Serabi Gold - Brazilian Gold Producer Poised for Significant Growth with Strong Cash Generation

• Q1 2025 production reached 10,013 ounces, maintaining the momentum from Q4 2024 and exceeding budget expectations by 800 ounces.
• Cash reserves grew from $22.2 million at the end of 2024 to approximately $27 million by end of Q1 2025, with projections to generate an additional $15+ million in free cash flow through 2025.
• Brownfield exploration program underway with $10 million investment across both Palito and Coringa sites to expand resource base from 1 million to potentially 2 million ounces.
• Clear pathway from current 44,000 - 47,000 ounces in 2025 to 60,000 ounces in 2026, with aspirations to reach 100,000 ounces by 2028.
• Management actively considering mechanisms for shareholder returns including dividends and share buybacks given the strong cash generation.

Quarterly Production Update

Serabi Gold has kicked off 2025 with impressive momentum, achieving gold production of 10,013 ounces for Q1, maintaining the production rhythm established in Q4 2024. This performance exceeded the company's internal budget expectations by approximately 800 ounces, highlighting the operational efficiency being achieved at its Brazilian gold operations.

Michael Hodgson, CEO of Serabi Gold, expressed satisfaction with the results:

"We've produced 10,000 ounces for Q1, which followed the 10,000 ounces produced in Q4. So we're certainly maintaining that rhythm. The ore sorter is working wonderfully well at Coringa. Palito grades are up very healthily."

The company has provided guidance of 44,000 - 47,000 ounces for the full year 2025, with production expected to increase quarter by quarter. Hodgson explained the anticipated production profile:

"The first quarter was always going to be a lower quarter, a little over 9,000 on the budget. So we've actually improved and we've generated about 800 ounces more than we actually planned, which is great news. And next quarter will be a little bit more like 11,000 and 12,000 in Q3 and 12,000-13,000 in Q4 to get to the 45,000 ounces."

This progressive increase in quarterly production reflects the ongoing optimization at both the Palito and Coringa operations, with particular success from the ore-sorting technology implemented at Coringa. The technology allows for pre-concentration of ore before processing, effectively increasing the grade of material being processed through the company's plants.

Adding to the positive operational results, Serabi Gold is benefiting from favorable macroeconomic conditions. Hodgson highlighted that the company is "doing this under a wonderful gold price and a very preferable exchange rate, very much in our favor." The combination of operational excellence and favorable market conditions creates an ideal environment for the company to execute its growth strategy.

Interview with Chief Executive Officer, Mike Hodgson

Financial Performance & Cash Flow

Serabi Gold's financial position has strengthened considerably over the past year, with cash reserves growing from approximately $5 million in Q1 2024 to $22 million by the end of 2024 – far exceeding the company's initial projection of $8 million. This remarkable growth in cash reserves reflects both operational improvements and the favorable gold price environment that emerged in mid-2024.

The positive momentum has continued into 2025, with Hodgson noting:

"We've generated probably close to another $5 million of free cash flow. I think we are anticipating about one [million] in our budget numbers, so that's wonderful."

This brings the company's cash position to approximately $27 million by the end of Q1 2025.

Looking ahead, the financial outlook remains strong. Hodgson explained:

"Our forecast for the year - and that's 45,000 ounces - we're probably about another $15 million on top of the starting of 2022. So people can do the maths....It's a great time to be a Brazilian gold producer for sure."

However, this projection is based on conservative gold price assumptions of $2,400 per ounce and an exchange rate of 5 Brazilian Real to the US Dollar. Hodgson acknowledged that "if you plug in today's numbers, we're going to be generating a good bit more than that."

The company's capital expenditure requirements are manageable, with 2024 having been "capital heavy" due to investments in Coringa's crushing plant and ore sorter, which are now operational. For 2025, the primary capital expenditure will be the continued development of Coringa in preparation for higher production in 2026.

As Hodgson put it:

"Our pathway now to go from 38,000 ounces last year to 60,000 ounces by the end of 2026, is pretty much written in stone now... the only appreciable capex we have in the mines is the ramp up of production at Coringa. So we're preparing Coringa to be a bigger mine next year than it is this year."

With substantial free cash flow generation expected to continue throughout 2025, Serabi Gold's management is actively considering shareholder returns. Hodgson stated:

"We know we can't sit on this amount of cash. That's the bottom line... We're certainly looking at trying to do something with some of free cash flow."

