Serabi Gold (SRB) - Improved Quarter and Increased Cash Balance

Morgan Leighton
October 17, 2021

Serabi Gold is a gold exploration and production company involved in the evaluation and development of gold deposits in Brazil. The company's primary projects are the fully-owned Palito Mining Complex and the recently acquired Coringa Gold Project in northern Brazil. The company is listed on the Toronto Stock Exchange (TSX: SBI) and London Stock Exchange (LSE: SRB). 

Matt Gordon caught up with Mike Hodgson, CEO, Serabi Gold. Mike has over 25 years of international experience in the mining industry. He specializes in narrow vein underground mining operations. He previously worked as the CEO and Vice President of Technical Services at Orvana Minerals Corp. Mike has also served as a consultant to several mining companies in Europe and South America. A mining geologist, Mike is a Fellow of the Institute of Materials, Minerals and Mining, and a Chartered Engineer of the Engineering Council of the UK. 

Matt Gordon also spoke with Clive Line, Finance Director, Serabi Gold. Clive is a Chartered Accountant involved in mining and other natural resources companies since 1987, overlooking financial and legal issues for exploration and development projects across Africa, Europe, and Russia. Clive has worked with Price Waterhouse in the UK and Australia. He also worked with Cluff Resources Plc, Quest Petroleum Group, Eurasia Mining Plc, and Northern Petroleum Plc. His educational credentials include an Honors degree in Accounting and Finance. He is a member of the Institute of Chartered Accountants of England and Wales. 

Company Overview

Serabi Gold is an exploration and development company with major operations in Brazil. The company was founded in 1999 and is headquartered in the United Kingdom. Serabi Mineraçao Ltda, Kenai Resources Ltd., Serabi Mining Services Pty Ltd., and Serabi Mining Limited are the company's subsidiaries. The company's flagship projects are the 100% owned Palito Mining Complex and the Coringa Gold Project that are located in the Tapajós region of Northern Brazil.

Serabi Gold operates a high-grade gold deposit in Brazil called the Palito Mining Complex that produces a 40,000oz/annum supply. The company is also looking to double its production from 40,000oz - 80,000oz at the Coringa Gold Project, located 200km away from the Palito Complex. 

Cash Position

Serabi Gold has been successful in generating a positive cash flow despite the covid-related restrictions in 2020. The company had an equity placement in March 2021, raising capital to repay the convertible loan stock and for finalizing the acquisition of the Coringa Gold Project. The existing cash flow will be utilized toward paying off the Coringa purchase with over $1M leftover post all the expenses. The company produced a 9,000oz supply, in line with its targets in the previous quarter. 

Covid-specific Challenges

Following covid closures and movement restrictions, Serabi Gold found it challenging to continue operations at its assets. Maintaining production numbers in the sparsely populated area of Brazil was simpler as testing and isolation were achievable. The company was able to reach 75%-80% of production targets during this time. 

Meanwhile, the projects in south Brazil posed an operational challenge due to a dense urban population, lockdowns, and closure of key fabrication and manufacturing facilities. This led to a market shortage of ancillary equipment and supplies crucial to the company's mining operations. 

This supply shortage has been a widespread issue across Europe and the UK as well. In Brazil, the procurement of mechanical parts and overall supply chain shortages observed backorders, leading to delays in development as a side effect. 

Serabi Gold hired the 3rd biggest drill contractor globally for sourcing drill rigs. However, due to a shortage of replacement parts, the exploration program also observed slowdowns. The company recognizes these challenges as temporary issues that will be resolved over time. The supply shortage in Brazil is getting better as the company is able to source essential consumables to ensure the plant and mill are running operations as planned.

Serabi Gold has maintained $5M-$6M in stock to ensure immunity to market fluctuations and delays. It is expected that the operations will return to normalcy by Q1 2022. The company has planned aggressive targets to ramp up production in the coming months. 

The Coringa Gold Project

Located in north-central Brazil, the Coringa Gold Project was acquired by Serabi Gold in December 2017. This asset features geology similar to Palito in terms of size and mining operations. The appreciation in market gold prices along with exchange rates has helped Serabi Gold in advancing the Coringa Project through the existing cash flow. 

The company has started development at the project and initiated ground operations. In July 2020, Serabi Gold started a portal on Serra, the first ore body consisting of a hard rock deposit leading underground. This project is undergoing the advancement stage and the company is expecting to hit the ore by early November. This asset is planned as a Greenfield development project. 

At the Coringa Project, a PFS (Preliminary Feasibility Study) was carried out by Anfield Energy Inc./Equinox Gold before its acquisition by Serabi Gold in 2017. Serabi Gold has evaluated the deposit based purely on drill holes to prove the continuity that extends from the ore body. The Economic Studies carried out by the company demonstrate that this selective mining operation is ideal for a mechanized approach. 

The company is working towards simplifying the operation and improving project economics as it etches closer to the ore body. The company plans to collect bulk samples from the underground development in Q4 2021 and Q1 2022 and truck the samples to the Palito ore sorting facility located 200km away. 

