Serabi Gold (SBI) - $12M Cash and Drilling Options Point to Growth in 2022

Serabi Gold Plc. is a gold exploration and production company involved in the evaluation and development of gold deposits in Brazil. The company's primary assets are the fully-owned Palito Mining Complex and the recently acquired Coringa Gold Project in northern Brazil. The combined gold production from the Palito Mining Complex is approximately 40,000oz per annum, whilst the Coringa Project, when in production, is forecasted to produce an average of 38,000oz per annum. The company is listed on the Toronto Stock Exchange (TSX: SBI), and the London Stock Exchange (LSE: SRB). 

Matt Gordon caught up with Mike Hodgson, CEO, Serabi Gold. Mike has over 25 years of international experience in the mining industry. He specialises in narrow vein underground mining operations. He previously worked as the CEO and Vice President of Technical Services at Orvana Minerals Corp. Mike has also served as a consultant to several mining companies in Europe and South America. A mining geologist, Mike is a Fellow of the Institute of Materials, Minerals and Mining, and a Chartered Engineer of the Engineering Council of the UK. 

Company Overview

Serabi Gold is an exploration and development company with major operations in Brazil. The company was founded in 1999 and is headquartered in the United Kingdom. Serabi Mineraçao Ltda, Kenai Resources Ltd., Chapleau Exploração Mineral Ltda, Serabi Mining Services Pty Ltd., and Serabi Mining Limited are the company's subsidiaries. The company's flagship projects are the 100% owned Palito Mining Complex and the Coringa Gold Project which are located in the Tapajós region of Northern Brazil. 

Serabi Gold is a junior mining company producing high-grade gold in Brazil. The company’s Brazil operations include the Palito Gold Mine, the Sao Chico Gold Mine, and the Coringa project. The company is currently developing the Coringa project and bringing it into steaming along with ongoing exploration. These projects are situated in the Tapajós region of Brazil, a big artisanal goldfield. The company is looking towards continuous improvement in 2022 following a strong 2021.

Operational Challenges

2020 was a challenging year for the company due to the pandemic. However, it was able to significantly improve and recover in 2021. The company was able to increase its mine grades by 17% from 2020 to 2021. Last year, it produced 34,000oz gold. 

The Sao Chico ore body is a long-hole deposit where mining needs to be carried out in a long sequence. Meanwhile, the Palito gold mine is more flexible in comparison as different areas can be explored. At Sao Chico, the company found low-grade material in Q4 2021. Despite the challenges, the company was still able to meet its guidance numbers.

However, the pandemic led to movement restrictions, supply chain issues, and other problems that had an impact on operations. As a result, the company saw a drop in its production numbers from 40,000oz to 34,000oz in the last quarter of 2021. 

Being situated in a lightly populated part of Brazil, there were expectations that the pandemic won’t have an adverse effect on the company. However, due to a 6-month shutdown in southern Brazil, the country’s manufacturing base, a large portion of the company’s equipment needs, most being in-country items, suffered a delay. Though the shutdowns were eased in mid-2021, there has been a long waiting list for the procurement of essential equipment and vehicles to run operations. In fact, the company has a 5 month waiting period to procure trucks that are locally manufactured. 

Although things have improved significantly, the company anticipates that the delays will continue in Q1 2022. To remedy this, the company has started using equipment longer than preferred. It is looking to bring decommissioned trucks back into the mine. The company has found it challenging to find contractors that would allow the use of trucks underground. This is because underground mining operations cause significant wear and tear on the trucks. The company anticipates that it will have a full fleet of trucks after Q1 and the operations will run as per expectations from Q2 onwards. 

Since Serabi Gold’s operations are located in a remote part of Brazil, the company has faced challenges in sourcing specialised underground mining equipment. There are limited entities around the world that develop these types of equipment. Due to the significantly bigger contracts, companies such as Kinross and BHP are given priority for the equipment supply. Serabi Gold is in the queue for sourcing the underground mining equipment. 

Cash Position

As per Serabi Gold, it is a great time to be a producer in Brazil. This is because the exchange rate is in favour and the gold price has held up well. Although there are supply chain issues, the company has benefitted from a strong gold pricing of $1,830. The company ended 2021 with more cash than anticipated. At the end of last year, the company had $12M in cash flow. 

The company expects to generate meaningful capital at the current gold price while continuing to mine at current rates. This capital will aid in placing additional funding in the Coringa Project. Although the revenue alone cannot fund Coringa on its own, it’s a meaningful contribution. The company is currently in discussions with various lenders to attain funding for the Coringa Project. The company plans to initiate the assembly of the process plant in Q3 2022. 

Material Grades

At Sao Chico, the company had to mine through a low-grade area, leading to lower production numbers in the last quarter of 2021. On the other hand, the company has fantastic grades at Palito and is expecting a strong 2022. The company is looking to carry out ore sorting. It is stepping up the development rates. The company intends to pass a bulk of this material through ore sorting, leading to a high-grade supplementary feed for the process plant. 

Notably, 50% of the company’s production comes from Palito, while 40% comes from Sao Chico. The ratio between ore and waste at Sao Chico isn’t very high. Dave Preedy, Group Metallurgist, Serabi Gold is currently in Poland, testing out new software for the company. 

