For immediate release
15
May 2020
Serabi Gold plc(“Serabi”
or the “Company”)Unaudited results for the three
month period ended 31 March 2020
Serabi (AIM:SRB, TSX:SBI), the Brazilian focused
gold mining and development company, today releases its unaudited
results for the three month period ended 31 March 2020.
Financial Highlights
- Cash Cost for the quarter of US$996 per ounce.
- All-In Sustaining Cost for the quarter of US$1,257 per
ounce.
- EBITDA for the first quarter of 2020 of US$3.20 million (Q1
2019: US$4.33 million).
- Post tax profit of US$0.77 million reflecting lower level of
gold sales realised during the period compared with 2019 offset by
higher average gold prices in 2020.
- Earnings per share of 1.31 cents.
- Average gold price of US$1,549 received on gold sales in
2020
- Lower revenue, quarter on quarter, reflects sales of gold
inventory realised in Q1 2019 and lower production resulting from a
mill stoppage in February 2020 (see news release 26 March
2020).
- Agreement, concluded in April 2020, with Greenstone Resources
II LP (“Greenstone”) to subscribe for US$12 million Convertible
Loan Stock.
- Agreement reached with Equinox Gold Corp. (“Equinox”) allowing
the Company to pay, in monthly instalments, the remaining US$12
million consideration for purchase of Coringa, until travel
restrictions caused by Coronavirus are lifted.
Key Financial Information
SUMMARY FINANCIAL STATISTICS FOR THE THREE MONTHS
ENDING 31 MARCH 2020 |
|
|
3 months to31 March
2020US$(unaudited) |
3 months to31 March 2019US$(unaudited) |
12 months to31 December 2019US$(audited) |
12 months to31 December 2018US$(audited) |
Revenue |
|
13,097,687 |
17,126,040 |
59,948,092 |
43,261,743 |
Cost of
Sales |
|
(8,233,056) |
(11,361,987) |
(37,203,445) |
(31,101,016) |
Gross Operating
Profit |
|
4,864,631 |
5,764,053 |
22,744,647 |
12,160,727 |
Administration and share
based payments |
|
(1,664,630) |
(1,424,504) |
(5,524,320) |
(5,867,918) |
EBITDA |
|
3,200,001 |
4,339,549 |
17,220,327 |
6,292,809 |
Depreciation and
amortisation charges |
|
(1,704,361) |
(2,289,545)) |
(8,857,203) |
(9,004,411) |
Operating profit/(loss)
before finance and tax |
|
1,495,640 |
2,050,004 |
8,363,124 |
(2,711,602) |
|
|
|
|
|
|
Profit/(loss) after
tax |
|
772,632 |
1,549,962 |
3,832,984 |
(5,754,541) |
Earnings per ordinary
share (basic) |
|
1.31 cents |
2.63 cents |
6.51 cents |
(11.20 cents) |
Earnings per ordinary
share (diluted) |
|
1.27 cents |
2.49 cents |
6.28
cents |
(11.20
cents) |
|
|
|
|
|
|
Average gold price
received |
|
US$1,549 |
US$1,287 |
US$1,376 |
US$1,258 |
|
|
|
|
|
|
|
|
|
As at 31
March2020 |
As at 31 December2019 |
As at 31 December2018 |
Cash and cash equivalents |
|
|
9,149,274 |
14,234,612 |
9,216,048 |
Net assets |
|
|
55,554,750 |
69,733,388 |
69,110,287 |
|
|
|
|
|
|
Cash Cost and All-In
Sustaining Cost (“AISC”) (1) |
|
|
|
|
|
|
|
3 months to31 March
2020 |
3 months to31 March 2019 |
12 months to31 December 2019 |
12 months to31 December 2018 |
Gold production for cash
cost and AISC purposes |
|
9,020 ozs |
10,164 ozs |
40,101 ozs |
37,108 ozs |
|
|
|
|
|
|
Total Cash Cost of production (per ounce) |
|
US$996 |
US$796 |
US$832 |
US$821 |
Total AISC of production (per ounce) |
|
US$1,257 |
US$1,021 |
US$1,081 |
US$1,093 |
Operational Highlights
- First quarter gold production of 9,020 ounces.
