Serabi Gold (LSE: SRB, TSX: SBI) – But it’s business as usual, Day after day (Transcript)

Serabi Gold PLC
  • TSX: EQX
  • Shares Outstanding: 60M
  • Share price GB£0.75 (17.04.2020)
  • Market Cap: GB£44.5M

Interview with Michael Hodgson, CEO of gold producer, Serabi Gold (LSE:SRB, TSX:SBI).

Hodgson gives us his take on the 2019 figures, the highlight being the cash position of USD$14.23M at the end of the year. Other notable numbers are Net cash USD$5M; the AISC at USD$1,081 up from 2018; EBITDA $17.2M; average gold price received of USD$1,376; total ore mined increased by 8% at average grade of 7%. The company continues to produce free cash flow and the Brazil Real exchange rate is also helping.

We also discuss the Q1/20 Operational Announcement. Feb production was impacted by an unexpected failure of a ball-mill, which was down for 2-weeks. However the new ore-sorter, allebit in a test period, is delivering astonishing results. Hodgson gives us an indication of the sorts of numbers it is delivering and can expect to continue delivering. The quarter ended up only slightly down on production forecast as a result.

Coringa is still progressing. Progress is slow as Greenstone wanted to evaluate the market to ensure that right amount of capital is available for the company. They have agreed a payment plan with Equinox and Greenstone involving a payment plan. All parties are agreed as money is being paid in a manageable way and allows Serabi to pay down the Sprott debt in full by the end of June. It also means that Serabi has cash on hand at all points. And what it means is that Coringa will, when mining resumes to normal levels, be able to double the production numbers as expected.

Currently it is business as usual for the moment. March figures where above forecast (best aver month on record), and expectation is that April will be similar. COVID-19 precautionary measures have been taken but the company is looking at the situation on a daily basis.

Apologies for not grilling Hodgson, but the line was quite poor, so conversation was difficult to have. They seem on top of things for now and we look forward to resuming normal conversations eventually.

We Discussed:

  1. 2019 Audited Results
  2. Coringa Gold Project: Impact of Covid-19, Financing and Plan Moving Forwards
  3. Palito Gold Mine: Is it Still Operating?
  4. New Ore Sorter Saves the Day: The Potential Future Capacity

CLICK HERE to watch the full interview.

Matthew Gordon: Hello, Mike. How are you, sir?

Michael Hodgson: Very well thank you, and yourself?

Matthew Gordon: Yes. Holed up at home, I guess like you? How have you been whiling away your hours?

Michael Hodgson: Well, a lot of Skype and a lot of WhatsApping and a lot of management through the Wifi to Brazil. Yes, a lot of communication between the corporate guys here in the UK but, yes, it is good Wifi – that’s what you need.

Matthew Gordon: It is. It is. I think it’s going to change the way we work and certainly change the way we interact with our people for sure. ‘Mike, a couple of things happened last week: audited end of year came out and I think today, operational announcement as well. Can we start off with last years audited results? There’s quite a few nice numbers in there. You must be pleased?

Michael Hodgson:  Probably the biggest number, the most important number is cash and we ended the year with over USD$14M in the bank; which is great. It really probably meant that we were generating about USD$1.5M per quarter, more or less. We started the year with about USD$8M. We built that cash up to about USD$8. The plan behind that was to try to accumulate as much cash as possible to actually put towards the effort to start Coringa. That was the plan. It still is the plan but of course, I think that the world has changed ever so slightly since then. But it’s great to have that cash in the bank. All In Sustaining Costs (AISC) came in at about USD$10.80: which is a little bit of an improvement on 2018. That was a function of just optimisation; more ounces, we did over 40,000oz. More, more ounces over the same cost base. Our costs are very stable in real terms. That’s important because, obviously, we are enjoying, did enjoy for much of 2019, and certainly today we are enjoying great economic tailwinds on the Gold price as I call them. Particularly today, the Gold price in Brazilian reals because of that exchange rate. So that has been terrific and that is really helping our All in Sustaining Costs and our continued cash generation as we go into Q2 2020.

Matthew Gordon: Brilliant. I think the thing that people want to know most about is Coringa. So last year, generating positive cashflow, which is great and you ended the year with a lot of cash in the bank, but you are going through a process, and I appreciate that everyone has had things held up with regards to what they are doing because of COVID-19. Is that still progressing?