The primary mechanisms under consideration are dividends and share buybacks.

Exploration & Growth Strategies

Serabi Gold has allocated $10 million for brownfield exploration in 2025, split approximately equally between the Palito and Coringa sites. This represents a significant investment in resource growth, with the objective of expanding the current resource base of 1 million ounces (divided evenly between the two sites) to at least 1.5 million ounces and potentially up to 2 million ounces.

The exploration strategy is focused on near-mine opportunities, described by Hodgson as "head frame exploration." At Palito, the current resource is defined over a strike length of approximately one kilometer, but geological indicators suggest the veins continue for about four kilometers. Hodgson explained:

"We've now almost joined the dots and joined one or two of these veins together. If we just drill the gaps there, we could be sitting on a two-million ounce resource at Palito."

The company's historical exploration success at Palito is noteworthy. As Hodgson pointed out: "We started the mine with 500,000 ounces way back in 2005. We've still got 500,000 ounces and we've mined 500,000 ounces." This demonstrates the property's prolific nature and the potential for additional resource growth.

At Coringa, which Hodgson described as "a very under-explored project," the exploration focus is on connecting the dots between five former artisanal mines along an 8-10 kilometer trend. The current resource is based primarily on drilling beneath these artisanal workings, with significant gaps that remain untested. Hodgson is optimistic about the potential:

"If 50% of that comes off, we're going to increase the Coringa resource by 250 - 300,000 ounces."

The exploration program is designed to be results-driven and efficient. While the company's strong cash position might suggest room for increased exploration spending, Hodgson explained why $10 million is the appropriate level: "It's not that simple. We're spending $10 million on exploration. Now that is a lot of work. It's four rigs turning with our team and just getting results turned around and doing it properly and being a results-driven program, we couldn't really go there anymore. If we did, it would be wasteful."

Resource Expansion & Future Plans

Beyond the core brownfield exploration at Palito and Coringa, Serabi Gold is advancing other promising projects within its portfolio. A standout prospect is São Domingos, located within the Palito exploration tenement. Initial drilling in 2021 yielded exceptional results including seven meters at 200 grams per ton, though the geometry of the mineralization initially proved challenging to interpret.

Recent investment has yielded promising results, with Hodgson noting:

"We've just spent about 4,000 meters drilling that in the last four-five months and we're putting it all together and we've got a very different type but a super interesting prospect there. It's looking like about a hundred thousand ounces... in-house numbers like 10-12 grams."

São Domingos could potentially serve as a satellite operation, similar to how São Chico previously supplemented Palito. Hodgson envisions "another sort of five year, 20,000 ounce plant feed for the Palito plant," possibly employing the same ore-sorting technology used at Coringa to pre-concentrate the material before transporting it to the Palito processing facility.

This approach fits into Serabi Gold's emerging hub-and-spoke model, where the Palito plant serves as the central processing facility for multiple satellite operations. Each satellite would employ crushing and ore-sorting technology to produce a high-grade pre-concentrate, which would then be transported to Palito for final processing and gold recovery.

As Hodgson explained:

"We might have an ore-sorter trucking a pre-con from Coringa to Palito. We might have Palito with its own ore-sorter trucking a pre-con or moving a pre-con to the plant. And we might have a third plant, a third little crusher, an ore-sorter at São Domingos, trucking a pre-con, again, all to the Palito plant, the hub and the spoke model."

The ultimate objective is to grow the resource base sufficiently to support production of 100,000 ounces annually. With the current pathway to 60,000 ounces in 2026 "written in stone," additional resource discoveries and satellite operations could realistically push production to 70,000-75,000 ounces in 2027 and approach 100,000 ounces by 2028.

Importantly, Hodgson believes this growth trajectory can be funded entirely from operating cash flow, avoiding dilution to existing shareholders.

M&A Opportunities & Strategic Partnerships

While organic growth remains the primary focus, Serabi Gold continues to evaluate M&A opportunities and strategic partnerships. When asked about potential M&A activity, Hodgson responded:

"Always looking. We've continued to look as we've been doing. We're on this wonderful organic growth pathway, which we're following at the moment... The door is always open. The phone is always available."

The company's strong cash generation enhances its appeal as both an acquirer and a potential acquisition target. As Hodgson noted:

"I do believe with our cash generation, we will be a very attractive company for someone to do something with down the line."

