible Loan Notes and issue of 50,000 new Ordinary Shares

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE EU REGULATION 596/2014.

24 April 2020

Serabi Gold plc
(“Serabi” or the “Company”)

Amended Subscription by Greenstone Resources II LP (“Greenstone”) for US$12 million Convertible Loan Notes and issue of 50,000 new Ordinary Shares

Serabi Gold plc (AIM:SRB, TSX:SBI), the Brazilian-focused gold mining and development company, is pleased to advise that, further to recent announcements, it has now agreed certain amendments to the Subscription Deed that it entered into with Greenstone on 21 January 2020 in connection with the issue of up to US$12 million of convertible loan notes (the “Convertible Loan Notes”). The capitalised terms in this announcement shall have the meaning ascribed to them in the definitions section contained at Appendix 1.

As advised in a news release issued on 26 March 2020, as a consequence of the uncertainties caused by Coronavirus, the Company had agreed with Greenstone to extend the period for the satisfaction of all the conditions necessary for the completion of the subscription for and issue to Greenstone of the Convertible Loan Notes that was announced on 22 January 2020 and was approved by shareholders of the Company on 26 February 2020. The Company and Greenstone have now signed an amendment deed which varies the original Subscription Deed (the “Amendment Deed”).

As advised in a news release issued on 9 April 2020, the Company has reached agreement with Equinox Gold Corp. (“Equinox”) to extend the payment period for the final US$12 million instalment for the purchase of the Coringa gold project (the “Coringa Deferred Consideration”). Under the revised terms agreed with Equinox the Company will start to make instalment payments in respect the Coringa Deferred Consideration of US$500,000 per month payable on each of 1 May 2020, 1 June 2020 and 1 July 2020 which will increase to US$1 million per month thereafter until such time (the “Deferral Period”) as there are no international travel restrictions imposed by the Brazilian authorities and also no travel restrictions within or into the State of Para, Brazil (the “Travel Restriction Condition”). Once the Travel Restriction Condition is satisfied, the balance outstanding of the Coringa Deferred Consideration has to be settled within six weeks of the Travel Restriction Condition being satisfied.

Under the Amendment Deed certain terms of the subscription with Greenstone have been amended as follows:

1. the Company may, prior to the satisfaction of the Travel Restriction Condition only submit a subscription request in respect of Convertible Loan Notes in the amount of US$500,000 each month. Following the satisfaction of the Travel Restriction Condition, the Company may then issue further subscription request for amounts of not less than US$100,000 and not exceeding an amount equal to US$12,000,000 less the sum of the aggregate principal amount of all Notes outstanding at that time.
2. until such time as the existing secured loan due to Sprott Resource Lending Partnership (the “Sprott Loan”) has been repaid, the Convertible Loan Notes shall be unsecured and will be subordinated to the Sprott Loan. The Sprott Loan was approximately US$3.45 million as at 31 March 2020 and is due to be repaid in three equal monthly instalments ending 30 June 2020.
3. Following settlement of the Sprott Loan, the security interests of Sprott will be discharged and the Company will grant to Greenstone the security package as originally envisaged save that a pledge of the shares of Chapleau Resources Limited (“CRL”) will continue to be held by Equinox until such time as the Coringa Deferred Consideration is settled in full. CRL holds 100% of the shares of Chapleau Exploração Mineral Ltda which in turn holds the exploration licences for the Coringa gold project
4. The period during which the Company may issue an Issue Notice to Greenstone expires on 31 December 2020 unless otherwise agreed.
5. Subject to Greenstone not having exercised its option to convert the amount outstanding into Conversion Shares, the Convertible Loan Notes are due to be repaid16 months after the first Issue Date which is expected to be 30 April 2020.

Save as set out above there have been no other material changes to the terms of the Subscription Deed. The underlying conversion price at which Greenstone may, convert any outstanding amount into Ordinary Shares (“Conversion Shares”) in the Company has not been varied and remains at a price of £0.76 per Ordinary Share. Greenstone may convert any outstanding Convertible Loan Notes at any time.

The Group’s cash holdings at the end of March 2020 were US$9.15 million having made payments during the first three months of principal and interest in respect of the Sprott Loan of 2020 totalling US$3.70 million.

