Serabi Gold Plc’s Coringa Gold Project In Focus

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Serabi Gold Plc’s Coringa Gold Project In Focus

 Serabi Gold Plc’s Coringa Gold Project In Focus

Serabi Gold Plc (LON: SRB) is a London, the United Kingdom based gold production and development organisation, that is operating in the Tapajos geological region of northern Brazil. The company currently has land concessions covering 97,000 hectares, within the 100,000 sq. KM area of the Tapajos zone. The artisanal miners, since the year 1970, reportedly have mined around 30 million ounces of gold from this region.

The company currently produces gold from its Palito Mining Complex and has produced over 40,100 ounces of god in 2019, a record for the company. It is projecting that production from the two deposits Sao Chico and Palito that make up the Palito Mining Complex will grow to between 45,000 and 46,000 ounces in 2020. In December 2017, the company acquired the Coringa Gold Project which is located quite close to the Palito Mining Complex and anticipates that this project will produce an average of 38,000 ounces per year when it is full production.

Coringa Gold Project – Overview

The Coringa Gold Project of the company is located 70 KM south-east of the city of Novo Progresso, in North-Central Brazil. Artisanal mining in the area stopped in 1991, following which, the mining Licenses and concessions were optioned out to Chapleau Resources Limited in 2006. The project has been the subject of extensive drilling and exploration programmes conducted by different owners and was acquired by Anfield Gold Inc in early 2017. Anfield undertook a significant and aggressive exploration programme during 2017 and also started to assemble the infrastructure to develop a mine including the purchase of a processing plant, mining equipment and building of a camp and other facilities at the site. Anfield concluded that the project was smaller than they had hoped but for Serabi with its existing production from the Palito Complex and because the project was extremely similar to its Palito Complex in terms of both the size and the geology concluded that it was an excellent opportunity for Serabi and would be able to generate efficiencies because of its existing operations in the country.

Location Map

Source: Technical report – Coringa Project Preliminary Economic Assessment

Coringa Preliminary Economic Assessment (PEA) Results

In September 2019, Serabi announced the results of a preliminary economic assessment (PEA) conducted for the Coringa Gold Project by Global Resource Engineering (GRE), which projected very good economics using for the purposes of its base-case a gold price of US$1,275 per ounce compared to the price today of over US$1,550 per ounce.

The company highlighted that base case was around US$1,275 per ounce, as per GRE, calculated using the three-year trailing average gold price. The assessments made during the PEA suggested an all-in sustaining cost of US$852 per ounce, inclusive of royalties as well as refining costs. Average gold grade of 8.34 grams per tonne (g/t) has been evaluated, and the total production has been estimated to be 288,000 ounces. The typical annual production has been estimated to be at 38,000 ounces per year, once the project is in full operations. GRE also suggested through the PEA that the initial capital requirement, prior to achieving a steady cash flow would be US$24.7 million, while the further US$9.2 million for the purpose of additional capital expenditures will be procured from the project’s cash flow in the future.

On the basis of the above estimates, and the base case of US$1,275 per ounce gold price, GRE found that the Pre Tax Net Present Value (NPV) from the project at 5 per cent discount rate is expected to be at US$55.7 million, while at the discount rate of 10 per cent, the Pre Tax NPV is expected to be at US$37.2 million, over the estimated life of the project. Similarly, the Post Tax NPV at 5 per cent discount rate is expected to be US$47.3 million, while at a discount rate of 10 per cent, it is expected to be at US$30.7 million. A post-tax Internal Rate of Return (IRR) over the life of the project has been calculated at 31 per cent, while the average gross revenue has been estimated to be at US$43.4 million. GRE also highlighted that the project payback is expected to be within 2.25 yeas of the first gold production in the base case scenario.

The GRE assessment has also significantly focused on the sensitivities of the factors that could have an impact on the post-tax IRR of the project. As per the report, the factors that could impact the post-tax IRR include Gold Prices in the future, changes in the Operating Expenditure (OPEX) through the life of the project as well as variances in capital expenditure. Using a gold price of US$1,450, GRE estimated that the post-tax NPV at a 10% discount rate would almost double to US$56.1 million with the post-tax IRR increasing to 46 per cent.

Hydrothermal Breccias With Base Metal, Hole COR0269

Source: Technical report – Coringa Project Preliminary Economic Assessment

Serabi Gold – Key Financials (Quarter Ended 30th September 2019)

In its interim unaudited condensed consolidated financial statements for the quarter ended 30th September 2019, the company reported a revenue of US $14.353 million, almost double, as compared to the revenue for the 3 months ended 30th September 2018. The gross profit for the period stood at US $3.652 million, and the operating profit for the quarter was reported at US $2.404 million. This was a significant boost, as in the corresponding period for the previous year, the company had reported an operating loss of US $1.809 million. The profit before tax for the period was reported to be at US $1.50 million. The cash and cash equivalents balance as on 30th September 2019 was reported to be at US $13.440 million.

SRB Stock Price Performance

(Source: Thomson Reuters) Daily Chart as on 04-February-20, before the closing of the LSE Market

On 4th February 2020, at around 12:19 P.M (Greenwich Mean Time), at the time of writing, Serabi Gold Plc’s share price was hovering at around GBX 80.20 per share on the London Stock Exchange, up by 2.82 per cent or GBX 2.20 per share, as opposed to the last trading day’s closing price, which was reported to be at GBX 78.00. The market capitalisation, at the current share price of the company has been reported to be at GBP 45.95 million.

Outlook

The results by the GRE for the Coringa PEA is an extremely encouraging signal for the company’s long-term objectives, which include building a robust production base in Brazil. Even considering the base case scenario of 9-10 years mine life of the Coringa Project, once the full ramp-up is complete, the estimated capacity of 38,000 ounces every year, will almost double the existing 40,000 ounces capacity per year produced by the company’s Palito project. It will be a major boost to the company’s operating as well as financial performance. The company is currently also in the process of working towards the reduction of the overall capital requirements, that could improve the returns from this project, and can help the company in setting up low-cost operations in other regions as well. The company has already arranged additional funding from Greenstone and is hopeful of generating better cash to progress the development of the Coringa project.

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