Serabi Gold PLC
- TSX: EQX
- Shares Outstanding: 59M
- Share price GB£0.83 (16.06.2020)
- Market Cap: GB£49M
Interview with Michael Hodgson, CEO of gold-producer Serabi Gold (LSE: SRB, TSX: SBI)
FULL ARTICLE ON THIS INTERVIEW HERE.
We last touched base with Hodgson in May. This time around, he’s here to discuss the outlook for 2020.
Like most gold producers, Serabi Gold is likely to miss it’s guidance for 2020, but not by as much as investors would expect. The company has mitigated the impacts of the market reset and COVID-19 effectively. Sprott is out of the picture, and now the company is debt-free and cashed-up, it can proceed forward with exciting gold exploration at Sao Chico, in addition to creating operational optimisations at Palito and Coringa.
This gold producer has been consistently on the up, but now Hodgson has put his foot to the floor, and Serabi Gold appears to be accelerating into top gear.
What did you make of Micahel Hogdson and Serabi Gold? Are you a gold investor? Does gold mining interest you? Comment below and we will respond.
- 2019 Overview: Great Year for Serabi Gold. Looking at 3 Areas of Progress
- Rough Starting 2020, yet Great Results so Far: What’s the Rest of the Year Got in Store
- Exploration Potential: Prospective Land Package and Great Possibilities
CLICK HERE to watch the full interview.
Matthew Gordon: Hi, Mike, how are you doing, Sir?
Mike Hodgson: Very well. Thank you. Nice to speak to you, Matt.
Matthew Gordon: Well, thanks for joining us today. You should be, today, at your AGM, but obviously things are what they are, and unfortunately people can’t get together and your shareholders aren’t able to see you in person. So, you’ve kindly agreed to talk to us, and I guess sort of kill 2 birds with one stone and talked to us about a couple of things. One, 2019 performance and obviously 2020, and what has been happening and what your hopes are for the coming year under the current conditions. So, if you don’t mind, why don’t you give us your rundown of 2019?
Michael Hodgson: Well, you are right, it is the wonder of technology, isn’t it? I mean, yes, we would have been there today. It was always a good day in our calendar. Over the last few years, we’ve had more and more interest with our AGM and had lots of, well, a fair number of shareholders coming along and asking some pretty good, intelligent questions, a good following and sadly this year we can’t do it. But you know, forums like yourself are brilliant for doing that. So, this is an opportunity to meet, to give out more information. Well, a lot of it would all be repetition of what we did in 2019, but it’s a very important moment to sort of reflect on because it was a great year for us. And possibly more importantly, people are going to want to know where we are now and where we’re going, as with many companies. I will come on to that.
But 2019 first: well, you know, as I said before, you know, 3 main areas of progress for us, really with Serabi. The production from two mines ore bodies: Palito and Sao Chico, great year. It was the first time we exceeded 40,000oz in our history. We have been ramping up, not quite making 40,000 for the last four years, but finally we made it in 2019, which was great, and it was our best year ever. We are really pleased with that. So, production went really well. The plant was full. The ore body is working very well. So really, plant loads of operation. So, you know, our push was obviously, where do we go from here? And during the year, we obviously did all that test work on the ore-sorter, which we’ll come on to a little bit. That obviously arrived at site at Q4/19. In the last months of the year, we were basically assembling all of that and it has been a terrific purchase because in Q1/20 this year, it has really helped us, particularly in the second part in March and April, just after commissioning, it has had some tremendous results. In fact, if we hadn’t had it, we probably would’ve have had quite a poor quarter, but in the end, the ore-sorter was a great way of turning our quarter around.
The back of 2019: so, as well as Palito going very nicely, and Sao Chico, exploration success, we brought in a surface diamond drill rig, a couple of contractors, and we really got our teeth into those geophysical anomalies in and around the mine site. What’s called headframe exploration in and around Sao Chico, particularly. And we did a fair bit of that in the second half of the year. The results didn’t really flow through until the end of the year, but we’re very nicely doing step out drilling at Sao Chico, and I’ll probably talk more about that in the results of 2020, that’s when we get the results. We got going, focusing on Sao Chico in particular. That has been pretty good. And the final part of the 2019 story was really Coringa, which was our, what we call our Palito lookalike down the road, which is going to be probably our most obvious growth strategy. We have our Palito 40,000oz to 50,000oz, and we have another project down the road, which looks pretty much the same. So that means 40,000oz, 50,000oz going to 90,000oz. That’s our plan.