Mike Hodgson, CEO of Serabi, commented:

“As I have stated previously the Company and its Board is extremely grateful for the continued support of Greenstone and the understanding and flexibility shown by Equinox. It goes without saying we are living testing times, but we are delighted that we have nonetheless been able to put in complete a very workable solution for the Company to complete the acquisition of Coringa which is key to the growth plans of Serabi.

“Following a record month of production for March 2020, the operations are continuing to perform well and the staff at site are demonstrating true resolve and dedication for which I am very grateful.

“This continued support from Greenstone in what are extremely challenging and uncertain times is a major endorsement and strong confirmation of the belief of Greenstone and its management in the longer term prospects for Serabi and the potential growth that not just Coringa will bring to the Company but can also be generated from the opportunities to expand existing production from the Palito Complex, particularly through successful exploration in and around the Sao Chico deposit.”

Related party transaction

AIM

As Greenstone is currently interested in more than 10 per cent. of the issued ordinary share capital of the Company, the amendment to the Loan Note subscription deed (“Amendment”) is a related party transaction for the purposes of Rule 13 of the AIM Rules (“Rule 13”). As Mark Sawyer, a non-executive director of the Company, is a nominated Board appointee of Greenstone, he is not independent for the purposes of Rule 13. For the purposes of the AIM Rules, the independent directors of the Company (being the Directors other than Mark Sawyer) consider, having consulted with the Company's nominated adviser, Beaumont Cornish, that the Amendment is fair and reasonable insofar as Shareholders are concerned.

Canadian Securities Laws

As a result of Greenstone’s shareholding in the Company, the subscription for the Convertible Loan Notes is a related party transaction for the Company under Canadian securities laws pursuant to Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”). In accordance with MI 61-101, the Company is relying on the exemption from the requirement to obtain a formal valuation for the Convertible Loan Notes transaction contained in section 5.5(c) of MI 61-101 on the basis that the transaction is a distribution of securities for cash consideration and neither the Company, nor to the knowledge of the Company after reasonable inquiry, Greenstone has knowledge of any material information concerning the Company or its securities that has not been generally disclosed. The Company has obtained minority shareholder approval for the issue of the Convertible Loan Notes in accordance with MI 61-101.

Issue of shares to Sprott
The Company also advises that it has agreed to issue to Sprott 50,000 new Ordinary Shares of the Company in settlement of historic costs of US$54,706.33 incurred by Sprott in connection with the Sprott Loan. This is equivalent to an issue price of US$1.094 per share (GBP0.888 based on the exchange rate of US$1.232 to GBP 1:00 as on 22 April 2020). The new Ordinary Shares will rank pari passu with the existing Ordinary Shares in issue. Application has been made for the new Ordinary Shares to be admitted to trading on AIM on or around 1 May 2020, and to be listed on the TSX.

Total Voting Rights
Following Admission, the Company's issued share capital will consist of 58,959,551 Ordinary Shares with voting rights. The Company does not hold any Ordinary Shares in Treasury. Therefore, the total number of Ordinary Shares in the Company with voting rights is 58,959,551.

The above figure of 58,959,551 Ordinary Shares may be used by shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

Enquiries:

The person responsible for arranging for the release of this Announcement on behalf of the Company is Clive Line, Finance Director.

IMPORTANT NOTICE

This announcement includes “forward-looking statements” which include all statements other than statements of historical fact, including, without limitation, those regarding the Group’s financial position, business strategy, plans and objectives of management for future operations, or any statements preceded by, followed by or that include the words “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “could” or “similar” expressions or negatives thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company’s control that could cause the actual results, performance or achievements of the Group to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.

Such forward-looking statements are based on numerous assumptions regarding the Group’s present and future business strategies and the environment in which the Group will operate in the future. These forward-looking statements speak only as at the date of this announcement. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based unless required to do so by the AIM Rules, the Takeover Panel or by applicable law.

Unless otherwise stated, the contents of the Company's or any business in the Group's website past or present, or any other website accessible via hyperlinks from the such websites are not incorporated into, and do not form part of, this announcement.