- 3,674 ounces of gold produced in March 2020, the highest
monthly level since the operation opened.
- Ore sorter in full scale operation
in March following completion of commissioning during the
quarter.
- 42,036 tonnes of ore mined during the quarter at 6.54 grams per
tonne (“g/t”) of gold.
- 40,465 tonnes of run of mine (“ROM”) ore processed through the
plant from the combined Palito and Sao Chico orebodies, with an
average grade of 6.66 g/t of gold.
- 2,878 metres of horizontal development completed during the
quarter.
- Public hearing for the Coringa project held on 6 February 2020
with positive feedback. The Company is now awaiting submission of
final recommendation to, and approval of, the State Environmental
Council (“COEMA”) for the award of the Licencia Previa (the
Preliminary License).
|
|
SUMMARY PRODUCTION STATISTICS FOR 2020 AND FOR 2019 |
|
|
Qtr 1 |
YTD |
Qtr 1 |
Qtr 2 |
Qtr 3 |
Qtr 4 |
Total |
2020 |
2020 |
2019 |
2019 |
2019 |
2019 |
2019 |
|
|
|
|
|
|
|
|
|
Gold production (1) (2) |
Ounces |
9,020 |
9,020 |
10,164 |
9,527 |
10,187 |
10,233 |
40,101 |
Mined ore – Total |
Tonnes |
42,036 |
42,036 |
42,609 |
44,784 |
44,757 |
44,092 |
176,243 |
|
Gold grade (g/t) |
6.54 |
6.54 |
7.47 |
6.72 |
7.14 |
6.69 |
7.00 |
Milled ore |
Tonnes |
40,465 |
40,465 |
43,451 |
43,711 |
45,378 |
44,794 |
177,335 |
|
Gold grade (g/t) |
6.66 |
6.66 |
7.69 |
6.72 |
6.84 |
6.81 |
7.02 |
Horizontal development
– Total |
Metres |
2,878 |
2,878 |
1,868 |
2,419 |
2,433 |
2,908 |
9,628 |
(1)
Gold production figures are subject to amendment pending final
agreed assays of the gold content of the copper/gold concentrate
and gold doré that is delivered to the
refineries.(2)
Gold production totals for 2020 includes treatment of 9,146 tonnes
of flotation tails at a grade of 4.35 g/t (Q1 2019: 3,136
tonnes at a grade of
4.00g/t)(3)
The table may not sum due to rounding
Exploration and Development
Highlights
- Step out surface diamond drilling at Sao Chico has identified
westerly extension for 375 metres with mineable widths and grades
and for over 200 metres to the east.
- Underground drilling at Sao Chico has continued to test the
depth extension with an intersection reported of over 25g/t over
4.08 metres at a depth of over 200 metres below the current mine
workings.
- Geochemical results from the Mata Cobra and Cinderella
anomalies identifying a number of exciting new prospects.
Key Objectives for 2020
- Implement measures to minimise short term impacts of
Coronavirus (“CV-19”) on current operations and provide a safe and
responsible work environment for staff during the crisis.
- Continue to make its best efforts to maintain production levels
as close as guidance as is practical being mindful of providing
proper rest schedules for those staff at the mine site
- Complete the licencing process for Coringa and complete all
desktop planning activity.
- Secure financing package for the Coringa project to fund plant
erection and other site developments.
- Complete, as soon as practical, exploration programmes at Sao
Chico to expand the resource with a view to producing a new
resource estimation.
- Complete exploration drilling programme over geophysical
anomalies around Sao Chico.
- Complete acquisition of Coringa gold project.
Clive Line, CFO of Serabi commented,
“With all the uncertainties that exist today, it
is very pleasing that we have been able to operate continuously
throughout this time and, as things stand, we remain confident that
the operations at the Palito Complex will continue, uninterrupted,
for the foreseeable future.
“The overall results for the first quarter are
comparable with the same period in 2019, which itself was a record
year for Serabi, and operating profit before interest and tax
charges are only lower because of a one-off provision of US$500,000
that was released back to income in the first quarter of
2019. Gold revenue in the first quarter of 2019 was higher
but included approximately 2,200 ounces resulting from the sales of
gold inventory carried over from the preceding year. The
average gold price realised in the quarter of US$1,549 compares
with the price achieved for the same period of 2019 of US$1,287 an
improvement of 20%, which has helped mitigate the lower production
achieved for the quarter and therefore sales that have been
realised in the same period.