The company plans to carry out additional test work at Sao Chico for ore sorting. Sao Chico features significant bulk material featuring medium-grades and a lot of low-grade. Currently, the ore sorter is being utilised on Palito’s low-grade ore. The company intends to use the ore sorter to process material from both Palito and Sao Chico. Once the company finds the ideal strategy for the ore-sorter, it would lead to a significant upside. 

For Palito’s ore supply, the company is able to achieve a volume reduction where the volume is reduced by one-sixth and the grade increases by a factor of 6. The company is able to achieve 10g-12g from a 2g feed into the ore sorter after the elimination of the waste material. This strategy is efficient as the company has minimal material loss during processing. It is working towards achieving similar results at Sao Chico. 

The company plans to carry out additional testing in Q1. Although ore-sorting might not work on all ore bodies, the company is looking to pass at least 30%-40% of the ore at Sao Chico through the ore sorter. 

Ongoing Exploration

Serabi Gold carried out an airborne survey covering a 1,929 line kilometre area last year. The survey concluded in December, and the company is awaiting the results which are currently being processed. 

Based on early indications, the company identified fantastic geophysical anomalies in and around the Sao Domingos area, which is located immediately to the west of Sao Chico. This survey also covered Palito and Sao Chico. The survey was done to cover the next section at Sao Domingos, where the Toucano prospect is based. Drilling the Toucano prospect led to a promising intersection that was featured in TSX’s top 10 drill holes. 

Since there are a lot of potential drilling opportunities, the company has taken a step back to develop a strategy. The airborne survey was done to provide the company with a focus and direction on exploration. The results of the survey are expected to provide target definition. Following this, the company plans to revisit Sao Domingos and carry out additional deep geochemistry either through Auger or RAB (Rotary Air Blast) rigs to gain a better understanding of the geochemical anomalies.

The company has drilling planned for the second half of 2022. It expects significant targets and game-changing discoveries at Sao Domingos as there are indications that the deposit has the potential for scale.

Serabi Gold currently has 6 targets in the tenement, over the entire belt. The company is anticipating a 1Moz-1.5Moz deposit from these 6 targets. These targets have surface indications along with a large footprint. The size of the anomaly for these targets is similar to G Mining’s Tocantinzinho project, a 2.5Moz asset located nearby Serabi Gold’s property. The company is looking for stockworks and scale. It anticipates a bulk, open-pit, target style mineralization, similar to Tocantinzinho.

ESG Component

In December 2021, there were reports that future licences for the Coringa project were temporarily suspended. This was based around concerns surrounding an Indigenous Study on the area to prove that operations won’t cause any harm to the indigenous tribes in the region. 

Notably, the public civil lawsuit was originally filed in September 2017 by the Federal Prosecutor’s Office against Chapleau Exploração Mineral Ltda, a wholly-owned subsidiary of Serabi Gold, and the owner and operator of the Coringa Project. 

As per Serabi Gold, the FUNAI (Federal Agency for Environment for Indigenous Communities) is responsible for deciding whether a company needs to conduct an Indigenous Study or not. The agency signed off in December 2020 that the company does not need to carry out a study. 

The company further clarified that the local indigenous population is based 60km away from the Coringa project so there won’t be any impact on the community from the operations. The company was to be granted a licence from the environmental agency based on FUNAI’s decision. However, the process was halted as the public prosecutor in Brazil wanted to ensure that the project wouldn't cause harm to the local indigenous community. 

According to the company, the Coringa Project does not have any tailings. Since the tailings dams are dry, the risk of any possible contamination spread is a non-issue. Additionally, since the project is located lower and 60km away from the indigenous community. There won’t be any impact due to the flow of water. These were the factors considered by FUNAI to decide that the company does not need to conduct an Indigenous Study. 

However, the public prosecutor wanted the company to carry out the study. The company has taken away the tailings dam. Its operations have a small footprint that has dry stack tailings which won’t have an impact. Despite the company’s legal counsel's advice that an Indigenous Study isn’t required, Serabi Gold took a decision in Q3 last year to conduct the study. 

Serabi Gold offered further insight that there are 3 judges assigned to this case. The decision was offered by one of the judges, while the decision by the remaining 2 judges is pending. The news was based on an interview with the judge conducted by a journalist. As per the company, the journalist reported his opinion, leading to the news flow. 

The cost for conducting an Indigenous Study is estimated at $150,000. The company has initiated the study and expects it to be concluded by Q2 2022. The draft for the study is expected by March and the full study will be available by late April or May. 

The company expects a LI around the same time as the conclusion of the study. It forecasts that once the study and permits are in place, the company will approach lenders for raising capital to start building Coringa in Q3 2022. 

Furthermore, having an Indigenous Study will positively impact the company’s capital raise as an increasing number of investors and lenders are looking towards greener gold operations. 

Targets 2022 and Beyond

Serabi Gold has placed a strong emphasis on avoiding delays on the exploration front. The company is currently funding its operations from Palito’s cash flow. It is carrying out both brownfield and greenfield exploration. It expects to make significant discoveries in greenfield exploration.

The company is looking to de-risk the project to ensure that all drilling conducted is meaningful. The brownfields exploration carried out by the company has been highly successful. The company has had a significant change of scale in terms of production numbers following the streaming at Coringa. It seeks to make significant discoveries at this asset. It anticipates that the 5-6 tenements have significant potential, similar to G-Mining’s Tocantinzinho asset.

To find out more, go to the Serabi Gold website