G-Resources share sale

G-Resources raises $217 million for gold mining project

Taking advantage of the strong gold price and continued progress at its greenfield Indonesian mining project, the company sells a 20% stake through a top-up placement.
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G-Resources has already found gold and is due to start production at its Indonesian mine in December this year (AFP) </div>
<div style="text-align:left;"> G-Resources has already found gold and is due to start production at its Indonesian mine in December this year (AFP) </div>

Hong Kong-listed G-Resources Group, which is in the process of developing a greenfield gold and silver mine in Indonesia, on Wednesday raised HK$1.69 billion ($217 million) from the sale of new shares after saying in early May that the project cost will be about 30% higher than earlier estimated.

This will put the total cost at $576 million. The company initially said that it intended to fund the additional cost through a new $250 million bank facility, but when an opportunity to raise more equity presented itself, it decided to take advantage.

The fact that the spot gold price is trading at record levels above $1,600 per ounce was one supporting factor and, earlier this week, G-Resources also reported an increase in the gold and silver resource base at the Indonesian mining project, which is named Martabe. The new discovery is directly to the east of the main pit and increases its estimated gold resources by 233,000 ounces to 6.73 million ounces and its silver resources by 2.11 million oz to 68.31 million ounces.

Meanwhile, after a delay due to the relocation of a processing facility, the company is getting closer to the start of production. Currently, the starting date is scheduled for December this year, which, based on historical performances by other greenfield mining companies, suggests a rerating of the stock could be on the cards for the near future as it transitions from pure exploration and development to production.

Partly in light of this, Morgan Stanley and UBS have both upgraded their share price targets for G-Resources in recent days by 10 HK cents each, suggesting a 15% and 21% upside respectively from current levels.

The placement was launched on Wednesday morning, Hong Kong time, after the stock was suspended from trading. The company initially offered about 2.31 billion shares with an option to upsize the transaction by a further 502.2 million shares, or by close to 22%. The price was indicated between HK$0.59 and HK$0.62 per share, which translated into a discount of 6.1% to 10.6% versus Tuesday’s close of HK$0.66 and at the bottom of the range corresponded to a deal size of about $175 million.

However, the bookrunner had drummed up a lot of anchor support and the base deal was about 75% covered at launch, which gave the offering strong momentum from the outset. By early afternoon, investors were told that the deal would be at least partially upsized and when the books closed there was enough demand to exercise the upsize option in full.

This pushed the deal size to approximately 2.81 billion shares, or 20% of the existing share capital, which was the maximum the company could sell without seeking additional approval from its shareholders.

The price was fixed just off the bottom of the range at HK$0.60 for a 9.1% discount.

There was demand from traditional asset managers as well as resources-focused funds and hedge funds and more than 40 investors were said to have participated in the deal. The buyers included both existing shareholders and investors who were new to the name.

G-Resources completed a backdoor listing in Hong Kong two years ago, which saw Hong Kong-listed shell company Smart Rich Energy Finance acquire the entire Martabe gold and silver mining project from Australia’s OZ Minerals. The acquisition was followed by a fund-raising exercise that included a $257 million share placement to a group of cornerstone investors, a sale of $250 million worth of shares to investors linked to the company and an $80 million placement to institutional investors. Together, these share issues left about 95% of Smart Rich in the hands of the new shareholders and the company later changed its name to G-Resources.

Morgan Stanley was the placement agent for that entire fundraising package and also acted as the sole bookrunner for Wednesday’s top-up placement.

The share price has gained about 76% during the past 12 months as the company has made progress on the construction of its first mine. However, its shareholder base is still quite concentrated and the placement gave new investors an opportunity to get exposure as well. G-Resources have committed not to issue any new shares for the next six months.

The share price held up well when the stock resumed trading yesterday and finished 1 HK cent above the placement price at HK$0.61 — down 6.1% on the day. Following the upgrades, Morgan Stanley has a target price of HK$0.76 on the stock, while UBS is expecting the price to reach HK$0.80 during the next 12 months.

¬ Haymarket Media Limited. All rights reserved.
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