Thread by @BigBiteNow

I believe its a matter of time before #SRB goes on a run.

The worst is clearly over and $2,000 gold will deliver them Coringa, for little more than the CLN dilution and c. 73m shares in issue.

c £65m MC for growth to 100k oz is far too cheap.

They say its the quiet ones you've got to watch.

We need to go way back to April 2017 to see #SRB attempt to trade at these sorts of levels.

Big month end coming for both it and gold.

#SRB already looking like its going to be a strong Q3 gold price wise.

Another 8,500 oz quarter with a build up to +10k oz in Q4 and I'll be calling 73m share all in for 85k oz production in 2022.

If so, then the SP has a long way to go.

1/15
#gold currently 51 trading days into a 66 trading day Q3.

Ave. price to date $1,904 per oz.

#SRB achieved $3.4m post tax profit for Q2 @ c. 8,500 oz and ave. gold price of $1,710 per oz.

Q3 SRB expects to produce 8,500 oz before ramping up to full production in Q4.

2/15
The reason for the drop in production was that SRB are Brazil based and so manpower had to be reduced to c. 60%, until sufficient safety measures were in place to protect the workforce.

These are expected to be completed by end of Q3.

2/15
End of Q2 SRB had $9.5m in cash and $9.5m to pay on its Coringa acquisition (upto Aug 2020)

In addition, they had drawn down $2m of a potential $12m convertable loan from Greenstone, at 76p conversion.

Coringa development awaiting final license with c. 12 months build.

3/15
Coringa build cost $25m including c. $5m of contingencies for a mine that is a repeat of the one SRB currently run and own. So they know how to build it.

Full quarterly production capacity expected from Q1 2021, at c. 11-12k oz per quarter.

4/15
I fully expect the gold price to recede to the $1,800 mark before pushing on to higher highs in 2021.

By YE 2020, SRB should have min c. $18m cash + $10m available from convertable loan and a $9.5m debt to pay, be it said debt and cash will adjust as Coringa is paid down.

6/15
That places SRB YE at c. +$18m with a $25m Coringa build bill to find.

Even at $1,800 per oz through 2021 and just 40k oz production (current plant capable of 48k oz), SRB should still generate c. $28m in cash flows.

7/15
Post Coringa license/acquisition final payment, debt lending discussions will be concluded.

My view's that c. $10m would be enough but the more achieved, the less convertable loan will be required.

Even at full conversion, SRB would have just c. 73m shares in issue.

8/15
I expect Coringa to be ramping up production by early Q2 2022.

Full ramp up gives SRB 85k oz production at c. $900 AISC.

So even at $1,800 per oz, we are talking conservative post-tax profits in the region of £40m (when discounting finance costs and exploration).

9/15
At the proposed fully diluted (full conversion of loan) 73m shares, the current valuation is £78m. That's far too low even at $1,800 per oz.

What I like about all of this is that the consensus on gold prices, is that we are in a strong and long bull market,

10/15
with prices expected to outstrip the current $1,800 pricing I'm employing.

In addition, whilst Greenstone have been very understanding during what was a difficult time for SRB, earlier this year, the burgeoning SP is starting to make the conversion rate of 76p, look cheap.

11/15
So it may well be that a small equity raise may deliver a better result, if indeed required.

As things stand, with an operational mine and strong cash flows expected throughout 2021, it may well be that SRB can significantly reduce the need to convert anymore of their loan

11/15
The less they convert, the better the valuation starts to look at these levels.

Furthermore, SRB have significant further significant. drilling prospects that can be exploited, as the above additional (beyond Coringa) free cash flows make it possible.

12/15
Key risks.

Covid - With the measures SRB have put into place, I feel that production at +40k oz looks very likely, if not significantly better.

Gold price - Gold needs to pull back in order to make the next leg up sustainable. Consensus says we hit +$2,200 in 2021/22,

13/15
which would only go to push the valuation even higher.

Licensing - SRB have a good relationship with the local authorities, given they have conducted this process before. I expect a timely conclusion to their application.

14/15
One last thing to consider is the Brazilian Real vs Dollar, which is currently trading at c. 5.30 per $.

That's a c. 30% change to the 2019 average, which signif. reduces SRB production costs, which is above and beyond current company forecasts.

15/15
In my view, holding high growth gold juniors in this gold bull market, is essential.

SRB is a favourite of mine but there are of course many others out there, worthy of research and consideration.

At $2,000 gold, many are significantly undervalued.

15A
Word of warning.

If gold prices do indeed pull back, then of course gold miners prices may do too, thus creating opportunity.

The problem is other company news may catch up first, or that pullback may not come in its entirety. That's the beauty of what we do.

15B
5 days later and presently, that gold pullback is looking less certain as we begin to close out Q3.

If gold price once again breaks out (currently very close), then juniors such as #SRB are going to get a significant further boost.

Just need those solid production numbers.

15C
Gold just won't lie down. I'm loving the strength it is showing this late in the quarter. FED meeting coming up today but #SRB looking more and more like hitting +$1,900 in Q3.

Back it with some solid numbers and Coringa capex and options will only strengthen.