Further information regarding the transaction.

The following information is summarised from previous news releases issued by the Company of 22 January 2020 and 26 February 2020 and has been amended to reflect, where appropriate, the terms of the Amendment Deed.

Greenstone, together with its Connected Persons and other persons acting in concert with Greenstone, is currently beneficially interested in 14,887,971 Ordinary Shares, representing approximately 25.27 per cent. of the Existing Ordinary Shares. Based on current exchange rates and the assumptions set out in Appendix 3 of the news release issued on 22 January 2020, the Directors expect that conversion of the Convertible Loan Notes would result in the issue to the Concert Party of approximately 12,145,749 Ordinary Shares (“Estimated Conversion Shares”), increasing the total interest of Greenstone and the Concert Party to approximately 38.0 per cent. of the Company’s Estimated Enlarged Ordinary Share Capital.

However, the final number of Ordinary Shares issuable to Greenstone upon conversion of amounts outstanding in respect of the Convertible Loan Notes will be influenced by the US$:£ exchange rate at the time of conversion. If the value of £ depreciates against the US$, the number of new Ordinary Shares to be issued to Greenstone on conversion of the Convertible Loan Notes would increase. Accordingly, the Subscription Deed and the Convertible Loan Notes Instrument provide that Greenstone may only convert the Convertible Loan Notes into a maximum of 28,849,072 Ordinary Shares (the “Maximum Conversion Shares”), as a result of which the Concert Party’s interest in the Company’s voting share capital would be 49.9 per cent. (assuming no options issued by the Company or other securities convertible or exchangeable into Ordinary Shares are exercised other than those held by members of the Concert Party and that the Company does not issue any other Ordinary Shares) and the Concert Party would therefore be interested in Ordinary Shares carrying 30 per cent. or more of the Company's voting share capital but not holding Ordinary Shares carrying more than 50 per cent. or more of such voting rights.

The Takeover Panel agreed, however, to waive the obligation on Greenstone to make a general offer to acquire all of the outstanding share of the Company ("Waiver") that would otherwise arise as a result of the issue of the Maximum Conversion Shares to Greenstone, subject to the approval, on a poll, of the Independent Shareholders (the “Whitewash Resolution”). The Whitewash Resolution was approved by Independent Shareholders at a General Meeting on 26 February 2020.

A summary of the principal terms of the Convertible Loan Notes is set out below:

Use of proceeds
The Company may use the funds raised from the issue of the Convertible Loan Notes to progress the development of Coringa, to settle the Coringa Deferred Consideration, and for general working capital purposes.

Fees and interest
The Company will pay interest on the full amount of the issued Convertible Loan Notes from the date of issue at a rate of LIBOR plus 13% per cent. per annum. Interest will accrue daily and at the end of each quarter shall be rolled up and compounded so that it bears interest from such date as it would had it been added to the principal amount of the Convertible Loan Notes then outstanding and shall be paid in cash at redemption of the Convertible Loan Notes or in respect of any of the Convertible Loan Notes at the point of conversion. The Company will pay an arrangement fee of US$300,000 in cash to Greenstone on redemption of the Convertible Loan Notes or the conversion of all Convertible Loan Notes, whichever is earliest. The Company will also pay all reasonable costs and expenses incurred by Greenstone in the negotiation, preparation and execution of the documentation related to the Subscription Deed and the Convertible Loan Notes. If any sum payable by the Company pursuant to the Convertible Loan Notes is not paid when it becomes due and payable, the Company shall pay interest on the outstanding balance at such interest rate plus an additional 3% per annum.