"The lower production has impacted unit costs
for the period. In addition to incurring the unexpected costs for
the mill repairs, in the first quarter we also brought in
contractors to give a short term boost to our underground drilling
capacity used particularly for longer term mine development and
plannnig purposes. The average exchange rate for the period
was BrR$4.46 to US$1.00, so the effect of the more recent declines
in the exchange rate have not yet flowed through into the
costs.
“With debt repayment obligations and the ongoing
planned expenditure on the successful exploration programmes that
were being undertaken during the quarter, it was always expected
that the Group’s cash holdings would reduce compared with the end
of December 2019. The final cash balance of US$9.15 million
was in-line with our internal forecasts even considering the lower
than forecast level of production achieved during the period,
primarily the result of the previously reported failure of the main
ball mill during February.
“Cash flow generated from operations was
approximately US$2.2 million but does reflect an increase in
inventory levels during the quarter of approximately US$1.4 million
reflecting in part the variation between production for the quarter
of 9,020 ounces compared with the realised sales in the period of
only 8,120 ounces. The variation results from timing differences
between production and the recognition of sales due to the
departure dates of vessels carrying the Groups copper/gold
concentrate leaving Brazil and the delivery of gold bullion for
final sale.
“Whilst supply chains have not yet been an
issue, we have nonetheless increased holdings of key consumables,
where we can, to help insulate the operation from any interruptions
that may arise. At the same time, we have temporarily
suspended capital investment and exploration programmes to conserve
cash resources, though I anticipate that we will pick these up
again over the coming months as the outlook becomes clearer.
“I am very pleased that in April we were able to
conclude the arrangements with Greenstone for their subscription
for US$12 million of Convertible Loan Stock, originally announced
on 21 January 2020, and also to agree revised terms with Equinox
for the final instalment payment for the Coringa project. We
are grateful for the continued financial support from Greenstone
and the understanding of Equinox. These transactions have
removed significant uncertainty for investors and provide Serabi
with a neat solution that allows us to complete the acquisition of
Coringa, which remains a key element of the Group’s growth
plans.
“The second quarter has already begun well, and
the gold price and the exchange rate should provide further support
going forward. We have a number of challenges ahead of us,
but our workforce has already shown remarkable flexibility and
commitment, and this gives me good reason to be cautiously
optimistic for the coming months.”
This announcement is inside information for the purposes
of Article 7 of Regulation 596/2014. The person who arranged
the release of this statement on behalf of the Company was Clive
Line, Director.
Enquiries:
Serabi Gold plc |
|
Michael Hodgson |
Tel: +44 (0)20 7246 6830 |
Chief Executive |
Mobile: +44 (0)7799 473621 |
|
|
Clive Line |
Tel: +44 (0)20 7246 6830 |
Finance Director |
Mobile: +44 (0)7710 151692 |
|
|
Email: contact@serabigold.com |
|
Website: www.serabigold.com |
|
|
|
Beaumont Cornish LimitedNominated
Adviser |
|
Roland Cornish |
Tel: +44 (0)20 7628 3396 |
Michael Cornish |
Tel: +44 (0)20 7628 3396 |
|
|
Peel Hunt LLPUK Broker |
|
Ross Allister |
Tel: +44 (0)20 7418 8900 |
|
|
|
|
Copies of this announcement are available from
the Company's website at www.serabigold.com.
Neither the Toronto Stock Exchange, nor any
other securities regulatory authority, has approved or disapproved
of the contents of this announcement.
The following information, comprising, the Income Statement, the
Group Balance Sheet, Group Statement of Changes in Shareholders’
Equity, and Group Cash Flow, is extracted from these financial
statements.
