Interim Results
Serabi Mining plc
26 October 2005
Serabi Mining plc
=================
Interim report 2005
===================
Serabi Mining plc is a gold mining company focused on the prolific Tapajos
geological region of northern Brazil. Extending over an area about the size of
Belgium, the Tapajos is a major, under-explored mineral province from which
artisanal miners ('garimpeiros') are thought to have extracted up to 30 million
ounces of gold from mostly alluvial and surface weathered bedrock deposits over
the past three decades.
The Company's principal operating asset is the 100% owned Palito Gold Mine. In
January 2005, an independent consultant calculated the total resource at Palito
to be 460,000 ounces of gold equivalent, with an average gold grade of 11.0
grams per tonne. The Company believes the potential to increase the resource
base to be significant. Additional diamond drilling so far in 2005 has continued
to yield encouraging results which will be included in a resource update to be
undertaken at the end of this year.
In addition to the Palito Gold Mine, Serabi has an extensive portfolio of
exploration properties totaling over 100,000 hectares of highly prospective
ground throughout the Tapajos region. Within this portfolio, Serabi has
identified several relatively advanced projects in the Jardim do Ouro ('Garden
of Gold') District immediately surrounding the Palito Gold Mine and a further
series of properties elsewhere in the Tapajos Region, which are at an earlier
stage of assessment.
Serabi believes the exploration potential throughout the Tapajos region to be
excellent and is focused on developing additional gold mines in the same, proven
manner that has resulted in the ongoing development of the Palito Gold Mine.
Highlights
==========
• Successfully completed IPO on London AIM, raising £8.0 million at a share
price of 30p
• Gold production at Palito of 7,588 ounces to 31 July
• Major new capital projects set to improve efficiencies
• 2005 target of 12,000 metres of diamond drilling to be significantly exceeded
• 2005 drill programme confirms extensions of mineralised zones at depth and
along strike at Palito
• New 'Compressor Lode' discovered parallel to Palito Main Zone
• Advanced high-grade copper/gold project acquired in the southern Tapajos
region
Report of the Chairman and Chief Executive
==========================================
Dear Shareholder,
The period ending July 31 2005 marked a number of significant accomplishments
for Serabi. Foremost among these was the successful completion of the Company's
IPO on the London AIM Exchange, which raised gross proceeds of £8.0 million at
30p per share. These proceeds will ensure that the Company has the funds
necessary to execute its strategy in Brazil, principally through:
• Expanding the resource base and production at the Palito Gold Mine
• Introducing productivity enhancing capital investments to the Palito Gold Mine
• Further evaluating the Company's exploration projects in the Jardim do Ouro
district which surrounds the Palito Gold Mine and the broader Tapajos region
• Assessment and possible additional acquisition targets in the Tapajos region
Financial results
-----------------
The Group has reported an unaudited loss for the six month period to 31 July
2005 of US$2.3 million after accounting for exchange losses and the value of
options issued prior to the IPO in accordance with FRS20. Net assets increased
by US$15.5 million to US$27.4 million during the period and cash balances to
US$9.2 million.
The Company is currently in a pre-development stage of the mine and is
developing its plans to achieve commercial production through long term
sustainable mine production and plant capacity. During this phase all mine
related costs and revenues generated during the pre-development phase will
continue to be capitalised.
The Group's assets, in particular plant and equipment and exploration and
development expenditure are principally held by Serabi Mineracao Ltda and as
such are denominated in Brazilian Reais. The Brazilian Real has strengthened by
more than 11% against the US dollar during the six month period ended 31 July.
Foreign exchange losses have been incurred as a result of the retranslation of
the opening net asset position.
These interim results will form part of the Company's first audited financial
statements, which are required to be prepared for the period from incorporation
to 30 September 2005. In order to align its future reporting to calendar years
at the earliest opportunity we will be producing further accounts for the three
month period to 31 December 2005.
Operations
----------
At the Palito Gold Mine, development is continuing at a rapid pace. For the
seven months ended 31 July 2005 Palito produced approximately 7,600 ounces of
gold.
7 months to
31 July 2005
-------------
Ore mined (t) 27,494
Ore processed (t) 27,101
Average grade (g/t) 9.91
Gold recovery % 87.9%
Gold produced - ounces 7,588
Average gold pricereceived $ $436
The Company had at the end of July shipped and received provisional payment for
a total of 20 consignments of gold-copper concentrate to Antwerp for treatment.
