Serabi Gold (SRB) – 2020 AGM Update

Serabi Gold PLC
  • Shares Outstanding: 59M
  • Share price GB£0.83 (16.06.2020)
  • Market Cap: GB£49M

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

We last touched base with Hodgson in May. At the time, Brazilian gold-producer Serabi Gold had released some COVID-19-affected, but still impressive, Q1/20 results; the company recorded record gold production in March. A mill going down was an unexpected obstacle for the company to overcome, but the new ore-sorter made up for the downtime. Impressive operational number despite being in a lockdown. The management team continues to astonish.

Total Q1/20 gold production was c. 9,000oz, down on the 10,000oz guidance. This reinforced some excellent 2019 annual numbers, as Serabi Gold continues to establish itself as a solid gold producer.

Matthew Gordon talks to Michael Hodgson, 15th June 2020

Today was supposed to be Serabi Gold’s AGM. Instead, because of COVID-19, Hodgson is talking to us.

The company’s 2019 highlights included:

  1. US$14.23M cash position.
  2. USD$5M in net cash.
  3. A slightly increased, but still economic, AISC of US$1,081.
  4. An EBITDA of US$17.2M, up massively from US$6.3M in 2018.
  5. US$1,376 was the average gold price received.
  6. An 8% increase in total mined ore.
  7. The earnings per share were US$0.065.
  8. Serabi Gold created a huge amount of cash flow, generating US$5M in net cash.
  9. The company’s US$14.23M cash holdings were up from US$9.2M the year before.
  10. Serabi Gold achieved a solid post-tax profit of US$3.83M.

2020 has been a difficult year so far for all gold producers, developer and explorers. The market reset, followed by COVID-19, has created major difficulties and share prices were put under stress as shareholder sold down. Operations have ground to a halt for many in South America. However, in amongst all this uncertainty, Serabi Gold achieved record gold production in March. 3,674oz of gold was produced, the highest monthly level since operations began. The company also had a “phenomenal April,” capping off the company’s “best 2-years on record.”

The ore sorter becoming fully-operational, freeing up space for higher-grade ore to go into the plant, has likely had a lot to do with this performance. The guidance for this year is 20,000oz total production by the end of Q2, with 45,000oz by the end of the year, and this is likely to get gold investors even more excited. However, it is clear that Serabi Gold unlikely to hit its 10,000oz target in Q2, but the company should reach around 8,000oz courtesy of its hard working team at camp, who are pulling out all the stops.

The company ended Q1/20 with US$9M in the bank, and Hodgson expects to end Q2/20 with well above the US$6M originally targeted. The really exciting headline? At the end of this month, Sprott is finally out of the picture, and Serabi Gold will be DEBT-FREE. The game-changing Coringa acquisition has been structured smartly, so there will be no bulk payment upfront, and instalments will be staggered conducive to the stability of Serabi’s cash flow.

Debt-free, throwing off the ounces and the cash, with significant potential in the form of an doubling the output with both Coringa and Palito in operation and further possible operational optimisation. It’s quite the concoction, and investors seem to be appreciating Hodgson’s leadership.

However, for us. We are most excited by the potential of the exploration in and around Sao Chico and Palito. These are cheap, quick and accessible ounces. We are not sure the market yet understand what this does to the bottomline. It can all be financed from cashflow. It’s a significant land package, at site. Can they join Sao Chico and Palito together as one ore body. This is the game changer investors should be looking at. We will explore this line of questioning with the company once the AGM news is out of the way. PAY ATTENTION folks.

Most explorative above ground drilling was reluctantly halted a month ago because of health concerns around drill teams coming in and out of the camp. However, underground drilling has continued, and it’s back starting up again now. Hodgson hopes to exploit the “tremendous” potential of Sao Chico by drilling at it from all angles. A real area of excitement is the area that bridges Palito and Sao Chico together, which is packed full of exciting magnetic and electromagnetic geophysical anomalies. Right now, the company is progressing the geochemistry of its land package, honing in on the best target areas. Some of the exploration targets in the Jardim do Ouro District, just 5km away from Palito, carry meaningful potential: Hodgson is confident he can quickly turn exploration into production ounces.

In terms of operational optimisations, it is impressive that Serabi Gold is performing so well when so much can be enhanced. The company has a plant at Coringa that is too big for it, a plant at Palito that is too small for it, and no plant whatsoever at Sao Chico, with geophysical anomalies scattered all across the properties. Once Serabi Gold cracks how to best organise and utilise its land package operationally, investors could look forward to yet more growth.

What did you make of Michael Hodgson and Serabi Gold? Comment below and we will respond.

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