Statement of Comprehensive IncomeFor the three
month period ended 31 March 2020
|
|
|
|
For the three months ended31 March |
|
|
|
|
2020 |
2019 |
(expressed in US$) |
Notes |
|
|
(unaudited) |
(unaudited) |
CONTINUING
OPERATIONS |
|
|
|
|
|
Revenue |
|
|
|
13,097,687 |
17,126,040 |
Cost of sales |
|
|
|
(8,233,056) |
(11,861,987) |
Release of inventory impairment
provision |
|
|
|
– |
500,000 |
Depreciation and amortisation charges |
|
|
|
(1,704,361) |
(2,289,545) |
Total cost of
sales |
|
|
|
(9,937,417) |
(13,651,532) |
Gross profit |
|
|
|
3,160,270 |
3,474,508 |
Administration expenses |
|
|
|
(1,740,964) |
(1,383,831) |
Share-based payments |
|
|
|
(25,238) |
(65,485) |
Gain on disposal of fixed
assets |
|
|
|
101,572 |
24,812 |
Operating profit |
|
|
|
1,495,640 |
2,050,004 |
Foreign exchange loss |
|
|
|
(8,858) |
(14,617) |
Finance expense |
2 |
|
|
(184,991) |
(411,105) |
Finance income |
2 |
|
|
– |
139,059 |
Profit before
taxation |
|
|
|
1,301,791 |
1,763,341 |
Income tax expense |
3 |
|
|
(529,159) |
(213,379) |
Profit for the period(1) |
|
|
|
772,632 |
1,549,962 |
|
|
|
|
|
|
Other comprehensive
income (net of tax) |
|
|
|
|
|
Items that
may be reclassified subsequently to profit or loss |
|
|
|
Exchange differences on translating foreign operations |
|
|
|
(14,976,508) |
(562,093) |
Total comprehensive profit /(loss) for the
period(1) |
|
|
|
(14,203,876) |
987,869 |
|
|
|
|
|
|
Profit / (loss) per ordinary share (basic) |
4 |
|
|
1.31 cents |
2.63 cents |
Profit / (loss) per ordinary share (diluted) |
4 |
|
|
1.27 cents |
2.49 cents |
(1)
The Group has no
non-controlling interests and all losses are attributable to the
equity holders of the parent company.
Balance Sheet as at 31 March
2020
|
|
|
As at |
As at |
As at |
|
|
|
31 March |
31 March |
31 December |
|
|
|
2020 |
2019 |
2019 |
(expressed in US$) |
|
|
(unaudited) |
(unaudited) |
(audited) |
Non-current
assets |
|
|
|
|
|
Deferred exploration costs |
|
|
26,169,961 |
28,581,674 |
30,686,652 |
Property, plant and equipment |
|
|
30,256,311 |
38,520,503 |
37,597,100 |
Right of use assets |
|
|
1,923,563 |
2,245,801 |
1,997,176 |
Taxes receivable |
|
|
832,520 |
1,554,651 |
848,845 |
Deferred taxation |
|
|
865,371 |
2,091,031 |
1,321,782 |
Total
non-current assets |
|
|
60,047,726 |
72,993,660 |
72,451,555 |
Current assets |
|
|
|
|
|
Inventories |
|
|
6,220,213 |
6,272,053 |
6,577,968 |
Trade and other receivables |
|
|
1,174,968 |
1,196,042 |
802,275 |
Prepayments and accrued income |
|
|
2,149,300 |
4,328,718 |
3,473,288 |
Cash and cash
equivalents |
|
|
9,149,274 |
12,133,713 |
14,234,612 |
Total current
assets |
|
|
18,693,755 |
23,930,526 |
25,088,143 |
Current liabilities |
|
|
|
|
|
Trade and other payables |
|
|
5,604,674 |
5,931,532 |
6,113,789 |
Interest bearing liabilities |
|
|
3,464,077 |
4,048,054 |
6,952,542 |
Acquisition payment outstanding |
|
|
12,000,000 |
11,259,277 |
12,000,000 |
Derivative financial liabilities |
|
|
– |
254,134 |
– |
Accruals |
|
|
289,776 |
342,322 |
319,670 |
Total current liabilities |
|
|
21,358,527 |
21,835,319 |
25,386,001 |
Net current
assets |
|
|
(2,664,772) |
2,095,207 |
(297,858) |
Total assets
less current liabilities |
|
|
57,382,954 |
75,088,867 |
72,153,697 |
Non-current liabilities |
|
|
|
|
|
Trade and other payables |
|
|
93,648 |
971,662 |
183,043 |
Provisions |
|
|
1,734,556 |
1,529,318 |
2,237,266 |
Interest bearing
liabilities |
|
|
– |
2,424,246 |
– |
Total
non-current liabilities |
|
|
1,828,204 |
4,925,226 |
2,420,309 |
Net
assets |
|
|
55,554,750 |
70,163,641 |