A further 17 consignments have been despatched subsequently.
Total revenues generated for the seven months aggregated US$2.97 million. To
date, mining at Palito has predominantly focused on development drives, which
are required to access the mineralisation and subsequently establish areas for
production. This development period inevitably leads to lower grades and hence
production, which is reflected in the current results. Furthermore, the present
worldwide mining boom is causing delays to the delivery of some key items of
equipment that has also impacted on short-term output. Notwithstanding,
production has steadily improved over the period, albeit slower than anticipated
and management is taking action that is expected to improve this situation over
the next six months. In addition, the Company will soon start work on the
long-term mine plan required to access the deeper mineralisation, which will
form the main basis of future ore supply. As part of this assessment the
potential to introduce more mechanised equipment to the operation and optimise
the mining method to increase production rates further will also be considered.
A number of productivity enhancing capital investments (see press release 22
June 2005: Capital Projects Update) are being introduced at the operation.
Recently introduced underground shovels are performing well and have resulted in
important improvements to production rates, whilst also allowing personnel to be
redeployed to other mining priorities.
The first of the Company's underground drill rigs has only recently arrived,
with the remainder expected to be delivered by the end of October; some two to
three months later than envisaged. This equipment is essential to the
understanding of the Palito Main Zone mineralisation and hence efficient mining.
As the rate of underground drilling increases it is expected that items of mine
planning and grade control will greatly benefit. Furthermore, the underground
drill rigs represent an additional and cost-effective method of exploration and
resource evaluation drilling, especially at the deeper levels of the Palito
mine.
The plant expansion to 250 tonnes per day (tpd) is near completion and an
upgrade programme to take this to 300-350 tpd is envisaged soon thereafter. Gold
recoveries have been good and are expected to achieve targeted levels of between
90% to 94% soon. Conditional on finalising the long term mine plan and
consequently the optimum operating scale at Palito, which is expected to be
completed in the first quarter of 2006, further modular expansion of the process
plant may be undertaken.
Work is well advanced to introduce grid electricity to the Palito Gold mine, and
the Company is expecting this project to be completed by the end of 2005 and
under the budgeted cost of US$580,000 (see press release 22 June 2005: Capital
Projects Update). The introduction of the grid electricity will bring immediate
and substantial cost savings to the Company, as its reliance on current diesel
generated power will be significantly reduced.
Palito drilling programme
-------------------------
Considerable progress has been made during the period on Serabi's drill
programme at the Palito mine (see press release 9 September 2005: Drilling
Update). As discussed in the Company's press release, Serabi is set to exceed
its 2005 drilling target of 12,000 metres. 10,697 metres had been completed in a
combination of infill drilling of the Palito Main Zone, strike and depth
extensions and step-out drilling to test for parallel vein structures.
The drilling programme continues to intersect very high grade gold values along
strike and at depth, that is expected to provide a good basis to improve the
resource base which will be reassessed at year-end. In addition, the drilling
has also identified a new area of significant mineralisation immediately
adjacent to the Palito Main Zone, which has been called the 'Compressor Lode'.
Drilling on the Compressor Lode is continuing and it is now expected to be
incorporated into the short-term mine plan.
Further drilling at Palito for the remainder of the year will be focused on
increasing the resources at Palito through a threefold strategy of depth
extension drilling at the Palito Main Zone, strike extension drilling in both
directions and further work at nearby projects such as Palito West and Chico do
Santo, both of which have previously yielded encouraging results.
Jardim do Ouro and Tapajos regional exploration
-----------------------------------------------
The main focus so far this year has been drilling on the Palito Main Zone. The
Company has acquired two further surface rigs that are now expected to arrive on
site later this month, at which time drilling will then be expanded to
incorporate priority drilling targets in the Jardim do Ouro district such as
Bill's Pipe and Ruari's Ridge, as well as elsewhere in the Tapajos region.
Pombo Gold project
------------------
On 14 October, the Company announced the acquisition of an option over the Pombo
Gold Project in the southern Tapajos region (see press release 14 October 2005:
Serabi purchases option to acquire Pombo gold project). This is an advanced,
high grade copper/gold project, in which mineralisation has so far been
identified along 700 metres of strike and bears many geological similarities to
Palito. The Company will shortly locate one of its drilling rigs to the area to
commence an initial drill programme. It is noteworthy that the Company's
established presence since 1999 and its reputation in the Tapajos, played an
important role in securing this project, the first for Serabi in the southern
Tapajos region.