We did a new resource update in 2019 in the first quarter. We did a PEA that came out in September, which showed what we thought, you know: yes, robust 40,000oz, above USD$900 All In Sustaining Costs. 8g/t, 8-year mine life Palito lookalike. We got that out, off the rank on end of Q4/19 last year. And now we have completed an environmental impact assessment on it, and we are very busily doing our permitting, final stage of permitting for Coringa. Hopefully with a view that we can actually start building the plant, assembling the process plant that’s already there in the backend of this year coming, this year, 2020.
So, 3 areas, good production, great exploration start-up, progress at Coringa with permitting.
Matthew Gordon: Well, not only that, your share price moved. It was quite a year for your shareholders.
Michael Hodgson: Yes, sorry, that’s a very good point, and probably the most critical point. Yes, we went from, we had been sort of bumbling along about £0.40p, I suppose. And we had a bit of a dip in May down to about £0.23p, and we had a tremendous recovery in the second half of the year. And I think at the end of the year, we even exceeded, we didn’t quite make the pound, but we got sort of £0.90p and we have pretty much stayed there since. So, we’ve enjoyed a great run in the second half of the year, tremendous on share price. So yes. So, all those, I’d like to see those three things, as well as great marketing and good management got us to where we are today.
Matthew Gordon: Well, like I say, we follow you quite closely. For us, you are one of those sort of turnaround stories of last year, after sort of a, you know, a while of stagnation and, you know, you kind of got yourself over the line and you are getting noticed by people, for sure. I think I would agree – you had a great 2019. A good year for you guys. Is it going to continue? Let’s talk about 2020. It’s been a very difficult start for everyone. There has been a market reset. We’ve obviously got the coronavirus, COVID-19 affecting people’s ability to work. You had a strong start, but how’s it gone since then?
Michael Hodgson Well, as you say, before the virus actually really started impacting in Brazil, we had a very decent January. We then had a bit of a tough February because we had a mill go down on us. But fortunately, that ore-sorter I talked about earlier was really our salvation. The beauty about this ore-sorter is that it takes waste out and it allows the basically high-grade material to go to the plant. It gives you catch up facility in a plant-constrained operation. So, we’ve had a phenomenal March and a phenomenal April; our two best months on record. In the middle of all this virus too, which was pretty surprising. I remember sitting at PDAC in March thinking this, we don’t know how this is going to go. I don’t think anybody thought in PDAC how bad it was going to be, but I did suspect it was going to be tough. But you know, after that March and April; two phenomenal months, and let’s say our best months ever.
So, we finished Q1 with 9,000oz, which is very respectful number, and our target was 10. Our budget for this year is 45,000. It’s actually 20,000oz by the end of the second quarter, we have a stronger second half of the year. I know I spoke to you about three, four weeks ago. You know, we’re not going to be able to make our 10,000oz in that second quarter, but we’re going to, we’re doing well. We are going to probably do about 8,000oz. We’re doing pretty well. And I think all things considered, that’s a tremendous effort.
The reason we’re not going to do that is, what we actually did in anticipation, and with what’s actually happened with the virus. We just started being a camp: we just wanted to get everybody who wasn’t really critical to the operation off the site, just to reduce risk. That allows us to socially distance everybody, people have much better sleeping arrangements, better sort of eating arrangements. We just basically sent everybody out so that people have got space. Just good common sense. So, we’ve got less, we haven’t got the optimal workforce there. We’ve only got, for example, we have a workforce of about 500 people. Normally we’ve got about 350 people at site. We have now reduced that to 250 people. And so therefore it’s unreasonable to expect that we can actually have normal production with that level of people, but those people who are there, they are just purely on Gold production duties, that’s it.
And they are doing a fantastic job. We’ve actually done. We’ve kept people there, the union has been tremendous in terms of cooperation. We’ve managed to have people working much longer stints than they normally would. They want to do this. They want to spend more time at site and then more time away. And we’ve been rotating people through with quarantining. Anybody new coming to site gets tested for the virus. So those of them who are symptom-free and negative, obviously they come in and allow people to leave. So, we feel we can maintain a level of production of about sort of 7,500oz to 8,000oz per quarter. So not as high as we did, but that’s a pretty decent effort all things considered. And I would say we’ve enjoyed, obviously, fantastic economic tailwinds with the Gold price in terms of dollars and in terms of the Real exchange rate.
