Serabi Gold (SRB / SBI) - $17.5M Raise to Double Production

Serabi Gold is a Gold exploration and production company involved in the evaluation and development of Gold deposits in Brazil. The company’s primary interests are its 100% owned Palito Mining Complex and the recently acquired Coringa Gold Project both located in the Tapajos region of northern Brazil.  Combined Gold production from the Palito Mining Complex is currently approximately 40,000 ounces per annum, whilst the Coringa Project, when in production, is forecast to produce an average of 38,000 ounces per annum. 

We caught up with Michael Hodgson, CEO of Gold-Producer Serabi Gold which has started 2021 in good shape. They've managed to exceed their revenue for January and February which started with the much improved December last year. Production is going well and their news this week was the recent raise of approximately USD$17.5M.

Recent Raise

There is no doubt that this is a strong operation team and Hodgson is nobody's fool. However the covid restrictions in Brazil made it a tough environment to operate efficiently in 2020. Plus they have never really had the capital they needed to grow the business. However the positive gold environment has given them the opportunity to straighten out their balance sheet and finally allocate money to exploration. So it was with some relief that Serabi Gold decided to go forward with a raise as Hodgson says institutions were keen to invest in the Serabi Gold story and they recognised the value of the stock. Serabi Gold has always been under-capitalised without the funds available to really grow the company as they wished. There are an abundance of potential exploration opportunities, particularly at Palito and Sao Chico where there are anomalies, targets and prospects ready for exploration so now they have the funding, they will be able to progress with these plans.

Scale of Ambition: Why Raise Now & How Will it be Allocated?

Until now, they've been making slow exploration progress and last year, were stopped again due to the Covid pandemic. The cash flow that was set aside for exploration last year went to fund the acquisition payments for Coringa. Now that Serabi Gold is generating positive cash of around C$1M a month, with C$8M in the bank, that C$1M a month will go directly to pay for the acquisition of Coringa and the recent raise will provide the cash for meaningful exploration growth on known targets. This is where the growth story will come from. DOn't get me wrong, they still need to deliver on the fundamentals of producing ounces at Palito and Coringa but the drill bit gives them lots of options to significantly add to the Resource.

Exploration plans for 2021 include 32,000m of drilling, with more to come in 2022 to  organically grow the Palito tenement. With this equity raise, they can guarantee the exploration programme will continue unhindered whilst the operation continues to generate cash flow. They can also make that final payment to Equinox to buy Coringa outright much faster, rather than waiting until June, and will have it completed in the next month. This means they can start the underground development at Coringa and begin to de-risk that project and move it forward once it is 100% Serabi Gold owned.

At Coringa, they hope to build the whole project out of cash flow, but expect that they will need a bit of debt too. Coringa is a Greenfield site, so they haven't got the benefit of any underground development, but once they get underground, they will be able to see the ore body in 3D and possibly improve on the mining methodology. The equity raise will allow Serabi Gold to move forward faster and be ambitious with the project.  

The aim is to continue to produce the cash flow out of Palito and get started with the underground at Coringa at the same time as moving forward with the exploration programme. The value proposition of Serabi Gold is for a cheap stock that's aiming to virtually double its production in 2 years with bringing on stream Coringa, which is a very similar deposit to Palito. They are now going through the final stages of the installation permit that will be to assemble the processing plant, which is on the ground at Coringa, ready to assemble.  The same team that built Palito will build Coringa and there's a real opportunity to double the resource at Coringa and to make Coringa a much bigger and better project as well. 

Exploration & Growth Potential: Plans, Scale, & Possibilities

There are many exploration opportunities around Palito and Sao Chico with great geochemistry and geophysics. They plan to have 3 rigs drilling 32,000m, which is 3,000m a month and will focus on a combination of resource growth and discovery drilling. There are 2 ore bodies in the Palito tenement, Palito and Sao Chico, one is in the west side of the tenements, one is in the east side of tenements with a 0.5Moz resource. The processing plant can get to 50,000oz so they are trying to grow the resource from 0.5Moz to 2Moz as fast as possible.  

Of the 32,000m drill programme for 2021, at least 50% will focus on existing deposits. At Palito there is an area of ore body which is completely open along strike and laterally with indications that the 1km long resource could go to 3km. Sao Chico is the same, with a deposit that has grown from 100m strike length, 100m deep to 600m long now with suggested 400m further extension. It is possible that San Chico could grow to a 2km or 3km strike length as well. This is also surrounded by anomalies and targets as well and there is Sao Domingos which sits just to the west of Sao Chico as a satellite to Sao Chico. Serabi Gold had a recent press release on the plans for Sao Chico, putting together a resource that might justify a processing plant there.

The 4th area is called Calico which is a discovery target and they are hopeful that it has the makings of another Palito there. Drilling is planned at Calico which is only 5km from Palito so could be part of Palito plant expansion.  

Regaining Momentum: Expectations of Serabi Gold 

Serabi Gold has paid off the Sprott debt and the convertible loan from Greenstone and don't have any outstanding acquisition payments to Equinox which means they can spend the C$5M on exploration as they are planning and spend about C$4M on starting Coringa. 

Their exploration efforts this year are focusing on resource growth of existing ore bodies to add oz and hopefully expand throughput. At Calico they think there is a chance of finding not just vein style mineralization, but something with a bit of scale which is the exciting part of the exploration story. And if that happens, they have a 30km anomalous zone with the indications of the right geology for that type of mineralization which adds to the excitement.

It was good to catch up with Serabi Gold to hear their news on the capital raise and we are interested to see how quickly they progress going forward. Serabi Gold is an ambitious company which should be able to double production which will be brilliant for the company. We look forward to seeing the results from the drill bit in terms of exploration of Palito and Sao Chico which could be fascinating.

To find out more, got to Serabi Gold's Website