Serabi Gold - Double Grades & Gold Production by 2026

• Serabi Gold's PEA study results show an increase in production from 20,000 ounces to 35,000 ounces by 2026, with group ounces reaching 60,000.
• All-in Sustaining Cost (AISC) numbers are lower than expected at around $1,240-$1,250/oz, due to the high payability of the ore body.
• The project NPV is $145 million at $2,100 gold price, increasing to $211 million at current spot prices.
• Ore sorting technology significantly improves grade from 5.3-5.4 g/t to potentially 10 g/t, doubling the grade in some cases.
• Exploration plans aim to grow resources at both Coringa and Palito, with a focus on increasing Coringa's resource to potentially 1 million ounces.

Serabi Gold, a gold mining company with operations in Brazil, has recently released the results of its Preliminary Economic Assessment (PEA) study, showcasing promising developments that could significantly enhance its production capacity and financial performance. This comprehensive analysis delves into the key findings of the study and explores the potential implications for investors considering Serabi Gold as an investment opportunity.

Production Expansion & Efficiency Gains

Ramping Up Production

One of the most notable outcomes of the PEA study is Serabi Gold's projected increase in production. The company aims to expand its annual gold output from the current level of approximately 18,000-20,000 ounces to 35,000 ounces by 2026. This substantial growth in production is expected to elevate the group's total annual gold production to an impressive 60,000 ounces. Mike Hodgson, Serabi Gold's CEO, emphasized the significance of this expansion:

"We're going to ramp up from the current 18-20,000 ounces this year. We'll be up to 35,000 ounces by 2026, which will take our group ounces up to 60,000 ounces."

This planned increase in production is a clear indicator of Serabi Gold's growth strategy and its confidence in the potential of its assets.

Impressive AISC Performance

Another key highlight from the study is the company's All-In Sustaining Cost (ASIC) figures. The AISC, a crucial metric in the mining industry that reflects the total costs associated with gold production, has come in lower than initially anticipated. Hodgson revealed:

"AISC numbers coming in wonderfully about $1240-1250/oz, bit lower than we expected, which is great."

This favorable ASIC performance is attributed to the high payability of the ore body, suggesting that Serabi Gold's operations are not only expanding but also becoming more cost-efficient. Lower production costs could translate into higher profit margins, especially in a strong gold price environment.

Financial Projections & Valuation

The PEA study provides encouraging financial projections for Serabi Gold. At a base case gold price of $2,100 per ounce, the project's Net Present Value (NPV) is estimated at $145 million. However, this value increases significantly to $211 million when using current spot prices, which are notably higher than the base case assumption.

Hodgson highlighted the project's cash-generative potential:

"It's very cash generative, throwing off about $17-18 million free cash flow a year, which is great."

This robust cash flow projection suggests that Serabi Gold could be well-positioned to fund its growth initiatives and potentially return value to shareholders.

The study indicates a mine life of approximately 11 years, providing a solid foundation for long-term operations. However, it's worth noting that this estimate is based on current resources and could potentially be extended through successful exploration efforts.

Grade Improvement Through Ore Sorting

One of the most exciting aspects of Serabi Gold's operations is its use of advanced ore sorting technology. This innovative approach has the potential to significantly enhance the grade of the ore processed, thereby improving overall operational efficiency and profitability, with the results of this process remarkable.

Hodgson explained the process and its benefits:

"We crush the ore, ore comes out the mine about 5.3-5.4 grams per ton in this study. It comes out, it goes to the crushing plant and it gets crushed from say the 6-inch material down to about half an inch. That material goes to the ore sorter, and it's separated, the ore and the waste is separated. What that means is the ore leaves the mine at 5.3 g/t and becomes 8.5 g/t on the trucks."

Even more impressively, recent test work suggests that grades of up to 10 grams per ton may be achievable, effectively doubling the grade in some cases.

This substantial grade improvement has significant implications for the project's economics. Higher grades typically lead to lower production costs per ounce and increased profitability, potentially enhancing the overall value of Serabi Gold's operations.

Interview with Chief Executive Officer, Mike Hodgson

Exploration & Resource Growth

Coringa Project

Serabi Gold has ambitious plans for resource expansion, particularly at its Coringa project. The company intends to undertake an extensive drilling program over the next 18-24 months, with the goal of significantly increasing the resource base. Hodgson outlined the strategy:

"We reckon we need to drill about 30,000 meters at Coringa. We won't be able to do that in a single year, probably take about two years, but the intention is 30,000 meters. [We] don't see why we can't get the resource at Coringa up, we double it, to get a million ounces."

This aggressive exploration plan demonstrates Serabi Gold's commitment to organic growth and its confidence in the potential of the Coringa asset.

Palito Complex

In addition to the Coringa project, Serabi Gold is also focusing on exploration at its Palito Complex. The company is currently drilling at a property called São Domingos, which shows promise as a potential satellite ore body to Palito. Hodgson shared some early results:

"We've already got some holes into it, 7 meters at 200 g/t, so that's obviously wetting the appetite."

