Serabi Regulatory News (SRB)

30 Mar 2006 10:49

Serabi Mining plc30 March 2006 SERABI MINING PLC REPORTS FINANCIAL RESULTS LONDON 30 March 2006: Serabi Mining plc ("Serabi" or "the Company") todayannounces its preliminary financial results for the period from incorporation(18 May 2004) to 30 September 2005 and for the three month period ended 31December 2005. As reported in the Company's Interim Financial Statements, Serabi is adopting afiscal year end of 31 December and all future financial statements will beprepared on a calendar year basis. The following Chairman's Statement will be reproduced in the Company's 2005Annual Report which will be posted to shareholders shortly. Highlights - Continuing mine development and operating improvements with an initial 17,261 ounces of gold equivalent production achieved - Process plant upgrade completed, leading to average gold recoveries of between 90% and 95% by year-end - Plans initiated to achieve higher mining and process rates in 2006 - 74% increase in resources to 825,900 ounces gold equivalent - Improved resource quality as Indicated Resources comprise 90% of total resource - Successful completion of the Company's initial public offering on London's AIM market Chairman's Statement 2005 was a year of significant accomplishment for Serabi as the company madetangible progress towards its goal of becoming a mid-tier gold producer.Serabi's admission to London's AIM market on 10 May 2005 was the culmination ofmore than five years of private development by the company's founders,institutional and private investors and employees. The benefits of becoming apublic company combined with growing cash flow from the Palito mine now providesa strong foundation for continued success. Operationally, 2005 was characterised as a year of continuous improvement at thePalito mine and preparation for the start of regional project evaluation. As anoperation still under development, production at Palito showed significantimprovements over the year, resulting in output of 17,261 ounces of goldequivalent. Building on last year's success and with preparations for the comingyear, I expect the full potential of Serabi will become more evident during2006, with the following goals: - further expansion of the mineral resource at Palito; - increase Palito annual mine production to 45,000 ounces gold equivalent with a targeted year-end cash cost of US$200 per ounce; - establish resources on other Jardim do Ouro projects; - review expansion potential and complete long-term Palito mine plan; - step up exploration across the Tapajos project portfolio; and - establish resource and initiate preliminary planning for a new Tapajos project. 2005 was also a solid year for gold and copper prices, our main products. Sincethe start of 2005, the price of gold rose from US$436 per ounce to US$513 perounce at year-end, an increase of 18%. Similarly, the price of copper increasedfrom US$1.42 per pound to US$2.08 per pound over the same period, an increase of46%. Copper is a significant by-product at Palito and currently representsapproximately 12% of total revenue. The full impact of these prices was partlyoffset by a surprisingly strong Brazilian Real, which appreciated by 14% overthe same time period. Nevertheless, we anticipate enhanced benefits to revenueduring 2006 with metal prices remaining strong and limited potential for furthercurrency strengthening. Palito Gold Mine At our 100% owned Palito Gold Mine a significant amount of funds were investedin projects designed to expand the rate of production, improve efficiencies andincrease the overall resource. By the end of 2005, these investments werebeginning to bear fruit, with daily underground mining production regularlyachieving above 250 tonnes, compared with less than 100 tonnes at the beginningof the year; more recently this has risen to approximately 400 tonnes per day.In addition, total resources at the Palito Main Zone increased by 74% to 825,900ounces of gold equivalent. This substantial increase in the resource base willnow be assessed to determine the implications for long-term mine planning inorder to realise the full potential of the Palito Gold Mine. Following an assessment of various alternatives during the second half of 2005,the Board of Directors decided to introduce mechanised mining techniques intothe operation, specifically longhole stoping with decline access. The firstphase of the decline has been completed down to the 192 mRL and is expected tobe developed further in line with production scheduling and cash flowgeneration. The introduction of longhole stoping is a major change that willresult in a safer and more efficient operation at Palito and secure our future.As a result of these initiatives we now anticipate Palito moving to 'commercialproduction' in the third quarter of 2006. Exploration Since 1999, the company has established a dominant land position over attractivetargets throughout the Tapajos region of Brazil of more than 100,000 hectares.Proceeds from the company's IPO were used to purchase drill rigs, train crewsand begin testing projects throughout the Jardim do Ouro District and thebroader Tapajos region. Results from this work programme are expected to becomean important feature of the company's development potential during 2006. Evaluation of soil geochemistry results, geophysics and geology by the company'sexploration team resulted in the initiation of drilling at two targets withinthe Jardim do Ouro district late in 2005, namely Palito West and Bill's Pipe.Initial results are encouraging and Serabi plans to continue work at these andother projects within the Jardim do Ouro portfolio during 2006. Work will befocused on developing