69,733,388 |
Equity |
|
|
|
|
|
Share capital |
|
|
8,882,803 |
8,882,803 |
8,882,803 |
Share premium reserve |
|
|
21,752,430 |
21,752,430 |
21,752,430 |
Option reserve |
|
|
1,044,827 |
1,428,852 |
1,019,589 |
Other reserves |
|
|
7,768,741 |
4,937,419 |
7,149,274 |
Translation reserve |
|
|
(59,255,454) |
(41,369,216) |
(44,278,946) |
Retained surplus |
|
|
75,361,403 |
74,531,353 |
75,208,238 |
Equity
shareholders’ funds |
|
|
55,554,750 |
70,163,641 |
69,733,388 |
The interim financial information has not been
audited and does not constitute statutory accounts as defined in
Section 434 of the Companies Act 2006. Whilst the financial
information included in this announcement has been compiled in
accordance with International Financial Reporting Standards
(“IFRS”) this announcement itself does not contain sufficient
financial information to comply with IFRS. The Group
statutory accounts for the year ended 31 December 2019 prepared
under IFRS as adopted in the EU and with IFRS and their
interpretations adopted by the International Accounting Standards
Board will be filed with the Registrar of Companies following their
adoption by shareholders at the next Annual General Meeting. The
auditor’s report on these accounts was unqualified. The
auditor’s report did not contain a statement under Section 498 (2)
or 498 (3) of the Companies Act 2006.
Statements of Changes in Shareholders’
EquityFor the three month period ended 31 March 2020
(expressed in US$) |
|
|
|
|
|
|
|
(unaudited) |
Share capital |
Sharepremium |
Share option reserve |
Other reserves (1) |
Translation reserve |
Retained Earnings |
Total equity |
Equity
shareholders’ funds at 31 December 2018 |
8,882,803 |
21,752,430 |
1,363,367 |
4,763,819 |
(40,807,123) |
73,154,991 |
69,110,287 |
Foreign currency adjustments |
— |
— |
— |
— |
(562,093) |
— |
(562,093) |
Profit for the
period |
— |
— |
— |
— |
— |
1,549,962 |
1,549,962 |
Total comprehensive income for the period |
— |
— |
— |
— |
(562,093) |
1,549,962 |
987,869 |
Transfer to taxation reserve |
— |
— |
— |
173,600 |
— |
(173,600) |
— |
Share option
expense |
— |
— |
65,485 |
— |
— |
— |
65,485 |
Equity
shareholders’ funds at 31 March 2019 |
8,882,803 |
21,752,430 |
1,428,852 |
4,937,419 |
(41,369,216) |
74,531,353 |
70,163,641 |
Foreign currency adjustments |
— |
— |
— |
— |
(2,909,730) |
— |
(2,909,730) |
Loss for the
period |
— |
— |
— |
— |
— |
2,283,022 |
2,283,022 |
Total comprehensive income for the period |
— |
— |
— |
— |
(2,909,730) |
2,283,022 |
(626,708) |
Transfer to taxation reserve |
— |
— |
— |
2,211,855 |
— |
(2,211,855) |
— |
Shares issued in period |
|
|
(605,718) |
— |
— |
605,718 |
— |
Share option
expense |
— |
— |
196,455 |
— |
— |
— |
196,455 |
Equity
shareholders’ funds at 31 December 2019 |
8,882,803 |
21,752,430 |
1,019,589 |
7,149,274 |
(44,278,946) |
75,208,238 |
69,733,388 |
Foreign currency adjustments |
— |
— |
— |
— |
(14,976,508) |
— |
(14,976,508) |
Profit for the
period |
— |
— |
— |
— |
— |
772,632 |
772,632 |
Total comprehensive income for the period |
— |
— |
— |
— |
(14,976,508) |
772,632 |
(14,203,876) |
Transfer to taxation reserve |
— |
— |
— |
619,467 |
— |
(619,467) |
— |
Share option
expense |
— |
— |
25,238 |
— |
— |
— |
25,238 |
Equity
shareholders’ funds at 31 March 2020 |
8,882,803 |
21,752,430 |
1,044,827 |
7,768,741 |
(59,255,454) |
75,361,403 |
55,554,750 |
(1)
Other reserves comprise a merger reserve of US$361,461 and a
taxation reserve of US$7,469,934 (31 December 2019: merger reserve
of US$361,461 and a taxation reserve of US$6,787,813).
