Serabi Gold - These April Showers Contain Significant Gold Droplets
Updated: Apr 13, 2021
Since writing my first piece for this blog on Serabi Gold (see here), several important updates have been issued by the company, which are worth discussing further.
First came the updated "Mineral Reserves and Resources at its Palito Complex as of December 2020." What this did was set the base case standing for the combined mines, with confirmation that at even c. 45,000 oz production (not expected until 2022), the mine has c. 6 years production, based purely on the measured and indicated categories.
Grades were slightly down on the August 2020 update but given the context of their exploration and mine expansion plans for 2021, the numbers really aren't what's key to all of this right now. Still, as I say it gives a base for what is expected to come, as this year and next unfolds.
Next came the accounting issue, something no investor ever likes to see pop up under an RNS red dot. In that 1st April RNS, 3 things stood out for me the most :
"Cash withdrawals amounting to approximately US$80,000 during the first quarter of 2020 lacked documentary support."
"A revenue adjustment of approximately US$970,000 reflecting the reduction in the revenue," due to "the final agreed gold assay of the copper/gold concentrate for both these sales was lower than the provisional assay undertaken by the Palito laboratory."
"Current cash balances amount to US$20.5 million," post cash payment of "the outstanding Convertible Loan Notes held by Greenstone Resources II LP." Total $2.53m.
Since then, a further RNS update has been released dated 6th April 2021, confirming a delay in the release of their accounts and the suspension of 2 managers in Brazil.
Whilst my concerns remain in check at this time, the first 2 incidents reflect my ongoing concerns over the overall management of the company, which I touched upon in a set of recent tweets (see here). Such governance issues raise questions and call for a review of its controls, accounting and governance processes. I trust that this is something that we will hear more about, once this particular episode is resolved and the accounts are released.
On the cash balance side of things, the reported end of March cash balance of $20.5m is solid, given that $2.5m has been paid out to Greenstone to settle the CLNs.
In their initial placement document, Serabi stated that they had c. $8.1m in cash, which included an initial payment of $1.5m, from a late Q4 shipment (29th Dec 2020). The placement itself raised $17.5m - expenses, giving the company a total cash balance of c. $25.6m. From this needs to be deducted the $970,000 and the above $2.5m, meaning the cash balance would be c. $22m - expenses for the placement.
So at $20.5m and with at least some of the c.2-3 months of further exploration drilling and costs factored in, the cash position remains robust and all plans remain in play, be it we will know more on this, once the Q1 update is out later in the month.
So that's the negative developments at least partly considered. Now comes the main reason why I remain invested and feel that the above pains, can at least for the time being, be given more understanding.
On 7th April Serabi released an updated exploration report for their Toucano prospect, located at Sao Domingos, which sits immediately West of their Sao Chico mine. Whilst the results demonstrated success across the board, the stand out results came from 21-SD-010 and in particular that 7.15m @ 258.24g/t Au, including 3.55m @ 519.45g/t Au.
As an investor attracted to this junior scale miner because of the potential that lies in their acreage, I am absolutely delighted to see such results, which are reported (initially) to open up a c. 600m strike at Toucano (see image below) and this is just one prospect in one small area of Serabi's total acreage.
This can be better appreciated by this further enclosed map of the "Sao Domingos gold and multi-element soil geochemistry," which demonstrates really well, just how much potential lies within this junior gold miner.
There we can see the Sao Chico mine and its relationship to not only Sao Domingos but also the 3 sizeable new trends, listed in that 7th April RNS.
These being :
The three-kilometre-long gold in soil “Pedro Trend” is interpreted as a strike extension of the Fofoca mineralisation.
The one-kilometre-long gold in soil “Messias Trend” is interpreted as a strike extension to the high-grade Messias garimpo in the southeast of the São Domingos area.
A 1 kilometre by 1.5-kilometre gold in soil anomaly of more than 30ppb, occurs two kilometres directly west of the Cicada target.
All of which completely centres on one 'zone' of the overall Serabi exploration and production picture, presented very neatly in the January 2021 presentation, slide 13. Note the area in the red circle, which ties back to the above soil geochemistry map above.
What makes this all the more significant, is that it represents the scale of the opportunity that sits to the West of Sao Chico only. To the East, we also have the potentially c. 7km long Cinderella shear, which in the Q3 2020 Serabi Gold "Management Discussion and Analysis" report, was described as so,
"The Cinderella Shear located to the south-east of Sao Chico is a very prominent IP anomaly, coincident with a magnetic high identified from an airborne survey, which now extends for seven kilometres. There has been historical artisanal mining activity around the areas that drain from the anomaly, make this feature extremely significant."
As we can see from the above map, multiple drill sites have been identified at Cinderella, as part of this year's programme.
I could go on but I think that's enough for this particular post.
For all of my reservations about the governance of the company and the recent negative developments, I simply cannot ignore the magnitude of the potential that lies within Serabi's tenement areas and the above update only goes to re-affirm that.
CEO Mike Hodgeson in his last interview with Crux Investors (available here), talked about 3 exploration drills becoming 5. I sincerely hope that these words have substance because it's abundantly clear to me, that they can be put to very good use and help drive true market recognition, for what I feel is clearly there in the ground.
Hence why I am prepared to show 'understanding' for these recent events and allow the management team to react in a positive manner because the overall picture, at these sorts of current valuations, given where gold is and can go, remains for me very worth it.
Note - This article represents the opinion and research of the author only and the author currently holds a position in one or more of the stocks mentioned. Nothing shared in this article is to be deemed financial advice. Where possible all facts have been checked and references provided, however it is the responsibility of the reader to check all details for themselves before making any financial decisions. Please also refer to the disclaimer policy