So, we might not be producing the answers we thought we were going to produce, but we forecast our cash position to be, at the end of Q2/20, to be about USD$6M. And we’re going to see well above that. At the end of Q1/20, we probably had about USD$3M more in the bank. We ended Q1 with USD$9M in the bank, when before we thought we’d have USD$6M. So actually, our cash position is great. And the great news is at the end of this month, Sprott, who have been a fantastic debt partner for us for many years are gone. They are out. Finished. We are debt free, completely debt free. So, we’re going to be a company going into Q3/20 debt-free.
We also managed to renegotiate the purchase of Coringa in smaller parcels rather than actually paying the trigger payment of the outstanding USD$12M that we still owed them to finally purchase all of Coringa at the end of March. We renegotiated that. We are paying them in $500,000 payments per month, which would go up to USD$1M a month in July, but that’s very affordable with our current level of production, et cetera.
So, it’s, you know, it has all worked out quite well. So, we’ve managed to sort of tidy up the balance sheet. We’ve probably got about USD$2M more in the bank than we thought we were going to have. We might not have the ounces of production, but we’re getting better money for the ounces that we do produce. And we do feel that we can actually continue as we are for sort of 2000oz, 2,500oz a month – so 7,500oz, 8,000oz quarters in Q3, Q4 well, you know, one would like to think we can do a little bit better and things will begin to, we can man up a little bit more and get back to a more normal quarter in Q4/19. So, whilst we might not reach our guidance, as I said before, we’re hopefully going to make a pretty decent stab at a good proportion of it.
Matthew Gordon: Okay. That’s fantastic. Can I ask you about a couple of things you said though? Because I’m intrigued. First of all, congrats on being able to continue to work and putting the plans in place to have most of your workforce able to work and, you know, and you say 8,000 versus the 10,000 is a pretty good effort all things considered. But the 2 things I want to talk to you about are, one: how important is the exploration component to what you’re doing?
Michael Hodgson: Well, we stopped exploration about a month ago, that was surface drilling. And that was with a contractor. And again, that was kind of, reluctantly we had to do it, but we just needed the space and they come and go, we just couldn’t have people coming and going to the site. We basically wanted to isolate the site and keep it safe. So, our sort of priority was with our workforce. We said to the exploration contract, look, unless you are prepared to keep your guys there for a longer duration, like we’re all doing you know, they can’t come and go. And they wouldn’t do that. So, we said, okay, well let’s just down tools on the surface, we have kept the underground drilling going in fact, with short breaks, and the underground exploration is back starting up again now. So that’s good. And that’s going now.
Sao Chico in particular, it’s not just about going out along strike east and west, which is what we were doing, but going down, which looks tremendous. That’s something that we can continue. So, we actually have got the exploration drills underground, turning again, and they are doing the down dip exploration beyond the mine limits, actually in the mine. So, whilst the surface part is parked the underground part will continue. And you know, you are right; I mean, I was very reluctant just to sit and stop exploration and just mine for sort of 3 to 6-months. That’s ultimately going to come back and bite you. So, we didn’t want to do that. So, we’ve got at least the underground drilling going again, which is great.
Matthew Gordon: Okay. So that’s something. And then the reason I ask that is because obviously I think people in the market understand the concept of, you know, you’ve got Palito, and in Coringa you’ve got Palito 2. You have doubled, or are potentially doubling, the size of the company because they are both high-grade, underground. You know what you’re doing. I’m intrigued by the land package that you’ve got because potentially, that’s where a lot of upside can come through the trail. But when do you think you’re going to be able to kind of get back into that properly with some kind of a vengeance and with the new cash that you’ve got, do you plan to ramp that up as well?
Michael Hodgson Yes. Well, what we did do, what we stopped in May or April was the surface drilling, which was particularly…, our exploration over the last 6-months has focused in three areas. It’s been step-out drilling at Sao Chico, principally, where we’ve got this whole sort of, you know riches of geophysical anomalies, ore satellites in and around Sao Chico. Sao Chico itself is a geophysical anomaly but looks quite poor compared to the ones in and around it. So, we’re obviously very excited about those. And we did start intersecting sulphide mineralisation at Sao Chico before we stopped. And then we have just got a bit of a tiger by the tail there, so that’s absolutely brilliant. And we’re drilling the gap in between the two, so that’s fantastic. That’s the bit that’s all to play for. It’s parked for the time being, but we’ll get back into that in no time. And that’s fine.