Cash Flow Statement For the three month period
ended 31 March 2020
|
|
For the three monthsended31 March |
|
|
|
2020 |
2019 |
(expressed
in US$) |
|
|
(unaudited) |
(unaudited) |
Cash flows from operating
activities |
|
|
|
|
Profit for the period |
|
|
772,632 |
1,549,962 |
Net financial expense |
|
|
193,849 |
286,663 |
Depreciation – plant, equipment and mining
properties |
|
|
1,704,361 |
2,289,545 |
Inventory impairment expense |
|
|
— |
(500,000) |
Taxation expense |
|
|
529,159 |
213,379 |
Share based payments |
|
|
25,238 |
65,485 |
Foreign exchange |
|
|
77,939 |
21,851 |
Changes in working capital |
|
|
|
|
|
(Increase) / decrease in inventories |
|
|
(1,358,052) |
2,737,810 |
|
(Increase) / decrease in receivables, prepayments and accrued
income |
|
|
(478,552) |
(736,605) |
|
Increase / (decrease)
in payables, accruals and provisions |
|
|
743,312 |
538,494 |
Net cash inflow from operations |
|
|
2,209,886 |
6,466,584 |
|
|
|
|
|
Investing activities |
|
|
|
|
Purchase of property, plant and equipment and
assets in construction |
|
|
(1,008,310) |
(389,728) |
Mine development expenditure |
|
|
(587,609) |
(838,310) |
Geological exploration expenditure |
|
|
(836,361) |
(588,462) |
Pre-operational project costs |
|
|
(215,296) |
(439,942) |
Acquisition of other property rights |
|
|
(183,239) |
(1,035,087) |
Proceeds from sale of assets |
|
|
239,003 |
35,042 |
Interest
received and other finance income |
|
|
— |
2,217 |
Net cash outflow on investing activities |
|
|
(2,591,812) |
(3,254,270) |
|
|
|
|
|
Financing activities |
|
|
|
|
Repayment of short term secured loan |
|
|
(3,491,746) |
— |
Payment of lease liabilities |
|
|
(36,308) |
(185,605) |
Interest paid |
|
|
(204,669) |
(152,796) |
Net cash outflow from financing activities |
|
|
(3,732,723) |
(338,401) |
|
|
|
|
|
Net (decrease) / increase in cash and cash
equivalents |
|
|
(4,114,649) |
2,873,913 |
Cash and cash equivalents at beginning of
period |
|
|
14,234,612 |
9,216,048 |
Exchange
difference on cash |
|
|
(970,689) |
43,751 |
Cash and cash equivalents at end of period |
|
|
9,149,274 |
12,133,713 |
Notes
1.
Basis of PreparationThese interim condensed consolidated
financial statements are for the three month period ended 31 March
2020. Comparative information has been provided for the unaudited
three month period ended 30 March 2019 and, where applicable, the
audited twelve month period from 1 January 2019 to 31 December
2019. These condensed consolidated financial statements do not
include all the disclosures that would otherwise be required in a
complete set of financial statements and should be read in
conjunction with the 2019 annual report.The condensed consolidated
financial statements for the periods have been prepared in
accordance with International Accounting Standard 34 “Interim
Financial Reporting” and the accounting policies are consistent
with those of the annual financial statements for the year ended 31
December 2019 and those envisaged for the financial statements for
the year ending 31 December 2020.
Accounting standards, amendments and interpretations
effective in 2020
The following Accounting standard has come into effect as of 1
January 2020 have been
IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors (Amendment – Definition of Material)
The adoption of this standard has had no effect on the financial
results of the Group.
There are a number of standards, amendments to standards, and
interpretations which have been issued that are effective in future
periods and which the Group has chosen not to adopt early.
