Serabi Gold - Unlocking Value in Brazil's Tapajos Region with Clear Path to 60,000 oz Gold Production

• Serabi Gold is on track to meet its 2024 production guidance of 38,000-40,000 ounces of gold.
• The company is reinvesting cash flow to rapidly advance the Coringa project, including installing a crusher and ore sorter.
• Serabi aims to increase production to 60,000 ounces by 2026 through operational improvements and brownfield exploration.
• The company plans to expand its resource base from 1 million to 1.5-2 million ounces through exploration at Palito and Coringa.
• Serabi is pursuing partnerships for greenfield exploration of potential large-scale porphyry-style deposits on its properties.

About Serabi Gold

Serabi Gold is an established gold producer operating in the Tapajos region of northern Brazil. With over a decade of continuous gold production from its Palito Complex, the company has demonstrated a strong operational track record and proven project development expertise. Serabi is now poised for significant growth, with plans to nearly double its production to over 60,000 ounces of gold per annum by 2026, primarily through the development of its Coringa project.

The company's growth strategy is underpinned by a solid financial position, with no long-term debt and a robust cash flow generation expected. Serabi's management team, seasoned in Brazilian operations, is focused on both organic growth and strategic opportunities to potentially transform the company into a 100,000-200,000 ounce per year junior gold producer. With a highly prospective 84,000-hectare land package in the under-explored Tapajos gold district, Serabi has significant exploration upside. The company also maintains a strong commitment to ESG principles, employing over 700 people from local communities and maintaining positive relationships in the region. As Serabi Gold advances its growth plans and increases its capital markets presence, it presents an intriguing opportunity for investors interested in the junior gold mining sector.

Interview with Chief Executive Officer, Mike Hodgson

Current Operations & Production Outlook

Serabi Gold is currently on track to meet its 2024 production guidance of 38,000-40,000 ounces of gold. Hodgson expressed confidence in the company's mid-year position, stating, "We're absolutely where we wanted to be, expected to be. A second 9,000-ounce plus quarter following the first one, which is good." This steady performance demonstrates the company's ability to execute its operational plans effectively.

Hodgson highlighted a particularly strong performance in June, which he described as "our best month for about three to four years." This improvement in production is attributed to a combination of factors, including better grades from the Coringa project and excellent throughput at both the mine and processing plant.

Reinvestment Strategy & Project Advancement

One key aspect of Serabi's strategy is its focus on reinvesting cash flow to advance the Coringa project rapidly. Hodgson explained, "We are plumbing all of our money back into Coringa. I mean, at the end of the day, we've always maintained that, in fact, we thought we'd run our cash down a little bit."

This approach demonstrates the company's commitment to long-term growth and value creation.

The reinvestment strategy includes significant capital expenditures on crucial infrastructure, such as a new crusher and ore sorter at Coringa. Hodgson emphasised the importance of these investments: "Half of that is the crusher and the ore sorter, which is capitalised. This is one of the reasons our ASIC appears high, we're expensing a lot of the underground development."

Expansion & Production Growth

Serabi Gold has ambitious plans to increase its production significantly in the coming years. The company aims to reach 60,000 ounces of annual gold production by 2026, representing a substantial increase from its current levels. This growth is expected to be achieved through a combination of operational improvements and brownfield exploration.

Hodgson outlined the company's production targets:

"Next year, as we're going to be trying to do high 40,000 ounces - so imagine 45,000 plus, threatening 50,000 - I'd like to think our ASIC will be in the 1500s. Then when we get to 2026, we'll be hitting our 60,000 ounces, where we get to our plant capacity with the best grade we can possibly feed it, ASIC will be in the 1400s."

Operational Improvements: The Crusher & Ore Sorter

A key component of Serabi's growth strategy is implementing new technology to improve operational efficiency and increase gold production. The company is installing a new crusher and ore sorter at the Coringa project, which is expected to significantly impact production.

Hodgson explained the benefits of the ore sorter:

"It's going to increase the grade by 1.5 times up to two times. So it's nearly going to double the grade. Today, Coringa is producing about 250, 300 tons per day at a grade of about six grams. What that ore sorter will do will essentially nearly half the volume but nearly double the grade."

This improvement in grade will allow Serabi to increase its gold production without significant additional capital expenditure on plant capacity. Hodgson stated, "It means our plants can be fed with a combined grade of about eight to nine grams instead of a grade of about six. The difference, what that means is instead of the plant being capped at 40,000 ounces, it goes to 60,000 ounces without any plant capex at all."

Exploration & Resource Expansion

Serabi Gold is not only focused on improving its current operations but also on expanding its resource base through exploration. The company has initiated brownfield exploration programs at both the Palito Complex and the Coringa project.

At Coringa, Hodgson expressed confidence in the potential for significant resource growth:

"Pretty confident we can actually add a lot of ounces there, particularly inferred initially, but then M&I ounces, and get the Coringa resource from half a million ounces up to a million ounces. We feel very confident we can do that."

Similarly, at Palito, the company aims to increase the resource from its current level of around 500,000 ounces to approximately 750,000 ounces. Hodgson stated:

"Our objective there is to do brownfield exploration, strike extensions of the existing ore bodies, as well as some new brown sites nearby where we think we can get the Palito resource from half a million to probably 750,000."