One thing we were able to do though, was we were doing a big regional geochemistry program. And that’s not specialised labour. That’s our guys, we just have field crews just doing, you know, it’s donkey work really, but it’s really fantastic work. They just sit there taking ore samples over the entire area. And we finally, after that six months hard work, produce those, if you remember; three weeks ago, those maps. Really great geophysical maps, which show geochemical sort of contours on top of the geophysics. So, we can see how that great big geophysical anomaly bridges between Palito and Sao Chico. We’ve got a great big booming magnetic geophysical anomaly with lots of electromagnetic geophysical knowledge. And now we’ve got a beautiful big 100, 200 PPM Copper anomaly over this.
Now we all know that the Gold that we have at Palito and Sao Chico lives with the Copper. So now we’re doing sort of follow up Gold on all of those, and we can do all this work in the background while all of this drop down is going up. So, what we’re doing is we’re actually moving forward with all the geochemistry, and really homing in on the best target areas so that when we do actually come back, they will be drill ready and we can actually start drilling the targets. So, we’ll have a coincidental geophysical anomaly, geochemical anomaly, and then we drill it. And we’re obviously pretty excited about some of the ones we talked about a few weeks ago, which were on that big belt that you’ll see between Palito and Sao Chico.
Matthew Gordon: Well, you certainly did sound quite excited about it when we went through it a few weeks ago, was it three weeks ago? Because I think the potential there is to really, to, you know, develop the land package that you’ve got, quite inexpensively at this point, whilst obviously getting Coringa up and running.
Michael Hodgson: Well, I think the thing that is compelling about these anomalies is, I know they are early stage and people sort of go, oh, you know, they are only geophysical anomalies, but everything that’s discovered starts off as an anomaly. That’s what the base of this is. These look they’ve got such signatures, similar to Palito and Sao Chico. I mean, that’s the great thing: we’ve got templates, you know, we know what Sao Chico looked like as just an anomaly before we started mining it and look what the hell it is now. It’s a great deposit.
We’ve got these ones like Calico and Juco, which are immediately to the south of Palito, they are 5km away. I mean, that’s nothing. That’s a road to our process plant. Easy, easy. They are high priority because of where they are. And you know, if we get a, say, some hits there and we can actually go to another 2,000oz, 300,000oz resource and with all these different satellites, they add great value. We can very quickly turn exploration success into production ounces.
And this whole exploration effort that we’re doing at the moment is because we know, with planned constraint, the ore-sorter is going to free up some place in our process, some space to, you know, for the next step, but it’s not going to be the solution to all of our problems. It’s going to buy us another 10,000oz basically, at this stage, that’s it. So, we can make our little plant go from 40,000oz, 50,000oz, which is great, a great bottom line, you know, additions to us, but where do we go from there? Where do we go from there? That’s the next question? You know,
I’m absolutely convinced that our tenements hold much more than 50,000oz worth of Gold per year, without doubt, without any doubt whatsoever. The question is, where? And so therefore, what we have got to figure out is, okay, all these sorts of central riches that we actually have, you know, how big are they and where are we going to process it? Because we are going to, you know, you asked the question: obviously, Sao Chico keeps growing. Do we put some kind of processing down there? If these two ore bodies that we’ve got near around Palito are coming to, or have the prospects to become ore bodies, do we put a slight expansion at Palito? It’s a wonderful problem to have.
We’ve actually got, it’s pretty interesting because we’ve got a plant at Coringa that’s too big for Coringa and we’ve got a plant at Palito that’s too small for Palito, or we haven’t got a plant at Sao Chico. And what we’ve got is resources everywhere, potentially. And then just kind of figuring out what’s best to put where and when. So, but I think it’s a nice problem to have. I think we’ve got great upside in all of them. And it’s just a case of doing it in the most logical way that makes most sense to shareholders, which means we can build our company with as much cashflow as possible and as little sort of borrowing and dilution than we’ll ever have to do. And that’s what we’re trying to do.
Matthew Gordon: Well, as you say, Mike, some nice problems to have. It’s a nice environment to be working in. You’re building up the cash position. You are debt free. Things are looking better for you. I know this is part of your AGM discussion. So, from me, congratulations on last year. I really liked what you did there. You have got a good team. They seem to know what they are doing. This year, we look forward to hearing more of the same please, I think would be the call from the shareholders, but I’d just say for anyone listening to this, please send us your questions that you’d like to ask, because I’m sure we’ll be speaking again soon to Michael, or I hope we will. Or indeed, send them directly to Mike at Serabi Gold
Michael Hodgson: There is the opportunity. If anyone has got questions, please come back to us, we are always willing to talk through with interested shareholders what our plans are.
Company Website: https://www.serabigold.com/
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