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Is now the right time for investors to buy into the Serabi Gold story?


Serabi Gold, [LON:SRB], the AIM-listed, Surrey-based gold miner operating in Brazil, has been experiencing a bit of a rally since the start of the year after it shifted up through the gears when it announced the renewal of a multi-year trial mining licence at its flagship Corinaga site.

Since the start of the year (to 29th April) the company’s shares have advanced 40% from the end of 2023, and over one-year is up 138%. Bridgewise, the AI analyst rated Serabi as ‘Outperform’, saying: “Serabi Gold’s recent financial results position the company within the top 30% of Materials firms. Specifically, Return on Equity Ratio (ROE) and Net Change in Cash overperformed relative to its peers. Analysing past performance, stronger relative performance in these metrics has often been associated with a higher likelihood of a company’s stock outperforming industry competitors. In view of Serabi Gold’s recent financial performance, the company’s stock seems to present an appealing investment option in the Metals & Mining industry.”

The Brazilian miner published its results for the year to the end of December 2023 this morning. The AIM company reported an 8.5% increase in revenue year-on-year to USD63.7m, which reflected the increase in gold prices over the year (up 9% from USD1,785 an ounce to USD1,945/oz).

Capitalising on increased prices, Serabi also increased production by 4.2% to 33,153oz. This led to earnings of USD13.8m, up from USD8.8m in 2022, an improvement of 57% y-o-y. All these positive metrics led to Serabi increasing its post-tax profit by more than 550% y-o-y to USD 6.58m. Profit per share went from a loss of US1.3c/share in 2022, to an increase of US8.68c/share.

Serabi also started putting a bit away for a rainy day, increasing its cash pile to USD 11.6m from USD7.2m at the end of 2022. The miner started becoming marginally more efficient, with cash costs of USD1,300/oz against USD1,322/oz in 2022. However, given the global inflationary environment, Serabi could not avoid an increase in all-in sustaining costs which went up to USD1,635/oz against USD1,1615/oz in 2022.

The progress that Serabi made in 2023 has continued through to this year, with the company reporting 9,007oz retrieved in 1Q24, which led management to reiterate its guidance of producing 38,000oz to 40,000oz in 2024.

Serabi Gold achieves key milestones

Michael Lynch-Bell, Serabi’s chairman, who has been with the company 21-months, was pleased. He said in a letter to shareholders: “Following a year in which the company achieved some key milestones, I am pleased to report that 2024 is already well on track to build on these, create a solid platform from which to execute its production growth and move Serabi into the next phase of its development.”

Lynch-Bell continued: “At Coringa we have engaged with all stakeholders culminating in the renewal of the trial mining licence for three years, whilst the recent reserve and resource estimation at Palito has significantly increased the reserves compared with prior estimates and resulted in a global mineral inventory for the group of over one million ounces.”

A million ounces is a significant milestone and puts Serabi into the next league of gold miners, not quite Premier League razzmatazz, but a solid Championship-level contender. Its main project is the Coringa Gold Project, located 200km south of Palito, and 70km southeast of the city of Novo Progresso in the State of Pará.  The mine is 100% owned by Serabi, and was acquired for USD22m from Anfield Gold, now Equinox Gold [NYSEAMERICAN:EQX] in 2017 and started producing in July 2022. The mine has a current production rate of 25,000oz to 30,000oz, but with a bit of optimisation can be pushed to 35,000oz to 40,000oz, an exercise that is being undertaken currently by integrating a new crusher and ore sorter. Coringa has indicated resources of 735,000 tonnes at 8.24 grammes a tonne, with around 195,000oz. However, the inferred resource of Coringa is 346,000oz of gold.

Serabi also operates the Palito Complex, a high-grade, narrow vein underground mine that the company has owned since 2003. Serabi started mining operations (in an historic mine)  in 2014, and has been ramping-up to a steady production run-rate of 30,000oz to 40,000oz of gold.

Multi-asset exploration opportunities

The land that Serabi has under ownership around Palito and Coringa, some 84,000Ha of concessions, offers great exploration opportunities in a proven gold mining hub. And exploration opportunities are not confined only to gold, with Serabi agreeing an ‘exploration alliance’ with major, Vale [NYSE:VALE] last year to explore for copper deposits on Serabi’s tenements.

The alliance will see Vale stump up USD5m for phase one exploration, and depending on what Vale finds it might continue exploration drilling or take a prospect to pre-feasibility. In phase three, Vale has the option to buy-in for up to 75% of a Serabi-sponsored copper project for up to USD5m and Vale will fund the joint venture through to DFS. At that point Vale has an option to take another 15% of the JV for another USD5m and Serabi can then sell its remining 10% for up to USD10m and 1.5% royalty payment. If the structure works, Vale can then opt to buy further copper assets from Serabi for USD5m or 1.5% of NPV, whichever is the higher figure.

It’s an interesting time for Serabi, and given its anticipated increase in production from existing operations, the rising gold price, the exploration potential of its concessions and the favourable agreement with Vale, now might be the time to jump aboard the Serabi Express before it pulls out of the station.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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