The overall goal of these exploration efforts is to increase Serabi's total resource base from its current level of around 1 million ounces to between 1.5 and 2 million ounces. This expanded resource base would support higher production levels in the future, potentially reaching 80,000 to 100,000 ounces per year.

Future Production Expansion

Serabi Gold has a clear plan for expanding production beyond its initial target of 60,000 ounces per year. Hodgson outlined a step-by-step approach to achieving this growth:

1. Reach 60,000 ounces through current operational improvements and the new ore sorter at Coringa.
2. Increase production to around 70,000 ounces by relocating a redundant ball mill from Coringa to Palito.
3. Expand the resource base through brownfield exploration to support production levels of 80,000 to 100,000 ounces per year.

Greenfield Exploration & Partnerships

In addition to its brownfield exploration efforts, Serabi Gold is also pursuing greenfield exploration opportunities on its extensive land package in the Tapajos region. The company is seeking partnerships with major mining companies to explore the potential for large-scale, porphyry-style deposits.

Hodgson commented on these efforts:

"We've actually had two great groups at site with another group coming this week, hopefully to pick up where that exploration line's left off. So all being well, we'll get a group coming in looking at large-scale bulk sort of porphyry-style mineralisation, which we know we've got."

While Serabi does not have the financial resources to fully evaluate and develop a large porphyry copper deposit on its own, partnerships with major mining companies could provide significant upside potential for shareholders. Hodgson noted:

"Now, that will be a kind of an income stream for us, as I've said to you in the past. We'll get a participation in that, but of course, we do not have the firepower to evaluate a great big porphyry copper deposit, but we can certainly enjoy the ride."

Financial Position & Cost Management

Despite the significant investments in project development and exploration, Serabi Gold maintains a solid financial position. As of the latest update, the company had approximately $12 million in cash, which is slightly higher than expected, given the level of reinvestment in the business.

Hodgson addressed the company's all-in sustaining cost (AISC), which may appear high due to the significant development work being undertaken. However, Hodgson is confident that the AISC would improve as the development work is completed and production increases.

The Investment Thesis for Serabi Gold

• Strong production growth potential: From current 38,000-40,000 oz to 60,000 oz by 2026, with further growth to 80,000-100,000 oz possible.
• Operational improvements: New crusher and ore sorter at Coringa to significantly improve grades and production.
• Resource expansion: Brownfield exploration aims to increase resource from 1 million oz to 1.5-2 million oz.
• Cost reduction: AISC expected to decrease from current levels to the $1400s by 2026.
• Greenfield exploration upside: Partnerships being pursued for large-scale porphyry-style deposits.
• Solid financial position: $12 million cash balance while investing heavily in growth.
• Experienced management team with a clear growth strategy.
• Exposure to gold price upside in a promising mining jurisdiction (Brazil).

Serabi Gold presents a compelling investment opportunity in the junior gold mining sector. The company's clear growth strategy, focused on operational improvements and resource expansion, provides a well-defined path to increased production and potentially lower costs. The combination of near-term production growth at Coringa and longer-term exploration potential across its extensive land package offers investors exposure to both immediate cash flow and future upside.

The successful implementation of new technologies, such as the ore sorter at Coringa, could serve as a catalyst for improved financial performance and investor interest. Additionally, the company's efforts to secure partnerships for greenfield exploration of large-scale deposits provide an avenue for significant value creation without substantial capital outlay.

However, investors should remain aware of the risks inherent in junior mining companies, including operational challenges, exploration uncertainties, and sensitivity to gold price fluctuations. Serabi's success will depend on its ability to execute its growth plans effectively while managing costs and navigating the complexities of operating in Brazil.

Overall, Serabi Gold offers an interesting proposition for investors seeking exposure to a growing gold producer with significant exploration upside. The company's progress over the coming years will be crucial in determining whether it can fulfill its potential and deliver value to shareholders.

Macro Thematic Analysis

Serabi Gold's growth strategy aligns well with several key macro trends in the gold mining industry. First, there is an increasing focus on brownfield exploration and operational improvements as a means of creating value, rather than relying solely on new discoveries. This approach, which Serabi is pursuing at both Palito and Coringa, can be more cost-effective and lower-risk than greenfield exploration.

Secondly, the implementation of new technologies to improve operational efficiency is becoming increasingly important in the mining sector. Serabi's investment in the ore sorter at Coringa exemplifies this trend, potentially allowing the company to significantly increase production without major capital expenditure on plant capacity.The company's pursuit of partnerships for greenfield exploration also reflects a broader industry trend. Major mining companies are increasingly looking to junior explorers and producers as a source of new projects, preferring to partner or acquire rather than undertake early-stage exploration themselves. This creates opportunities for companies like Serabi to leverage their land positions and local expertise.

Furthermore, Serabi's operations in Brazil provide exposure to a relatively stable mining jurisdiction in South America, at a time when geopolitical risks are increasing in many parts of the world. Brazil's long history of mining and established regulatory framework offer a degree of certainty for investors.

Finally, the ongoing global economic uncertainties and inflationary pressures continue to support the case for gold as a store of value and hedge against financial instability. While gold prices can be volatile in the short term, the long-term outlook remains generally positive, which could benefit well-positioned producers like Serabi Gold.