Serabi Regulatory News (SRB)

26 Oct 2005 07:00

Serabi Mining plc26 October 2005 Serabi Mining plc=================Interim report 2005=================== Serabi Mining plc is a gold mining company focused on the prolific Tapajosgeological region of northern Brazil. Extending over an area about the size ofBelgium, the Tapajos is a major, under-explored mineral province from whichartisanal miners ("garimpeiros") are thought to have extracted up to 30 millionounces of gold from mostly alluvial and surface weathered bedrock deposits overthe past three decades. The Company's principal operating asset is the 100% owned Palito Gold Mine. InJanuary 2005, an independent consultant calculated the total resource at Palitoto be 460,000 ounces of gold equivalent, with an average gold grade of 11.0grams per tonne. The Company believes the potential to increase the resourcebase to be significant. Additional diamond drilling so far in 2005 has continuedto yield encouraging results which will be included in a resource update to beundertaken at the end of this year. In addition to the Palito Gold Mine, Serabi has an extensive portfolio ofexploration properties totaling over 100,000 hectares of highly prospectiveground throughout the Tapajos region. Within this portfolio, Serabi hasidentified several relatively advanced projects in the Jardim do Ouro ("Gardenof Gold") District immediately surrounding the Palito Gold Mine and a furtherseries of properties elsewhere in the Tapajos Region, which are at an earlierstage of assessment. Serabi believes the exploration potential throughout the Tapajos region to beexcellent and is focused on developing additional gold mines in the same, provenmanner that has resulted in the ongoing development of the Palito Gold Mine. Highlights========== • Successfully completed IPO on London AIM, raising £8.0 million at a share price of 30p • Gold production at Palito of 7,588 ounces to 31 July • Major new capital projects set to improve efficiencies • 2005 target of 12,000 metres of diamond drilling to be significantly exceeded • 2005 drill programme confirms extensions of mineralised zones at depth and along strike at Palito • New 'Compressor Lode' discovered parallel to Palito Main Zone • Advanced high-grade copper/gold project acquired in the southern Tapajos region Report of the Chairman and Chief Executive========================================== Dear Shareholder,The period ending July 31 2005 marked a number of significant accomplishmentsfor Serabi. Foremost among these was the successful completion of the Company'sIPO on the London AIM Exchange, which raised gross proceeds of £8.0 million at30p per share. These proceeds will ensure that the Company has the fundsnecessary to execute its strategy in Brazil, principally through: • Expanding the resource base and production at the Palito Gold Mine• Introducing productivity enhancing capital investments to the Palito Gold Mine• Further evaluating the Company's exploration projects in the Jardim do Ouro district which surrounds the Palito Gold Mine and the broader Tapajos region• Assessment and possible additional acquisition targets in the Tapajos region Financial results-----------------The Group has reported an unaudited loss for the six month period to 31 July2005 of US$2.3 million after accounting for exchange losses and the value ofoptions issued prior to the IPO in accordance with FRS20. Net assets increasedby US$15.5 million to US$27.4 million during the period and cash balances toUS$9.2 million. The Company is currently in a pre-development stage of the mine and isdeveloping its plans to achieve commercial production through long termsustainable mine production and plant capacity. During this phase all minerelated costs and revenues generated during the pre-development phase willcontinue to be capitalised. The Group's assets, in particular plant and equipment and exploration anddevelopment expenditure are principally held by Serabi Mineracao Ltda and assuch are denominated in Brazilian Reais. The Brazilian Real has strengthened bymore than 11% against the US dollar during the six month period ended 31 July.Foreign exchange losses have been incurred as a result of the retranslation ofthe opening net asset position. These interim results will form part of the Company's first audited financialstatements, which are required to be prepared for the period from incorporationto 30 September 2005. In order to align its future reporting to calendar yearsat the earliest opportunity we will be producing further accounts for the threemonth period to 31 December 2005. Operations----------At the Palito Gold Mine, development is continuing at a rapid pace. For theseven months ended 31 July 2005 Palito produced approximately 7,600 ounces ofgold. 