Serabi Gold (SRB / SBI) - Q4/20 Update. Dec Shows Return to Guidance

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 Serabi Gold who is pleased to provide the results and a review of the company’s Q4/20 operational and development activities.

Q4/20 Results Overview

Serabi Gold is pleased with the Q4/20 results as an improvement on Q3/20 and a reasonable level of production at 75-80% of the budgeted production considering the extent of the Covid pandemic in Brazil. They ended the year in December, as their best month since the beginning of the Covid pandemic. The grades are now improving and they’re building up the mine again. They kept mining throughout the pandemic but had to reduce the workforce by 50% to enable social distancing in the camp so the mine got smaller and the grades reduced as they also had to reduce the number of mined areas.

How Planning & Preparation in 2019 Aided in 2020

An underground mine is all about development and planning and building reserves for the future. Serabi Gold has built up their reserves to about 3-years of mine life. This comes at a cost as it means the company is carrying a working capital commitment. But this reserve enabled Serabi Gold to get through 2020 when the company cut back the workforce and did minimum development work and continued solely as a producing mine using the reserve as their contingency.

In the coming year, the company will be doing a huge amount of drilling and accelerating their development in both their ore bodies to build up reserves again. 

Grade Dropping, What's Going On?

When the mine is producing more than the plant can accept, a stockpile is formed which allows the best grades to be selected to ensure grades stay high and the low grades stop there in the stockpile. The mine grades at Palito fell during 2020 for the reason that the mine workforce was reduced due to Covid which meant the mine output decreased and all that was mined went directly to the plant. There was no cherry-picking to select grades which meant the average grade was lower during that time. 

Serabi Gold is back to overproducing and will be able to select the best grades again. They have also invested in an ore sorter, which will screen out some waste and increase the grade of some of that lower-grade. The ore sorter wasn’t used much in 2020 as the mine wasn’t overproducing and only processed 23,000t at grade 2 from which it produced 2,000t of grade 12 material. The other 21,000t was discarded at a grade of 0.6g/t. Serabi Gold plans to use the ore sorter much more in 2021 for the lower-grade material to make something out of waste material.  

Progress & Achievements in 2020, Plans & Expectations for 2021

The Covid restrictions meant that in Q2/20 and Q3/20 Serabi Gold could only get 50% of the staff onsite but they were back to normal in Q4/20 in terms of the mining workforce. They have introduced a third shift in the mine to get the development ahead again. Q4/20 was the record quarter for development rates and they see that continuing all throughout 2021. They plan to start overproducing and become a plant-constrained operation pretty soon which will give them the ability to increase the grades. The workforce is back to normal but there is a worry about the future and Covid in Brazil. Serabi Gold has kept Covid out of their site by routine testing and any people testing positive stay at home until they test negative. Brazil also has a vaccine roll-out plan as is happening in the UK. 

Serabi Gold is planning to drill 32,000m this year which has started up again, about 2-months ago by contractors and we hope to see a press release with these results in about 2-weeks time. After that, there will be constant news flow from the exploration drilling all the way through the year. The company is hopeful to have exciting news re Sao Chico and Sao Domingo and there are some encouraging results so far.  

The Palito operation has returned to its pre-covid workforce and December was the best month since the spring so they hope to have returned to pre-covid production. The company is building their way back up and plans for the second half of the year to be back to 2019 production. The guidance for 2021 is in the 33,000oz-36,000oz range, which isn't quite as good as 2019. 

Potential at Coringa & Financing Required 

During Covid, Serabi Gold has managed to renegotiate with Equinox. They have managed to pay off the residual payment of USD$12M out of cash flow from Gold production and now have USD$4.5M left to pay for Coringa to Equinox which will be paid off during Q2/21. This coincides with their expected start at Coringa as they already have the licence. They decided not to start Coringa during the middle of the Covid pandemic but have focused on permitting and licencing and advancing the other parts of Coringa and are looking at funding options at the moment ready to start Coringa as soon as possible in 2021.

Serabi Gold is a plant-constrained operation as they can produce more at Palito than the plant can process. The exploration and drilling programme will understand the expansion potential in and around Palito, Sao Chico and Sao Domingo. At the end of 2021, after the drill programme, they will know whether they should expand the Palito plant or put a small plant over at Sao Chico to realise the potential of that area. 

M&A Opportunities & Strategy Re-evaluation

Serabi Gold is planning to build Coringa as an underground mine like Palito but in the future they could be interested in getting exposure to open-pit mining and are always on the lookout for potential open-pit opportunities. 

It was good to catch up with Serabi Gold and run through their 2020 progress and their plans for 2021. They have a very solid mining team and have coped with some difficult situations in Q2/20 and Q3/20 of 2020. It sounds like they've started the process and are nearly back up to pre-covid mining production at Palito, are nearly ready to start the Coringa operation and have great exploration potential at Sao Chico and Sao Domingo too. We are interested in the results from the exploration work and look forward to seeing what they come back with in 2-weeks’ time.

To find out more, go to Serabi Gold's Website.