Such high-grade intercepts, if proven to be consistent, could significantly enhance the value of the Palito Complex.

Future Growth Strategies

Maximizing Existing Infrastructure

Serabi Gold's current business plan focuses on maximizing ounces with existing infrastructure by increasing the grade at its two producing assets. This approach allows the company to grow production without significant capital expenditure on new processing facilities.

Looking ahead, Serabi Gold is keeping its options open regarding future expansion. Hodgson explained:

"What we do next will be driven by results from drilling. We're drilling up Palito to grow resources, we're drilling at Coringa to grow resources, because very soon we're going to hit the ceiling, the plant constraint again, and we're going to need more plant capacity."

The company is considering various scenarios, including adding more ball mills at Palito or potentially developing processing capabilities at Coringa. The decision will largely depend on where the resource growth occurs and the most efficient way to process the additional ore.

Investment Considerations

Financial Strength & Cash Flow

With projected free cash flow of $17-18 million per year, Serabi Gold appears to be in a strong financial position to fund its growth initiatives internally. This financial flexibility could be attractive to investors, as it reduces the need for dilutive equity raises or burdensome debt financing.

The company's substantial exploration program, backed by a budget of $5-7 million for the next year, presents significant upside potential. Success in these exploration efforts could lead to resource growth, extended mine life, and potentially increased production capacity.

Operational Efficiency

Serabi Gold's focus on operational efficiency, particularly through the use of ore sorting technology, demonstrates its commitment to maximizing the value of its assets. The potential to double ore grades through this process could have a transformative impact on the company's cost structure and profitability.

With gold prices currently at elevated levels, Serabi Gold is well-positioned to benefit from the favorable market conditions. The company's expansion plans coincide with a strong gold market, potentially allowing it to generate substantial cash flows to fund growth and create shareholder value.

The Investment Thesis for Serabi Gold

• Production Growth: Projected increase from 20,000 to 35,000 ounces by 2026, with group production reaching 60,000 ounces.
• Cost Efficiency: Lower than expected AISC of $1,240-$1,250 per ounce, improving profitability.
• Strong Project Economics: NPV of $145 million at $2,100 gold, rising to $211 million at current spot prices.
• Innovative Technology: Ore sorting potentially doubling grades from 5.3-5.4 g/t to 10 g/t, significantly enhancing operational efficiency.
• Exploration Upside: Ambitious drilling programs at Coringa and Palito with potential to substantially increase resources.
• Cash Flow Generation: Projected annual free cash flow of $17-18 million, providing financial flexibility for growth.
• Operational Flexibility: Multiple options for future expansion based on exploration success.
• Market Timing: Well-positioned to benefit from current strong gold prices.

Serabi Gold's recent PEA study results and forward-looking strategies present a compelling case for investors interested in the gold mining sector. The company's plans for production expansion, coupled with its focus on operational efficiency and resource growth, suggest potential for significant value creation in the coming years.

However, as with any mining investment, risks remain. The success of exploration efforts, the stability of gold prices, and the company's ability to execute its growth plans efficiently will be crucial factors to monitor. Nonetheless, for investors seeking exposure to a growth-oriented gold producer with a clear path to increased production and potentially lower costs, Serabi Gold warrants serious consideration.

As the company continues to advance its projects and deliver on its objectives, it may increasingly attract attention from both institutional and retail investors looking for opportunities in the precious metals space. With its innovative approach to mining and strong focus on organic growth, Serabi Gold appears well-positioned to capitalize on the current favorable gold market conditions and potentially deliver substantial returns to its shareholders.

Macro Thematic Analysis

The gold mining sector is currently experiencing a favorable macro environment, driven by several key factors that bode well for companies like Serabi Gold. The ongoing global economic uncertainties, inflationary pressures, and geopolitical tensions have reinforced gold's status as a safe-haven asset and store of value. Central banks worldwide have been increasing their gold reserves, further supporting demand and prices.

The persistent low interest rate environment, despite recent hikes, continues to make gold an attractive investment alternative. As real yields remain low or negative in many developed economies, the opportunity cost of holding non-yielding assets like gold diminishes, increasing its appeal to investors.

Furthermore, the massive fiscal stimulus measures implemented by governments in response to the COVID-19 pandemic have raised concerns about long-term inflation and currency debasement. These factors have traditionally been supportive of gold prices, as investors seek to protect their wealth against erosion of purchasing power.

The supply side of the gold market is also favorable for producers. Years of underinvestment in exploration and development have led to a scarcity of new, high-quality gold deposits. This supply constraint, coupled with increasing demand, creates a positive backdrop for well-positioned gold mining companies.

In this context, Serabi Gold's focus on expanding production and improving operational efficiency through innovative technologies like ore sorting is particularly timely. The company's ability to potentially double ore grades and increase production to 60,000 ounces by 2026 positions it to capitalize on the strong gold price environment.