Corporate
---------
At the corporate level, Serabi is actively evaluating strategic alternatives
that could enhance shareholder value by advancing the Company's other
exploration properties throughout the Tapajos region. In addition, acquisition
opportunities are continually being assessed by management. In this regard the
Company will adopt guidelines to ensure that any transaction that Serabi might
undertake fits into the Company's existing strategy of developing high quality
gold assets within Brazil.
Graham Roberts Bill Clough
Chairman Chief Executive
26 October 2005
Profit and loss account
=======================
for the six months to 31 July 2005
(expressed in US$)
Group Group
Incorporation to Six months to
31 January 2005 31 July 2005
(unaudited) (unaudited)
Turnover 343,064 -
Operating expenses (255,913) -
Profit from operations 87,151 -
Administration expenses (1,148,979) (792,791)
Option costs - (597,260)
Write-off of exploration and development cost - (43,051)
Depreciation (plant and equipment) (26,269) (157,459)
------------------------------------------------------------------------
Loss on ordinary activities before interest (1,088,097) (1,590,561)
and other income
Foreign exchange gain/(loss) 260,584 (789,612)
Interest payable - (19,072)
Interest receivable 2,376 103,556
------------------------------------------------------------------------
Loss on ordinary activities before (825,137) (2,295,689)
taxation
Taxation (524) -
------------------------------------------------------------------------
Loss on ordinary activities after taxation (825,661) (2,295,689)
------------------------------------------------------------------------
Earnings per ordinary share (basic and (2.72p) (2.62p)
diluted)
Statement of total recognised gains and losses
==============================================
for the six months to 31 July 2005
Group Group
Incorporation to Six months to
31 January 2005 31 July 2005
(unaudited) (unaudited)
Loss for the period (825,661) (2,295,689)
Exchange loss on foreign currency net - (233,410)
investment
-----------------------------------------------------------------------
Total recognised loss for the period (825,661) (2,529,099)
-----------------------------------------------------------------------
Balance sheet
=============
as at 31 July 2005
(expressed in US$)
Holding Holding
Group Group Company Company
as at 31 as at 31 as at 31 as at 31
January July January July
2005 2005 2005 2005
(unaudited) (unaudited) (unaudited) (unaudited)
Fixed assets
Intangible assets
Goodwill on acquisition 1,752,516 1,752,516 - -
---------------------------------------------------------------------------
Tangible assets
Property, plant and 2,621,091 3,905,780 - 3,327
equipment
Capitalised exploration 8,161,099 12,893,768 - 394,500
and development expenditure
Investments - - 12,883,375 17,330,611
--------------------------------------------------------------------------
Current assets
Stock and work in 357,719 985,487 - -
progress
Debtors 120,293 459,912 - 200,228
Prepayments 116,451 64,519 - 58,428
Loans to subsidiaries - - 116,451 2,495,058
Cash at bank and in 474,059 9,235,179 58,920 9,191,679
hand
--------------------------------------------------------------------------
1,068,522 10,745,097 175,371 11,945,393
--------------------------------------------------------------------------
Creditors: amounts (1,511,518) (1,447,705) (318,814) (483,492)
falling due within one
year
--------------------------------------------------------------------------
Net current (442,996) 9,297,392 143,443 11,461,901
(liabilities)/assets
--------------------------------------------------------------------------
Total assets less 12,091,710 27,849,456 12,739,932 29,190,339
current liabilities
--------------------------------------------------------------------------
Provision for (178,660) (419,992) - -
liabilities falling due
after more than one year
--------------------------------------------------------------------------
Net assets 11,913,050 27,429,464 12,739,932 29,190,339
--------------------------------------------------------------------------
Capital and reserves
Called up share capital 11,249,596 17,974,336 11,249,596 17,974,336
Share premium reserve 1,489,115 11,818,128 1,489,115 11,818,128
Option reserve - 991,760 - 991,760
Profit and loss account (825,661) (3,354,760) 1,221 (1,593,885)
--------------------------------------------------------------------------
Equity shareholders' 11,913,050 27,429,464 12,739,932 29,190,339
funds
--------------------------------------------------------------------------
These unaudited results do not amount to statutory accounts within the meaning
of section 240 of the Companies Act 1985.