Issue and repayment
Prior to the satisfaction of the Travel Restriction Condition, the Company may only specify the issue of Convertible Loan Notes in the amount of US$500,000 each month. Following the satisfaction of the Travel Restriction Condition, the Company may then issue further subscription requests for amounts of not less than US$100,000 and not exceeding an amount equal to US$12,000,000 less the sum of the aggregate principal amount of all Notes outstanding at that time (including the sum of the aggregate principal amount of all Notes in respect of which an Issue Notice has been served but which have not yet been issued). Greenstone shall have up to 13 business days in which to pay the funds due under each Issue Notice, upon receipt of which, the Convertible Loan Notes will be issued. Subject to Greenstone not exercising its option to convert the amount outstanding into Conversion Shares during the 16 months following the first Issue Date (expected to be 30 April 2020) they will be redeemed by the Company 16 months following the first Issue Date (the "Redemption Date"). The Company will be unable to redeem any part of the Convertible Loan Notes prior to the Redemption Date. The Company may be required to redeem the Convertible Loan Notes if it becomes unlawful for Greenstone to hold the Convertible Loan Notes, the Company has breached its representations and warranties to Greenstone or failed to comply with its undertakings given to Greenstone in the Subscription Deed, or an event of default occurs.

Events of Default
The Company's obligation to redeem the Convertible Loan Notes in full may be accelerated by Greenstone, or following any transfer of the Convertible Loan Notes, a majority of noteholders, following the occurrence of certain events. The identity and scope of the events of default in the Convertible Loan Notes follow the approach commonly taken in senior secured credit facilities and include (but without limitation) non-payment of amounts due, non-compliance with the terms of the agreement, insolvency and insolvency-related events and cross-default. In respect of any Convertible Loan Notes issued pursuant to the first Issue Notice, Greenstone is expected to provide a waiver in connection with certain Events of Default and other provisions under the Subscription Deed, the Instrument and the Deed of Guarantee by virtue of COVID Disruption including where

• the Company or a Group Company does not conduct its business in the ordinary course of business by virtue of the COVID Disruption; and/or
• the Company or a Group Company fails to comply with the Budget by virtue of the COVID Disruption; and/or
• the Company or a Group Company suspends (or threatens to suspend) all or a material part of its business as a result of the COVID Disruption; and/or
• any event occurs (or circumstances exist) as a result of the COVID Disruption which has or is reasonably likely to have a Material Adverse Effect.

For these purposes, "COVID Disruption" means any form of disruption caused to businesses and/or personnel due to the COVID-2019 crisis, including as a result of any Brazil international travel restrictions and any Para state-level travel restrictions arising from the COVID-2019 crisis.

Conversion
Greenstone may, at any time when any principal of the Convertible Loan Notes is outstanding, convert such outstanding amount (subject to a minimum conversion of US$1,000,000 and the remaining Convertible Loan Notes held by Greenstone being not less than US$100,000) into Ordinary Shares in the Company at a price of £0.76 per Ordinary Share (the "Conversion Price"). The Conversion Price will be adjusted in certain circumstances to ensure that the number of Ordinary Shares arising on conversion confer the same relative entitlement (e.g. if there is a sub-division, consolidation or bonus issue). The Conversion Shares shall be credited as fully paid and rank pari passu with Ordinary Shares of the same class in issue on the conversion date. The Company will, upon conversion, apply to have the Conversion Shares listed on AIM and TSX. However, the Company will not be obliged to issue more than the Maximum Conversion Shares.

Security and Guarantee
The Company and its subsidiaries will grant a comprehensive security package over all of their assets in favour of, and directly to, Greenstone, subject to the Company in accordance with the terms of the Subscription Deed having discharged any existing security held either by Sprott or Equinox. As a result of this security the Company and its subsidiaries will be restricted in their dealings with their assets, and the claims of other creditors of the Company against the Company's assets will be subject to Greenstone's security rights. In addition, the Company and its subsidiaries have contractually agreed, amongst other things, to limit their ability to incur other indebtedness, create security and deal with their assets.

Certain of the Company's subsidiaries have agreed to guarantee the obligations of the Company to Greenstone and, following any transfer of the Convertible Loan Notes, the noteholders.

Transfer
Greenstone is free to transfer the Convertible Loan Notes and the Company has agreed to take steps to ensure that any transferee will have the benefit of a comprehensive security package which is substantially similar to that given to Greenstone.

Listing
The Company intends to apply for the Convertible Loan Notes to be listed on The International Stock Exchange in Guernsey.

APPENDIX 1
DEFINITIONS AND GLOSSARY OF TECHNICAL TERMS

The following words and expressions shall have the following meanings in this Announcement unless the context otherwise requires:

Definitions

Glossary of Technical Terms