7 months to 31 July 2005 -------------Ore mined (t) 27,494Ore processed (t) 27,101Average grade (g/t) 9.91Gold recovery % 87.9%Gold produced - ounces 7,588Average gold pricereceived $ $436 The Company had at the end of July shipped and received provisional payment fora total of 20 consignments of gold-copper concentrate to Antwerp for treatment.A further 17 consignments have been despatched subsequently. Total revenues generated for the seven months aggregated US$2.97 million. Todate, mining at Palito has predominantly focused on development drives, whichare required to access the mineralisation and subsequently establish areas forproduction. This development period inevitably leads to lower grades and henceproduction, which is reflected in the current results. Furthermore, the presentworldwide mining boom is causing delays to the delivery of some key items of equipment that has also impacted on short-term output. Notwithstanding, production has steadily improved over the period, albeit slower than anticipated and management is taking action that is expected to improve this situation over the next six months. In addition, the Company will soon start work on the long-term mine plan required to access the deeper mineralisation, which will form the main basis of future ore supply. As part of this assessment the potential to introduce more mechanised equipment to the operation and optimise the mining method to increase production rates further will also be considered.A number of productivity enhancing capital investments (see press release 22June 2005: Capital Projects Update) are being introduced at the operation.Recently introduced underground shovels are performing well and have resulted inimportant improvements to production rates, whilst also allowing personnel to beredeployed to other mining priorities. The first of the Company's underground drill rigs has only recently arrived,with the remainder expected to be delivered by the end of October; some two tothree months later than envisaged. This equipment is essential to theunderstanding of the Palito Main Zone mineralisation and hence efficient mining.As the rate of underground drilling increases it is expected that items of mineplanning and grade control will greatly benefit. Furthermore, the undergrounddrill rigs represent an additional and cost-effective method of exploration andresource evaluation drilling, especially at the deeper levels of the Palitomine. The plant expansion to 250 tonnes per day (tpd) is near completion and anupgrade programme to take this to 300-350 tpd is envisaged soon thereafter. Goldrecoveries have been good and are expected to achieve targeted levels of between90% to 94% soon. Conditional on finalising the long term mine plan andconsequently the optimum operating scale at Palito, which is expected to becompleted in the first quarter of 2006, further modular expansion of the processplant may be undertaken. Work is well advanced to introduce grid electricity to the Palito Gold mine, andthe Company is expecting this project to be completed by the end of 2005 andunder the budgeted cost of US$580,000 (see press release 22 June 2005: CapitalProjects Update). The introduction of the grid electricity will bring immediateand substantial cost savings to the Company, as its reliance on current dieselgenerated power will be significantly reduced. Palito drilling programme-------------------------Considerable progress has been made during the period on Serabi's drillprogramme at the Palito mine (see press release 9 September 2005: DrillingUpdate). As discussed in the Company's press release, Serabi is set to exceedits 2005 drilling target of 12,000 metres. 10,697 metres had been completed in acombination of infill drilling of the Palito Main Zone, strike and depthextensions and step-out drilling to test for parallel vein structures. The drilling programme continues to intersect very high grade gold values alongstrike and at depth, that is expected to provide a good basis to improve theresource base which will be reassessed at year-end. In addition, the drillinghas also identified a new area of significant mineralisation immediatelyadjacent to the Palito Main Zone, which has been called the 'Compressor Lode'.Drilling on the Compressor Lode is continuing and it is now expected to beincorporated into the short-term mine plan. Further drilling at Palito for the remainder of the year will be focused onincreasing the resources at Palito through a threefold strategy of depthextension drilling at the Palito Main Zone, strike extension drilling in bothdirections and further work at nearby projects such as Palito West and Chico doSanto, both of which have previously yielded encouraging results. Jardim do Ouro and Tapajos regional exploration-----------------------------------------------The main focus so far this year has been drilling on the Palito Main Zone. TheCompany has acquired two further surface rigs that are now expected to arrive onsite later this month, at which time drilling will then be expanded toincorporate priority drilling targets in the Jardim do Ouro district such asBill's Pipe and Ruari's Ridge, as well as elsewhere in the Tapajos region. Pombo Gold project------------------On 14 October, the Company announced the acquisition of an option over the PomboGold Project in the southern Tapajos region (see press release 14 October 2005:Serabi purchases option to acquire Pombo gold project). This is an advanced,high grade copper/gold project, in which mineralisation has so far beenidentified along 700 metres of strike and bears many geological