Consolidated cash flow statement
================================
for the six months to 31 July 2005
(expressed in US$)
Group Group
Incorporation Six months to
31 January 2005 31 July 2005
(unaudited) (unaudited)
Net cash outflow from operations (1,238,313) (2,673,961)
---------------------------------------------------------------------------
Returns on investment and servicing of
finance
Interest received 2,376 103,556
Interest paid - (19,072)
-------------------------------------------------------------------------
Net cash inflow from returns on 2,376 84,484
investments and servicing of finance
-------------------------------------------------------------------------
Capital expenditure and financial
investment
Purchase of tangible fixed assets (285,007) (1,501,953)
Exploration and evaluation expenditure (2,798,590) (3,474,197)
--------------------------------------------------------------------------
Net cash outflow on capital expenditure (3,083,597) (4,976,150)
and financial investment
--------------------------------------------------------------------------
Acquisitions and disposals
Capital and loan investments to - -
subsidiaries
Cash acquired with subsidiaries - -
-------------------------------------------------------------------------
Net cash outflow on acquisitions and - -
disposals
-------------------------------------------------------------------------
Cash outflow before financing (4,319,534) (7,565,627)
-------------------------------------------------------------------------
Financing activities
Issue of ordinary share capital 4,564,375 17,053,752
------------------------------------------------------------------------
Net cash inflow from financing 4,564,375 17,053,752
activities
------------------------------------------------------------------------
Increase in cash at bank and in hand 244,841 9,488,125
------------------------------------------------------------------------
Reconciliation of operating loss to net cash flow from operating activities
===========================================================================
for the six months to 31 July 2005
(expressed in US$)
Group Group
Incorporation
(18 May 2004) to Six months to
31 January 2005 31 July 2005
(unaudited) (unaudited)
Operating loss (827,513) (1,653,168)
Depreciation 34,848 157,459
Increase in stocks (335,147) (541,237)
Option costs - 597,260
Increase in debtors and prepayment (202,810) (215,737)
Increase/(decrease) in creditors and 583,436 (31,519)
accruals
Foreign exchange (491,127) (987,019)
----------------------------------------------------------------------------
Net cash outflow from operating (1,238,313) (2,673,961)
activities
----------------------------------------------------------------------------
Reconciliation of cash to net funds
===================================
for the six months to 31 July 2005
(expressed in US$)
Group
Six months to
31 July 2005
(unaudited)
Cash at bank and in hand at 1 February 2005 474,059
Cash flow 9,488,125
Exchange loss (727,005)
----------------------------------------------------------------------
Cash at bank and in hand at 31 July 2005 9,235,179
----------------------------------------------------------------------
Basis of preparation
====================
These accounts represent the first Group accounts prepared by the Company. The
Company was incorporated on 18 May 2004 and on 14 July 2004 acquired the whole
of the issued capital of Moonlight Express Holdings Limited and its wholly owned
subsidiary Serabi Mineracao Ltda.
These interim accounts are for the six month period ended 31 July 2005.
Comparative information has been provided for the period since the incorporation
of the Company to 31 January 2005.
The accounts for the period have been prepared in accordance with the policies
which the Group will adopt for its annual accounts, notably:
(i) the accounts have been prepared on the historical cost basis;
(ii) the Group capitalises exploration and development costs relating to the
license areas that it holds and will amortise these costs over the life of
the mine once commercial production has been achieved;
(iii) stocks are valued at the lower of cost and net realisable value;
(iv) property, plant and equipment is depreciated over its useful life;
(v) the Company is currently undertaking mining from an area known as Palito
Hill. Given the history of the development of the Palito mine and in
particular the ability, unlike many mines, to generate cash flow at a very
early stage of mine development through the availability of an existing
plant at the site, the Board has considered that the current activities
represent development activity rather than commercial production. At this
stage, the operations have not reached the targets set by the Board for
commercial production and accordingly all mine and plant costs have been
capitalised as ongoing development costs. All sales revenue to date has
been set off against the development costs;
(vi) in 2004, the Company generated gold sales from re-treatment of some old
tailings. As the reprocessing of this material was not part of the
long-term development of the mine this income and its associated costs has
been taken directly to the profit and loss account; and
(vii) revenues are recognised only at the time of sale. Any unsold production
and in particular concentrate is held as inventory and valued at
production cost until sold.
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