resources at various satellite orebodies with a view toincorporating these into the Palito mine plan where possible. Step-out drilling from the Palito Main Zone during 2005 has already resulted inthe important new discovery of a series of high-grade gold veins, collectivelytermed the Compressor Lode. The significance of this discovery is two-fold.Firstly, it illustrates the potential for additional satellite orebodiesparallel to the Palito Main Zone, within close proximity to the existingoperation. Secondly, the Compressor Lode demonstrates the positive impact ofbeing able to quickly bring such mineralisation into production. In the span ofonly five months, Serabi has discovered, evaluated, planned and begun mining atthe Compressor Lode. The potential to incorporate other similar orebodies intothe mine plan is considered to be good, with positive benefits on the overallproject economics of Palito. The company was also active in the broader Tapajos region. In October 2005Serabi purchased an option to acquire 100% of the Pombo gold project in thesouthern area of the Tapajos. Drilling has recently commenced and we expect toreport results in due course. Drilling is also planned at other Tapajos projectsduring 2006. Strategy Going Forward It has been six years since Serabi was established in Brazil. Over this period,the Company has built the only operating mine in the Tapajos, built an excitingportfolio of exploration projects, built an experienced team and a positivereputation, which has resulted in important strategic and operating advantagesfor the Company. As a result, we believe we have the ability to leverage ourexisting assets and develop new projects quickly. Furthermore, there is immensegeological potential in the Tapajos region, from which we are now wellpositioned to build shareholder value. Our criteria for evaluating projects are: 1. mineable resource potential of at least 500,000 ounces gold equivalent; 2. annual production potential of between 50,000 to 100,000 ounces gold equivalent; and 3. projected life of mine total cash costs of less than US$250 per ounce. Serabi will continue to pursue its development programme guided by this set ofevaluation criteria, with a goal of becoming a significant multi-mine, low costgold producer. Acknowledgements The accomplishments in 2005 could not have been realised without the efforts anddetermination of Serabi's employees toward the goal of becoming a successfulmid-tier gold producer. I thank those that have contributed to our success todate and welcome those that have recently joined. I would also like to welcome Richard Robinson and Roger Davey to the Board ofDirectors of the Company. Their counsel and experience will be an invaluableasset to Serabi as the company pursues its growth strategy going forward. A final acknowledgement goes to our shareholders for their continued support ofSerabi. We all look forward to an exciting and rewarding future as Serabicontinues to grow in 2006 and beyond. Graham Roberts, Chairman Profit and loss account(expressed in US$) Group 1 October 2005 to From incorporation to 31 December 2005 30 September 2005 Turnover - 343,064 Operating expenses - (255,913)Profit from operations - 87,151 Administration expenses (1,383,272) (3,865,896)Loss on ordinary activities before interest and otherincome (1,383,272) (3,778,745)Foreign exchange loss (35,703) (171,310)Interest payable (69,929) (99,973)Interest receivable 21,044 156,959Loss on ordinary activities before taxation (1,467,860) (3,893,069) Taxation - (524)Loss on ordinary activities after taxation (1,467,860) (3,893,593)Loss per ordinary share (basic and diluted) (1.42c) (6.51c) Statement of total recognised gains and losses Group 1 October 2005 to From incorporation to 31 December 2005 30 September 2005 Loss for the period (1,467,860) (3,893,593)Exchange loss on foreign currency net investment (175,330) (314,444)Total recognised losses for the period (1,643,190) (4,208,037) All transactions arise from continuing operations. Balance sheets(expressed in US$) Group Holding company 31 December 30 September 31 December 30 September 2005 2005 2005 2005Fixed assets Intangible assetsGoodwill on acquisition 1,752,516 1,752,516 - -Tangible assets Property, plant and equipment 5,375,621 4,088,030 46,802 20,986Exploration and development costs 15,831,875 14,609,905 1,073,225 789,001Investments - - 17,339,256 17,339,256 Current assetsStock and work in progress 1,825,479 902,123 - -Debtors due within one year 2,818,551 1,162,271 425,362 292,759Debtors due after more than one year - - 9,594,130 4,357,374Cash at bank and in hand 2,152,452 7,557,138 1,552,048 7,238,688 6,796,482 9,621,532 11,571,540 11,888,821Creditors: amounts falling due within one year (2,451,537) (2,052,507) (646,558) (577,959)Net current assets 4,344,945 7,569,025 10,924,982 11,310,862 Total assets less current liabilities 27,304,957 28,019,476 29,384,265 29,460,105Creditors: amounts falling due aftermore than one year (244,724) - - -Provisions for liabilities and charges (428,944) (451,528) - -Net assets 26,631,289 27,567,948 29,384,265 29,460,105 Capital and reserves Called up share capital 17,974,336 17,974,336 17,974,336 17,974,336Share premium reserve 11,818,128 11,818,128 11,818,128 11,818,128Option reserve 2,690,052 1,983,521 2,690,052 1,983,521Profit and loss account (5,851,227) (4,208,037) (3,098,251) (2,315,880)Equity shareholders' funds 26,631,289 27,567,948 29,384,265 29,460,105 Consolidated cash flow statement (expressed in US$) Group 1 October 2005 to From incorporation to 31 December 2005 30 September 2005 Net cash flow from operations (2,725,970) (2,363,302)Returns on investment and servicing of finance Interest received 21,044 