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Serabi Gold Turns To Loss, Buys Nearby Coringa Gold Project In Brazil

Tue, 14th Nov 2017 11:43

LONDON (Alliance News) - Serabi Gold PLC shares fell on Tuesday after the miner revealed it turned to a loss in the first nine months of the year while as saying it has agreed to buy the owner of the Coringa gold project in Brazil, Chapleau Resources Ltd.

Serabi shares, having initially risen following the two announcements, were down 3.0% on Tuesday at 4.0 pence.

The company said it has conditionally agreed to buy Chapleau, a Canadian registered firm, from Anfield Gold Corp. Serabi also will be acquire the intercompany debt owed by Chapleau to Anfield, paying an initial USD5 million in cash with another USD5 million within three months of the acquisition closing.

A final USD12 million payment will be made once the project produces its first gold, or 24 months after the deal has closed - whichever comes first.

The total aggregate amount to be paid is USD22 million, and Serabi believes the initial payment and the first deferred payment totalling USD10 million can be covered just by extending its existing loan facilities and cash in the bank. At the end of September, Serabi had USD9.8 million in cash and facilities available.

As for the remaining balance, Serabi is "evaluating its options for the longer-term development finance requirements for the Coringa project and the company's existing organic growth prospects".

Coringa holds an indicated mineral resource of 195,000 ounces of gold graded at 8.36 grammes per tonne of ore, and an inferred resource of 181,000 ounces of gold at 4.32 grammes.

A major benefit is the site's location, only 200 kilometres away from Serabi's existing Palito mining operation and process plant, allowing for "synergies for management and infrastructure" and potential reduction of unit operating costs.

"The Coringa project is a near 'carbon-copy' of Serabi's current operation, which has been in production since 2014. The similarities mean Serabi is very well placed to expedite the successful development and future production potential of the project," said Serabi.

Anfield released a feasibility study for the project as recently as September, forecasting an average annual production rate of 32,000 ounces with a total mineable reserve of 160,000 ounces. The report forecasts all-in sustaining costs at the project would average USD783 per ounce, with a post-tax internal rate of return of 30.8%.

For perspective, gold was trading at USD1,273 per ounce at spot prices on Tuesday, and Serabi hopes to reduce that average cost by utilising nearby Palito.

Anfield had placed a book value on Coringa, including the property, plant and equipment "being acquired" - including a 750 tonne per day crushing, milling and carbon-in-leach process plant - of CAD20.8 million.

"Coringa is an advanced gold project that we have been interested to acquire for some time and know well. It always appeared to us to be an excellent bolt-on opportunity to expand Serabi's production and leverage our existing infrastructure and management," said Serabi Chief Executive Michael Hodgson.

"With Anfield now involved in a merger with Trek Mining and Newcastle Gold, we have taken the opportunity to acquire the Coringa project which, whilst no longer core for this enlarged entity, makes clear sense for Serabi offering an obvious opportunity to grow," he added.

Meanwhile, the miner's third-quarter results, also released Tuesday, showed a year-on-year drop in revenue and pretax profit. As a result, Serabi turned to a loss in the first nine months of 2017.

For the quarter to the end of September, Serabi's revenue fell to USD12.9 million from USD16.2 million the year before, with pretax profit declining to USD490,532 from USD743,503.

Combining its performance over the first three quarters of the year, Serabi saw revenue drop to USD36.2 million from USD42.1 million the year before, and it turned to a pretax loss of USD337,135 from a USD2.3 million profit a year before.

The significant decrease in revenue comes from an equally material drop in production this year, with 27,666 ounces produced so far compared to 29,977 ounces last year. Production has varied in 2017, coming in at 9,861 ounces in the first quarter, 8,148 ounces in the second and 8,657 ounces in the third.

"Whilst a little below the production for the same period in 2016, the shortfall was simply due to a short-term operational problem at Sao Chico during April and May, when we lost remote scoop capability and therefore had to rely on lower-grade development ore for this period. By June the problem was over, and we have seen strong monthly productions figures since," said Hodgson.

For the full year, Serabi expects to produce 38,000 ounces of gold with the expectation of producing 10,000 ounces in the final quarter of 2017 - which would be the highest this year if achieved. Output will, however, still be down from the 39,390 ounces produced in 2016.

For the nine-month period, depreciation and amortisation charges increased to USD7.5 million from USD6.6 million, and cost of sales only experienced a small dip compared to the fall in revenue, to USD24.6 million from USD25.8 million - resulting in gross profit more than halving to USD4.1 million from USD9.7 million.

With the forecast of costs in relation to Coringa coming in very low, Serabi said its own total cash cost in the first nine months of the year was USD795 per ounce compared to USD772 a year before, with an all-in sustaining cash cost of USD1,058 compared to just USD951 a year earlier.

For the full year, Serabi expects its all-in sustaining cash cost to be about USD1,000 to USD1,025 per ounce.

A surface diamond drill programme of approximately 10,000 metres has commenced and will principally focus on the strike extensions of the veins in the Palito orebody, Serabi said.

"Whilst profitability is down compared with 2016, it must be remembered that not only is production slightly down, resulting in lower revenue, but the group has been impacted by the relative strength of the [Brazilian] real in 2017 when compared with 2016," Hodgson said.

"We have reported a small profit before tax of USD0.5 million for the third quarter which is a pleasing turnaround after the loss reported for the second quarter and I hope that, if production during the fourth quarter is in line with expectation, this can be continued," he added.

By Joshua Warner;; @JoshAlliance

Copyright 2017 Alliance News Limited. All Rights Reserved.

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