Serabi Gold has the funds to continue drilling operations into Q2, 2022, and is looking to optimize the project economics from the 50,000m drilling performed so far. This will lead to reduced material processing at a higher grade, and reduced tailings.

The company is looking for additional financial opportunities to conclude the construction at the Coringa Project. The company has also acquired the license to commence underground mining. The process plant at this deposit is semi-assembled as the company awaits the installation license expected in Q1 2022. 

The funding for this operation is planned through existing cash flow along with generated capital, and top-up debt that will be acquired through underground development. The company is looking to enter production at Coringa and is anticipating that an equity raise won't be needed. Serabi Gold has achieved positive outcomes through a Brownfield exploration strategy that consists of drilling in and around existing deposits. 

Serabi Gold had access to outline term sheets in early 2020. The company has been approached by well-known banking groups following the development stories. As Coringa is a low CapEx (Capital Expenditure) project, it has a $25M bills cost based on the PEA. 

The company anticipates that closing the funding and debt gap would not be an issue. Additionally, the company is also in talks regarding royalty deals, serving as a good source of capital for debt replacement. 

The Palito Gold Mine

The Palito Mine is a high-grade, narrow vein underground mine that was under operation between 2003-2008. Based on a 2012 PEA, the mine indicated a small high-grade selective mining operation capable of generating $11M annually post-tax over an 8-year period. The average grades at this deposit are estimated at 8.98g/t with an annual supply of 90,000t gold. 

There are indications that the Palito ore body is heading towards the Currutela prospect in the south. At the Sao Chico deposit, the company has carried out drilling operations towards the west of the ore body with successful results. The Sao Domingos deposit also appears to have a strong potential in the west. 

Serabi Gold has planned to carry out an airborne survey at this site to develop an exploration strategy for 2022. This deposit features a strong array of large anomalies and significant geophysical coincidental geochemical anomalies that indicate a scalable bulk-type deposit. 

At the San Chico and the Palito deposit, the Brownfield exploration by Serabi Gold is targeted towards resource growth. The company is looking to add inferred resources as it continues to drill towards the west, enabling mine expansion. Based on the results, the company plans to outline mine development plans to devise an ideal strategy to explore these resources. Following this, the company will carry out reserve conversion on the inferred resource. This will enable the company the option to either gain new access points from the surface or utilize the existing infrastructure. 

Both sites are being targeted as inferred resource ounces that can be turned into reserves through capital development. The company's current resource inventory is maintained at 450,000oz-500,000oz. The company is looking to develop bulk scale deposits with surface mining. 

Tocantinzinho Infrastructure Development

The Tocantinzinho region deposit was previously operated by Eldorado before being sold to G Mining. The region has received significant infrastructure development under the Bolsonaro administration with asphalt roads and planned power upgrades in 2025. This power upgrade will revitalize the Tapajós region, an area with exceptional artisanal and place gold production. This region is the 3rd largest placer goldfield in the world with 30Moz produced. 

Serabi Gold is expecting that access to the deposit along with power restructuring will lead to renewed activity in the region. The Tocantinzinho deposit has similar characteristics to the company's Palito deposit. The company plans to dedicate its resources towards 6 targets that carry the same geochemical and geophysical signatures as the Tocantinzinho deposit. It plans to focus on the scale, and log exploration on these targets. 

Planned Drilling Operations

Serabi Gold plans to carry out exploration at the 6 identified targets by utilizing its past experience in deposit discovery. The company has found low-grade deposits in the past and is currently focusing on deep geochemistry. It has already carried out an airborne geophysics survey along with magnetic and electromagnetic surveys to identify a strong geophysics anomaly 1m from the surface, featuring gold and copper. The company is actively seeking molybdenum indications which serve as a strong pathfinder for porphyry gold-type deposits. 

The company plans to drill using a RAB rig for a much more tightly-spaced operation. The next process is a sampling of rocks from the surface to the rock head present in a series of 20m composites. This enables the development of a strong 3D geochemical anomaly which allows for targeted diamond drilling. Serabi Gold plans to carry out this process across all 6 identified targets that will enable a cost-conscious drilling operation with a strong focus on efficiency. 

Based on the identified geochemistry, the company has identified 1g gold reserves present within the rock chips on the surface. The drilling operation will enable the company to discover underlying gold deposits based on the current understanding of the anomalies. 

M&A Considerations

Serabi Gold is in talks with TriStar and G Mining and is looking for M&A (Merger and Acquisition) opportunities following the PFS. The company is looking to demonstrate scale at the Coringa project following the planned infrastructure improvements. This will enable the company to showcase the deposit's potential. The exploration program has served as resource replenishment for the mined supply. The company seeks to discover a porphyry gold deposit at the site. 

As G Mining moves towards becoming the first company with a pedigree asset in the Tapajós region, Serabi Gold strongly believes that this will facilitate its M&A pursuits. 

The Coringa deposit offers an opportunity to double the size of the company through core-level production. This will go hand-in-hand with revitalizing the reputation of the Tapajós region. Meanwhile, Serabi Gold plans to continue operations at Coringa to achieve Greenfields success.

To find out more, go to the Serabi Gold Website