Michael Hodgson: It is. People will have seen the press release late last week of the rescheduling of the final payment to Equinox through the Greenstone loan. Greenstone have been super supportive. Equinox have been super understanding. At the end of the day, I think it is fair to say that when Corona really started biting at the beginning of March, Greenstone wanted to pause, and we put out a press release, we were somewhat pressured into having to do it but I think the press release was received, I think some of the wording was perhaps a little harsh and people possible misinterpreted. I think there was a general feeling that people felt that Greenstone were getting cold absolutely not. I was in touch with them all of the time. All that they wanted to do was a pause, and they just wanted to say, look, you know, we don’t know how this is going to pan out. We know that the company might need, if for example, our business gets completely interrupted we might need that money. I don’t think Greenstone have got endless amounts of money just to keep supporting all of their investments. They just wanted to see that we were safe and secure and the production was still going okay before we went forward.

Now, we have come to a very, I think, eloquent solution, I think, Equinox, where we are going to start the payments so we can have early drawdowns on Greenstone’s loan, but we do keep the bulk of it there just in case whatever, something might happen. At the end of the day, we are going to make a USD$0.5M payments April, May, June, and then it will go to USD$1M payments. And as soon as the whole international travel bans are lifted we make the bullet payment to Equinox and we get Coringa.

In a way, you know, it’s a very nice solution for us. Probably not quite so good for Equinox; they’re not getting it all in one chunk but they are getting something, they are getting it at least. And we are paying it down in a very manageable way. So I’m delighted about that and we will continue to keep doing that during Q2. And the great thing about doing that is that it gives us some breathing space to pay off Sprott: USD$1.2M per month, April, May, June, so we will be debt-free by the end of June as well, and cash in the bank still.

Matthew Gordon: Fantastic. So that little triumvirate of related parties, they are all happy with this elegant solution?

Michael Hodgson: Yes they are. I mean, obviously, Clive, my colleague, he has had to go around a lot of, they were, the lawyers took a bit of time to get their heads around it. But no, it has all been very much agreed and Sprott are happy. Greenstone are happy and Equinox are happy.

Matthew Gordon: That is good news, especially difficult in the current climate etc. That’s nice to see. So we can expect you to be progressing with Coringa and developing Coringa as part of your new stable, your new portfolio?

Michael Hodgson: Yes. I will just add that we have just taken the precaution of suspending any non-essential activity during Q2 because of, obviously, movement of people is difficult etc. So the idea was to start Coringa in Q2. That’s been pushed back to, well, Q3 at least. Diamond drilling and exploration at Palito and Sao Chico has actually been put on stop. To be honest, the contractors couldn’t keep their people there, they couldn’t keep their supplies coming in themselves. So it was going to stop anyway. So we are just focussing completely at the moment on mine development and Gold production, and we will do that for the next 3-months, and then hopefully in Q3 we will pick everything up.

Matthew Gordon: So you are focussing on Palito, which is making money, but you have set the times back slightly for Coringa in terms of where you spend money for future growth. That makes sense to me. How are things at Palito? Is there anyone working?

Michael Hodgson: Absolutely. Up until now we are unaffected. Completely unaffected. I suppose that the advantage of being isolated but not that remote but at least fairly isolated is that we are completely virus-free. We have a workforce which is pretty local. And we have agreed with our workforce that they all are forgoing their usual 20:10, or 30:15 rotations; they are all going to stay there for the foreseeable future and just work on – the movement of people in Parai is restricted so they are going to stay on because once they leave they won’t be able to get back. They have said that they will stay on working there as long as no new people come to site and we therefore eliminate any risk of bringing this into the site, because we are a camp and as I am sure you can appreciate, if we have someone coming in with the virus, it would go through the camp like a bushfire. As long as we can keep the camp virus-free, and therefore no new people coming in, they all stay there working.

March was terrific. Those three weeks that we put out at the beginning of March we did, as you say, we had a problem in February with the bull mill, an unforeseen failure of one of our main bull mills, that actually took 15-days to resolve and really ate into our February production. We thought that would really damage the quarter but the guys responded in March absolutely magnificently and we posted our best ever monthly Gold production since operations began. Fantastic response – 3,700oz. So we ended the quarter with a very respectable 9,020oz, which was by no means a bad result at all. And I am pleased to say that we have started April absolutely screaming. We are on for a really good April by the looks as well.

As things stand at the moment, we are going to continue with normal business and it will be, we will make the best efforts to keep on to the budget. I think we will have to be cautious and say that we are doing absolutely everything that we can to make sure that we don’t actually have an interruption. We are trying to stockpile as much consumables as we can: mill balls, cyanide, carbon, lime, explosives; these are all things, food as well for the people, we are trying to keep all of these things there to try and keep people at site. We have literally got half of the workforce, well, the normal workforce at site but we are not rotating, so we have just got to try and keep them happy and motivated. So far they are happy, and that’s what we will do.