156,959 Interest paid (69,929) (99,973)Net cash (outflow)/inflow from returns on investments and (48,885) 56,986 servicing of financeCapital expenditure and financial investment Purchase of tangible fixed assets (1,627,113) (2,603,143) Exploration and development expenditure (967,746) (8,538,215)Net cash outflow on capital expenditure and financial (2,594,859) (11,141,358)investmentAcquisitions and disposals - - Capital and loan investments to subsidiaries - - Cash acquired with subsidiariesNet cash outflow on acquisitions and disposals - -Cash outflow before financing (5,369,714) (13,447,674)Financing activities Issue of ordinary share capital - 29,875,674 Repayment of shareholder loans - (8,174,336)Net cash inflow from financing activities - 21,701,338(Decrease)/Increase in cash at bank and in hand (5,369,714) 8,253,664 Reconciliation of operating loss to net cash flow(expressed in US$) Group 1 October 2005 to From incorporation to 31 December 2005 30 September 2005 Operating loss (1,383,272) (3,778,745) Depreciation 339,522 285,512 Write off of exploration and development costs - 48,993 Increase in stocks (1,003,810) (740,257) Option costs 422,298 1,194,520 (Increase) in debtors and prepayments (1,754,743) (545,030) Increase in creditors and accruals 709,714 1,190,992 Foreign exchange (55,679) (19,287)Net cash outflow from operating activities (2,725,970) (2,363,302) Reconciliation of cash to net funds (expressed in US$) Group 1 October 2005 to From incorporation to 31 December 2005 30 September 2005 Cash at bank and in hand at beginning of period 7,557,138 - Cash flow (5,369,714) 8,253,664 Exchange loss (34,972) (696,526)Cash at bank and in hand at end of period 2,152,452 7,557,138 Post Balance Sheet Event On 30th March the Company announced that it had placed 6,500,000 new OrdinaryShares of 10 pence each at a price of 40 pence per share. Once completed theplacing would raise approximately £2,460,000 (net of expenses). The placing isconditional upon the shares being admitted to trading on AIM. Application forthe shares to be admitted to trading was made on 30 March and dealings in thenew Ordinary Shares are expected to commence on 5th April. Basis of Preparation These financial results represent two accounting periods, being the period fromincorporation (18 May 2004) to 30 September 2005 and the three month period from1 October 2005 to 31 December 2005. The financial results for both periods have been prepared in accordance with theaccounting policies adopted by the Company, notably: 1. The financial statements have been prepared under the historical costconversion and in accordance with applicable Accounting Standards in the UnitedKingdom; 2. The Group capitalises exploration and development costs relating to thelicense areas it holds and will amortise these costs over the life of the mineonce commercial production has been achieved. On an annual basis the carryingvalue attributed to each of the mineral properties is compared with theestimated future value that will be derived from the property. Any impairment iswritten off to the profit and loss account; 3. Stocks are valued at the lower of cost and net realisable value; 4. Property, plant and equipment is depreciated over its useful workinglife; 5. The Group has adopted the US dollar as its reporting currency as thebulk of its revenues are anticipated to be linked to the US dollar. Transactionsin currencies other than US dollars are translated at the rates prevailing atthe dates of the transactions; 6. The Company is currently undertaking mining from an area know as PalitoHill. Given the history of the development of the mine and in particular theability, unlike many mines, to generate cash flow from a very early stage ofmine development through the availability of existing plant at the site, theBoard has considered that the current activities represent development activityrather than commercial production. At this stage, the operations have notreached the targets set by the Board for commercial production and accordinglyall mine and plant costs have been capitalised as ongoing development costs. Allsales revenue to date has been set off against the development costs; 7. In 2004, the Company generated gold sales from re-treatment of some oldtailings. As the reprocessing of this material was not part of the long-termdevelopment of the mine this income and its associated costs has been takendirectly to the profit and loss account; and 8. Revenues are recognised only at the time of sale. Any unsold productionand in particular concentrate is held as inventory and valued at production costuntil sold. The report and financial statements for the period ended 30 September 2005 willbe posted to shareholders today. This preliminary announcement does not comprise statutory accounts within themeaning of Section 240 of the Companies Act 1985. This preliminary statement,which has been agreed with the auditors, was approved by the Board on 30 March2005. It is not the company's statutory accounts, which will be sent toshareholders shortly. The auditors' reports on the full financial statements for the three monthsended 31 December 2005 and for the period from incorporation to 30 September2005 have yet to be signed. However, the auditors anticipate issuingunqualified audit reports in due course. Enquiries: Serabi Mining plcGraham Roberts Tel: 020 7220 9550Chairman Mobile: 07768 902 475 Clive Line Tel: 020 7220 9550Finance Director Mobile: 07710 151 692 Chris Sattler Tel: 020 7220 9550Manager, Corporate Development Mobile: 07717 748 275 email: contact@serabimining.com web : www.serabimining.com This information is provided by RNS The company news service from the London Stock Exchange