similarities toPalito. The Company will shortly locate one of its drilling rigs to the area to commence an initial drill programme. It is noteworthy that the Company's established presence since 1999 and its reputation in the Tapajos, played an important role in securing this project, the first for Serabi in the southern Tapajos region. Corporate---------At the corporate level, Serabi is actively evaluating strategic alternativesthat could enhance shareholder value by advancing the Company's otherexploration properties throughout the Tapajos region. In addition, acquisitionopportunities are continually being assessed by management. In this regard theCompany will adopt guidelines to ensure that any transaction that Serabi mightundertake fits into the Company's existing strategy of developing high qualitygold assets within Brazil. Graham Roberts Bill CloughChairman Chief Executive26 October 2005 Profit and loss account=======================for the six months to 31 July 2005(expressed in US$) Group Group Incorporation to Six months to 31 January 2005 31 July 2005 (unaudited) (unaudited)Turnover 343,064 -Operating expenses (255,913) -Profit from operations 87,151 -Administration expenses (1,148,979) (792,791)Option costs - (597,260)Write-off of exploration and development cost - (43,051)Depreciation (plant and equipment) (26,269) (157,459)------------------------------------------------------------------------Loss on ordinary activities before interest (1,088,097) (1,590,561)and other incomeForeign exchange gain/(loss) 260,584 (789,612)Interest payable - (19,072)Interest receivable 2,376 103,556------------------------------------------------------------------------Loss on ordinary activities before (825,137) (2,295,689)taxationTaxation (524) -------------------------------------------------------------------------Loss on ordinary activities after taxation (825,661) (2,295,689)------------------------------------------------------------------------Earnings per ordinary share (basic and (2.72p) (2.62p)diluted) Statement of total recognised gains and losses==============================================for the six months to 31 July 2005 Group Group Incorporation to Six months to 31 January 2005 31 July 2005 (unaudited) (unaudited)Loss for the period (825,661) (2,295,689)Exchange loss on foreign currency net - (233,410)investment-----------------------------------------------------------------------Total recognised loss for the period (825,661) (2,529,099)----------------------------------------------------------------------- Balance sheet=============as at 31 July 2005(expressed in US$) Holding Holding Group Group Company Company as at 31 as at 31 as at 31 as at 31 January July January July 2005 2005 2005 2005 (unaudited) (unaudited) (unaudited) (unaudited)Fixed assetsIntangible assetsGoodwill on acquisition 1,752,516 1,752,516 - ----------------------------------------------------------------------------Tangible assetsProperty, plant and 2,621,091 3,905,780 - 3,327equipment Capitalised exploration 8,161,099 12,893,768 - 394,500and development expenditure Investments - - 12,883,375 17,330,611--------------------------------------------------------------------------Current assetsStock and work in 357,719 985,487 - -progress Debtors 120,293 459,912 - 200,228Prepayments 116,451 64,519 - 58,428Loans to subsidiaries - - 116,451 2,495,058Cash at bank and in 474,059 9,235,179 58,920 9,191,679hand -------------------------------------------------------------------------- 1,068,522 10,745,097 175,371 11,945,393--------------------------------------------------------------------------Creditors: amounts (1,511,518) (1,447,705) (318,814) (483,492)falling due within oneyear--------------------------------------------------------------------------Net current (442,996) 9,297,392 143,443 11,461,901(liabilities)/assets--------------------------------------------------------------------------Total assets less 12,091,710 27,849,456 12,739,932 29,190,339current liabilities--------------------------------------------------------------------------Provision for (178,660) (419,992) - -liabilities falling due after more than one year--------------------------------------------------------------------------Net assets 11,913,050 27,429,464 12,739,932 29,190,339--------------------------------------------------------------------------Capital and reservesCalled up share capital 11,249,596 17,974,336 11,249,596 17,974,336Share premium reserve 1,489,115 11,818,128 1,489,115 11,818,128Option reserve - 991,760 - 991,760Profit and loss account (825,661) (3,354,760) 1,221 (1,593,885)--------------------------------------------------------------------------Equity shareholders' 11,913,050 27,429,464 12,739,932 29,190,339funds-------------------------------------------------------------------------- These unaudited results do not amount to statutory accounts within the meaningof section 240 of the Companies Act 1985. Consolidated cash flow statement================================for the six months to 31 July 2005(expressed in US$) Group Group Incorporation Six months to 31 January 2005 31 July 2005 (unaudited) (unaudited)Net cash outflow from operations (1,238,313) (2,673,961)---------------------------------------------------------------------------Returns on investment and servicing offinance Interest received 2,376 103,556Interest paid - (19,072)-------------------------------------------------------------------------Net cash inflow from returns on 2,376 84,484investments and servicing of finance-------------------------------------------------------------------------Capital expenditure and financialinvestment Purchase of tangible fixed assets (285,007) (1,501,953)Exploration and evaluation expenditure (2,798,590) (3,474,197)--------------------------------------------------------------------------Net cash outflow on capital expenditure (3,083,597) (4,976,150)and financial investment--------------------------------------------------------------------------Acquisitions and disposalsCapital and loan investments to - -subsidiaries Cash acquired with subsidiaries - --------------------------------------------------------------------------Net cash outflow on acquisitions and - -disposals -------------------------------------------------------------------------Cash outflow before financing (4,319,534) (7,565,627)-------------------------------------------------------------------------Financing activitiesIssue of ordinary share capital 4,564,375 17,053,752------------------------------------------------------------------------Net cash inflow from financing 4,564,375 17,053,752activities ------------------------------------------------------------------------Increase in cash at bank and in hand 244,841 9,488,125------------------------------------------------------------------------ Reconciliation of operating loss to net cash flow from operating activities===========================================================================for the six months to 31 July 2005(expressed in US$) Group Group Incorporation (18 May 2004) to Six months to 31 January 2005 31 July 2005 (unaudited) (unaudited)Operating loss (827,513) (1,653,168)Depreciation 34,848 157,459Increase in stocks (335,147) (541,237)Option costs - 597,260Increase in debtors and prepayment (202,810) (215,737)Increase/(decrease) in creditors and 583,436 (31,519)accruals Foreign exchange (491,127) (987,019)----------------------------------------------------------------------------Net cash outflow from operating (1,238,313) (2,673,961)activities---------------------------------------------------------------------------- Reconciliation of cash to net funds===================================for the six months to 31 July 2005(expressed in US$) Group Six months to 31 July 2005 (unaudited)Cash at bank and in hand at 1 February 2005 474,059Cash flow 9,488,125Exchange loss (727,005)----------------------------------------------------------------------Cash at bank and in hand at 31 July 2005 9,235,179---------------------------------------------------------------------- Basis of preparation==================== These accounts represent the first Group accounts prepared by the Company. TheCompany was incorporated on 18 May 2004 and on 14 July 2004 acquired the wholeof the issued capital of Moonlight Express Holdings Limited and its wholly ownedsubsidiary Serabi Mineracao Ltda. These interim accounts are for the six month period ended 31 July 2005.Comparative information has been provided for the period since the incorporationof the Company to 31 January 2005. The accounts for the period have been prepared in accordance with the policieswhich the Group will adopt for its annual accounts, notably: (i) the accounts have been prepared on the historical cost basis; (ii) the Group capitalises exploration and development costs relating to the license areas that it holds and will amortise these costs over the life of the mine once commercial production has been achieved; (iii) stocks are valued at the lower of cost and net realisable value; (iv) property, plant and equipment is depreciated over its useful life; (v) the Company is currently undertaking mining from an area known as Palito Hill. Given the history of the development of the Palito mine and in particular the ability, unlike many mines, to generate cash flow at a very early stage of mine development through the availability of an existing plant at the site, the Board has considered that the current activities represent development activity rather than commercial production. At this stage, the operations have not reached the targets set by the Board for commercial production and accordingly all mine and plant costs have been capitalised as ongoing development costs. All sales revenue to date has been set off against the development costs; (vi) in 2004, the Company generated gold sales from re-treatment of some old tailings. As the reprocessing of this material was not part of the long-term development of the mine this income and its associated costs has been taken directly to the profit and loss account; and (vii) revenues are recognised only at the time of sale. Any unsold production and in particular concentrate is held as inventory and valued at production cost until sold. This information is provided by RNS The company news service from the London Stock Exchange