You know, it would be foolish for me to say, look, we can do this indefinitely; at some point in time we are going to have to, those guys will ultimately get tired and we will have to replace them, but we are not going to do that until we can and when I say we can, that’s with testing. We don’t know where we are with tests. We are trying to get tests, but we all know in this country, tests are very hard to come by. They are all being allocated, quite correctly, to the health services rather than private companies. So we will endeavour, however, to get some tests eventually so we can start to rotate the workforce.

But for the foreseeable future we expect a good April and a moderately good May. We will just do the best as we possibly can, but what can I say? Business as usual at the moment. Probably one thing that I do want to add is that this is one of those things where, I wouldn’t say we knew about this but the impact of the ore sorter has been absolutely phenomenal and probably has come in at exactly the right time. Here’s a piece of equipment that can really improve the grade and it probably was instrumental in the ounces that we produced in March that we could recover and salvage to make a very respectable quarter out of what could have been a poor quarter. And that is still operating today and will be all through Q2 and is really adding some, screening out waste on the Palito ore and really getting the grade up , and the plant is singing as a result. There’s some high-grade going in and some high-level ounces being mined.

Matthew Gordon: If I can just ask, the ore sorter, sorry, I was going to ask you about your Q1 operational announcement but I think you have covered a lot of the components there, so thanks for that. With the ore sorter, I appreciate that it has contributed to you being able to recover some of the losses from the failure at the Ball mill. But can you give me some numbers. Give me a sense of what the future could look like in terms of what is the ore sorter doing for you?

Michael Hodgson: It’s kind of hard to say exactly what – January and February, we were just literally playing around with any old material, just to see what we could scavenge out of low-grade piles to see what it could do, and it was pretty impressive, but March was probably the first month where we really, seriously measured and we fed it with typical run of mine material, lower grade, admittedly, and see what it would actually pull out. These numbers are basically the March numbers. So we fed this ore sorter in March with 2,500 tons at a grade of 3.2g/t. So that 2,500 tons was then separated into 300 tons of product at 21g/t, and 2,200 tons of reject at 0.8g/t. So essentially, we have scavenged all of that high grade out of that 3g pile. All that ore into the 300t high-grade pile and the reject was 0.8g/t. That’s 21g/t and it went to the plant and it was a real sweetener on the typical ROM feed of about the typical 7g/t to 8g/t. You can imagine that 2,500t would have normally been going through the plant and instead we reduced that to 300t.

Matthew Gordon: That’s amazing. And what will the ore sorter capacity be going forward? What sort of numbers will be going through it?

Michael Hodgson: Well, I think in time we will probably pass all of the Palito ore through the ore sorter. I think we will. We will be running at about 250 tons per day. It can easily do that. It is actually capable of doing about 40 tons per hour so it can comfortably do that. In fact, it is so efficient that crushing them becomes our bottle neck; we can’t crush enough. We are now looking at ways of expanding our crushing facility so we can actually…the bottle neck just moves around, that is the problem, but certainly at the moment, all of the Palito ore, the majority of the Palito ore is going through the ore sorter, just screening. And then the plants, the capacity that we liberate, we use Sao Chico ore for because that doesn’t work so well with the ore sorter; it doesn’t need to be sorted because it is sort of 9g long-haul material and that just goes straight in. So this is just the ounces, we are generating more ounces through the processing plant but not by increasing the throughput, just by increasing the head grade.

Matthew Gordon: Mike, that’s really fascinating with regards to the fact that the ore sorter is liking the ore that you are putting through it. Those sorts of numbers are phenomenal. It bodes well for the future for sure. Great to hear that it is business as usual for now. Numbers: and hopefully you can continue to hit those numbers. I know that it is difficult times for you guys. I think that the market is going to give you guys, well miners, a pink ticket for a while because it is exceptional times here. It is nice to see some companies, with the cooperation of their staff, their team, to be able to continue to work. I appreciate the update today. We loved the turnaround last year, with Coringa coming on board I think it will be pretty exciting times this year if we can get back to some semblance of normality soon.

Michael Hodgson: Yes, well we are certainly, definitely, definitely looking forward to that day.

Matthew Gordon: We all are. We all are. Well look, I’m going to let you get back to the sunshine down on the South coast and your WhatsApp and your Zooming. Do pick up the phone if anything does change because yours is one of our favourite stories, certainly here in the UK. We wish you well and we will speak to you soon.

Michael Hodgson: I appreciate it, Matthew. Speak to you soon.

Company Website: https://www.serabigold.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.


The Serabi Gold PLC company logo.

Leave a Reply

Your email address will not be published. Required fields are marked *