Within the company's portfolio, the Matilda copper-gold porphyry discovery represents a significant but capital-intensive opportunity that may be better developed through partnership. Serabi advanced the Matilda project using funds from a previous partnership with Vale, which allowed the company to secure the mining tenement.

However, Hodgson recognizes that Matilda's scale exceeds Serabi's current capabilities. Consequently, the company is "in discussions with a number of groups" about potential partnerships for Matilda, allowing Serabi to "enjoy the ride and have an income stream."

In the broader Palito region, Hodgson also noted "M&A opportunities in the region where there are a number of private deposits which are also ripe to fit into this model." These could potentially provide additional satellite operations to feed into the hub-and-spoke processing model centered on the Palito plant.

Investment Thesis for Serabi Gold

• Production Growth: Clear path from 44,000 - 47,000 ounces in 2025 to 60,000 ounces in 2026, with potential to reach 100,000 ounces by 2028.
• Strong Cash Generation: Ending Q1 2025 with approximately $27 million cash, with projections for significant additional free cash flow throughout the year.
• Potential Shareholder Returns: Management actively considering dividends and share buybacks given strong cash position.
• Resource Expansion: $10 million exploration program underway to grow resources from 1 million to potentially 2 million ounces.
• Operational Efficiency: Innovative use of ore-sorting technology to increase grades and optimize processing capacity.
• Attractive Growth Funding: Ability to fund growth to 100,000 ounces entirely from operating cash flow, avoiding shareholder dilution.
• Strategic Optionality: Potential for M&A, both as acquirer and acquisition target, and strategic partnerships for larger projects like Matilda.

Serabi Gold presents a compelling investment opportunity as a profitable, cash-generating gold producer with clear organic growth prospects in a favorable price environment. The company's innovative approach to resource development through its hub-and-spoke model, centered on the Palito processing facility and satellite operations with ore-sorting technology, provides a scalable and capital-efficient pathway to significant production growth. With strong cash reserves, ongoing free cash flow generation, and the prospect of shareholder returns through dividends or share buybacks, Serabi offers investors exposure to gold with the potential for both capital appreciation and income.

Gold Market Analysis: Favorable Macro Tailwinds for Serabi Gold

The gold market has provided a significant tailwind for Serabi Gold's operations, with prices reaching historical highs in early 2025. This price environment has transformed the company's financial outlook, enabling it to exceed cash generation targets substantially and consider shareholder returns while simultaneously funding ambitious growth plans.

Several macro factors continue to support strong gold prices. Persistent geopolitical tensions, including ongoing conflicts in Ukraine and the Middle East, have enhanced gold's appeal as a safe-haven asset. Meanwhile, central bank purchases remain robust, with many countries continuing to diversify reserves away from traditional fiat currencies and toward gold. This trend, particularly pronounced among emerging market central banks, provides structural support for gold demand.

Inflation concerns, while moderating in some regions, continue to influence investor sentiment toward hard assets. Although the Federal Reserve has begun its long-anticipated easing cycle, real interest rates remain at levels that historically have been supportive of gold prices. The market appears to be pricing in the expectation that rates will remain relatively accommodative over the medium term, which typically creates a favorable environment for gold.

For gold producers operating in Brazil like Serabi Gold, the exchange rate environment adds an additional layer of advantage. The Brazilian Real has maintained a favorable position against the US Dollar, enhancing the economics of Brazilian gold production. As Hodgson noted, this combination of high gold prices and advantageous exchange rates makes it "a great time to be a Brazilian gold producer."

Production costs for many gold miners have increased in recent years due to inflation in energy, materials, and labor costs. However, Serabi's focus on operational efficiency through technologies like ore-sorting has helped mitigate these pressures. By increasing the grade of material processed through pre-concentration, the company effectively processes more gold through the same plant capacity, improving unit economics.

Looking ahead, the supply-demand fundamentals for gold appear supportive. Major gold discoveries have become increasingly scarce, with the average grade of gold mines declining globally. This challenging supply environment comes as investor demand for gold exposure increases, both through physical holdings and financial instruments. For producers with growth profiles like Serabi Gold, this macro backdrop provides a compelling opportunity to expand production into a receptive market.

As Hodgson summarized the current environment:

"We were exploring, we've got four rigs turning, results are flowing. We've got the gold price, production wise, the plant's full, grade's good. What more can you want?"