Generally, news that a company is about to undertake an operational, financial and strategic review is not seen as a good omen.
So what is going to happen at Hummingbird Resources (LON:HUM) – which late last week announced that it had just received another $20m loan from CIG SA, its largest shareholder?
It is also about to launch a comprehensive group-wide review, aimed at delivering operational improvements and realising the company’s potential as a multi-asset, multi-jurisdictional gold producer.
The Business
Hummingbird Resources is a leading multi-asset, multi-jurisdiction gold producing company, a member of the World Gold Council and founding member of Single Mine Origin.
The £54m capitalised group’s stated vision is to continue to grow its asset base, producing profitable ounces.
It currently has two core gold projects, the operational Yanfolila Gold Mine in Mali, and the Kouroussa Gold Mine in Guinea, which will more than double current gold production once at commercial production.
The company also has a controlling interest in the Dugbe Gold Project in Liberia that is being developed by joint venture partners, Pasofino Gold Limited.
The final feasibility results on Dugbe showcase 2.76Moz in Reserves and strong economics such as a 3.5-year capex payback period once in production, and a 14-year life of mine at a low AISC profile.
However, it is believed that the company is looking at potentially divesting its non-core assets including the Dugbe Gold Project in Liberia, where it holds a 53% stake in Pasofino, which is an owner of Dugbe.
Hummingbird has already engaged in informal, non-binding discussions with several parties regarding the sale of certain assets including the Dugbe Gold Project in Liberia.
The Loan Facility
The group secured a loan facility of $30m from CIG SA, including that new $20m loan and a consolidation of a previously announced $10m short-term loan.
The loan, which is unsecured, carries a 14% interest with an initial maturity of December 2024.
The company anticipates transitioning this loan into a longer term fixed-rate, gold-linked loan note, details of which are currently being finalised.
There are several opportunities to increase the size of the ‘Gold Loan’ due to additional interest, with the company making further updates in due course.
The company is bringing in third-party consultants to review its corporate structure with a view to identify cost efficiencies and improvements in governance including Board and management changes.
Management Comment
Chairman Dan Betts stated that:
“As we continue to navigate the challenges at Kouroussa, we are committed to taking decisive actions to strengthen Hummingbird’s operational foundation and unlock its full potential as a multi-asset, multi-jurisdictional gold producer.
The Group-wide review is an important step towards optimising our production capabilities and enhancing shareholder value.
While Kouroussa’s ramp-up has been affected by various unforeseen factors, we are focused on reaching commercial production in Q4-2024.
Whilst we are confident of commercial production in the coming quarter, it is dependent on us and our partners delivering meeting our production plan and expectations.
Our focus remains on sustainable growth, securing additional financing, and completing leadership transitions to ensure the successful delivery of our ambitious growth objectives to deliver 200 Koz pa of gold.
After 17 years of building Hummingbird from a grassroots exploration company to a gold producer with an annual run rate exceeding 200,000 ounces, I believe the time is right for a new leadership team to guide the Company through its next phase.
I am proud of what we have achieved and will continue to focus on strategic opportunities and key relationships as Chairman of Hummingbird.”
Analyst Views
Tim Huff and Alex Bedwany, at Canaccord Genuity Capital Markets, now have a Speculative Buy Price Objective of 17p on the group’s shares, based on a 50/50 weighting of their longer term NPV (at 1.0x) of 28p, and their near-term EV/EBITDA weighted value (at 4.5x) of 6p.
Prior to the results of the Review, the analysts have estimates out for the current year to end-December to show an EBITDA of $38.5m ($11.2m), leading up to a massive $206.0m EBITDA next year, worth $11.92 per share in earnings.
In My View
The company believes that this latest support and new Review will help to capitalise on the strong platform that it has built to date, while enabling it to evolve into a robust mid-tier gold mining company.
Four years ago, the shares were up to 43p and have been down to a low of just 4p since then.
The question now is whether the shares, at just 6.7p, are ‘option money’ on some very big returns in due course?