From Debt Repayment to Dividend Policy: Serabi Gold's Balance Sheet Demands a New Conversation

• Serabi Gold ended the first quarter of 2026 with $64.4 million in cash and no remaining debt, following $55.9 million in cash generated from operations in 2025.
• The board has approved a policy to return up to 20% to 30% of annual free cash flow to shareholders through dividends or buybacks, with the inaugural 2025 dividend of 5 pence per share set at the lower end of that range.
• The 2026 brownfield exploration programme targets over 30,000 metres of drilling across six active drill rigs, with a current annual spend of $15 million and a consolidated resource goal of 1.5 million ounces or more.
• A fourth ball mill installation at the Palito Complex, planned for the fourth quarter of 2026 at a cost of $5 million, will raise processing capacity to approximately 900 tonnes per day in support of a 2027 production target exceeding 60,000 ounces per annum.
• The company's M&A search has been extended into the broader Americas, targeting near-term or producing assets, with management explicitly prepared to forgo transactions rather than overpay for scale.

For much of Serabi Gold's recent operating history, the investor conversation centred on production continuity and whether quarterly cash generation could sustain the company's ambitions. That question has changed. With $64.4 million in cash at the close of the first quarter of 2026, no remaining debt, and a projected free cash flow of $80 to $100 million for the year, Serabi Gold (AIM: SRB | TSX: SBI | OTCQX: SRBIF) is no longer managing against operational uncertainty. The question now is what management intends to do with an accumulating cash balance.

Cash Position & Balance Sheet

The scale of the financial shift in 2025 establishes why that question now dominates. Revenue reached $155.8 million for the year, up 65% from 2024, driven by higher production and an average achieved gold price of $3,481 per ounce against $2,407 the prior year. Cash generated from operations was $55.9 million, an 81% year-over-year increase, with post-tax profit of $53.9 million and full-year earnings before interest, taxes, depreciation, and amortisation of $77.9 million.

The cash position moved from $22.2 million at year-end 2024 to $49.2 million at year-end 2025, then reached $64.4 million by the close of the first quarter of 2026. That progression includes the January 2026 repayment of a $5.3 million short-term working capital loan to Banco Santander in Brazil, which cleared the company's last remaining debt. Management has described the first quarter of 2026 as a nearly $20 million quarter, inclusive of that repayment, and expects comparable performance in subsequent quarters.

The 2026 free cash flow projection of $80 to $100 million rests on production guidance of 53,000 to 57,000 ounces and an anticipated margin of approximately $2,000 per ounce. That number is what has shifted investor inquiry from operational continuity to capital deployment.

Capital Return Framework

The company's first formal response was an inaugural annual dividend of 5 pence per share for the 2025 financial year, totalling approximately $5.41 million and representing 20% of the free cash flow generated that year. The board simultaneously approved a policy to return up to 20% to 30% of annual free cash flow to shareholders through dividends or buybacks, with the expectation that the same range will apply in 2026.

The inaugural distribution was deliberately set at the lower end of the range to formalise shareholder returns while preserving the majority of capital for organic growth and potential acquisitions. 

Chief Executive Officer of Serabi Gold, Mike Hodgson, is direct about the policy's continuity, citing the Annual General Meeting (AGM) as the scheduled distribution date:

"What are we going to do with it? Well, we've just issued notice of our dividend, which is going to be paid after the AGM. That's it. Twenty percent of the cash flow of 2025. That's our policy. We anticipate keeping that the same for 2026, which is good news for our loyal shareholders. Obviously, we'll continue the exploration effort."

With 20% confirmed as the baseline for the coming year, the remaining free cash flow is directed toward drilling and deal-making.

Exploration Programme & Production Roadmap

Organic resource growth is the primary claim on near-term capital. The 2025 brownfield exploration programme consumed $8.15 million across 38,400 metres of drilling and added approximately 400,000 ounces to the consolidated mineral inventory, moving the total consolidated resource from 1 million to 1.4 million ounces over the course of the year. The consolidated measured and indicated resource now stands at 731,000 ounces, with a further 653,000 ounces in the inferred category.

The 2026 programme is a significant expansion in scope. Six active drill rigs are operating across the Palito Complex and Coringa. The Coringa property has an 8-kilometre strike length, with only 1.5 kilometres drilled to date, and a 20-kilometre anomaly that has not yet been tested. The programme targets over 30,000 metres of drilling at a current annual spend rate of $15 million, with the company separately assessing a potential restart of São Chico. Management has indicated that operating more than six rigs would be difficult for the team to manage, given the volume of core generated at the current programme rate of approximately 3,000 metres per month.

Hodgson is precise on the relationship between resource definition and production expansion.

"The question is, what do we expand to? Well, that's going to be driven by how big the resource is. We grew the resource from 1 million to 1.4 million ounces, and we're going to continue that campaign to the end of 2026 to see where we get to. We hope we can get close to 1.8 to 2 million ounces. From that, we're going to look at the reserve content and say, 'Okay, the sustainable level of production for this business is going to be this.'"

The infrastructure aligned to that resource programme is a fourth ball mill at the Palito Complex, targeted for the fourth quarter of 2026 at a cost of $5 million using equipment sourced from the Coringa project inventory, increasing processing capacity from 650 to approximately 900 tonnes per day. The Coringa final operating licence remains pending; the site is currently producing under a three-year trial mining licence, with legal counsel expecting receipt by year-end 2026 or early 2027. Delays have been attributed to staffing constraints within INCRA and FUNAI, and the indigenous community impact study has been signed with unanimous approval. The resource and infrastructure programme together support a stated production target of more than 60,000 ounces per annum from 2027.

M&A Search Parameters & Capital Constraints

The remaining capital allocation question is inorganic growth. Serabi has expanded its acquisition search from Brazil into the broader Americas following a contraction in the pool of junior-scale targets domestically, where improved asset valuations and the dominance of large-scale producers have reduced available opportunities. Target criteria are specific: near-term production or already producing assets, with openness to both underground and open-pit operations; open-pit projects have the potential to diversify technical risk and reduce the group's all-in sustaining cost profile.

The discipline governing that search is equally explicit. Management has stated that it will not execute a transaction solely to achieve scale and is willing to forgo deals rather than overpay. On that point, Hodgson offers this.

"We're not going to compromise what we're doing just to chase some scale, because there are a lot of things out there that you don't want to buy. My mentor always used to say to me, sometimes the best deals you do are the ones you don't do. So there's always that in the back of my mind. No one needs another train wreck."

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