None of these are expected to have a significant effect on the
Group, in particular
IAS 1 Presentation of Financial StatementsIFRS 3 Business
Combinations (Amendment – Definition of a Business)
These financial statements do not constitute statutory accounts
as defined in Section 434 of the Companies Act 2006
Going concern and availability of
financeAs at 31 March 2020 the Group had cash in hand of
US$9.15 million and net assets of US$55.60 million.
The occurrence of the Coronavirus (COVID-19)
pandemic has created significant uncertainty for all business
sectors including Serabi and in particular the short-term effects
and actions that may need to be implemented either by the Group or
that may be imposed on the Group by new regulations or measures
taken by government. Already there are limitations imposed
which restrict the ability of certain of the Group’s personnel and
contractors to attend the Group’s operations. The Group has
and is implementing measures that will permit the Group to maintain
operations albeit at potentially reduced levels of production than
previously envisaged.
The Group has renegotiated the terms relating to
the settlement of a final acquisition payment of US$12 million due
to Equinox Gold Inc (“Equinox”) in respect of the purchase of
Chapleau Resources Limited and its Coringa gold project (the
“Coringa Deferred Consideration”). Under the revised arrangement
the Group will pay monthly instalments commencing 1 May 2020 of
US$500,000 per month, increasing to US$1 million per month from 1
August 2020 and payable thereafter (“the “Deferral Period”) until
such time as certain conditions relating to travel into and within
Brazil are lifted (the “Travel Restriction Conditions”).
Within 6 weeks of the satisfaction of the Travel Restriction
Conditions the remaining portion of the Coringa Deferred
Consideration will become payable.
The Company announced on 22 January 2020 that it
had entered into an agreement with Greenstone Resources II LP
(“Greenstone”) for the issue of and subscription by Greenstone of
US$12 million of Convertible Loan Notes the proceeds of which would
be used to satisfy the Coringa Deferred Consideration.
However, due to the uncertainties created by the impact of the
Coronavirus, the Company and Greenstone agreed to extend the period
for the satisfaction of the conditions required for completion of
the subscription by Greenstone. On 24 April 2020 the Company
announced that it had agreed certain amendments to the original
agreement with Greenstone (the “Amended Subscription Deed”).
Under the Amended Subscription Deed certain
terms of the subscription with Greenstone have been amended as
follows:
- the Company may, prior to the satisfaction of the Travel
Restriction Condition only submit a subscription request in respect
of Convertible Loan Notes in the amount of US$500,000 each month.
Following the satisfaction of the Travel Restriction Condition, the
Company may then issue further subscription request for amounts of
not less than US$100,000 and not exceeding an amount equal to
US$12,000,000 less the sum of the aggregate principal amount of all
Notes outstanding at that time.
- until such time as the existing secured loan due to Sprott
Resource Lending Partnership (the “Sprott Loan”) has been repaid,
the Convertible Loan Notes shall be unsecured and will be
subordinated to the Sprott Loan. The Sprott Loan was
approximately US$3.45 million as at 31 March 2020 and is being
repaid in three equal monthly instalments ending 30 June 2020.
- Following settlement of the Sprott Loan, the security interests
of Sprott will be discharged and the Company will grant to
Greenstone the security package as originally envisaged save that a
pledge of the shares of Chapleau Resources Limited (“CRL”) will
continue to be held by Equinox until such time as the Coringa
Deferred Consideration is settled in full. CRL holds 100% of the
shares of Chapleau Exploração Mineral Ltda which in turn holds the
exploration licences for the Coringa gold project
- The period during which the Company may issue an Issue Notice
to Greenstone expires on 31 December 2020 unless otherwise
agreed.
- Subject to Greenstone not having exercised its option to
convert the amount outstanding into Conversion Shares, the
Convertible Loan Notes are due to be repaid 16 months after the
first Issue Date which was 30 April 2020.
The Directors have prepared an operational plan
and cash flow forecast based on their best judgement of the likely
impact of the Coronavirus on the Group’s activities. Based on this
forecast, which anticipated, for a period of up to three months,
reduced levels of gold production, compared to the Group’s 2020
budget, of 50 per cent, and assuming that the Group continues to be
able, with the assistance of the proceeds of the Loan Notes
subscribed for by Greenstone in accordance with the Amended
Subscription Deed, to meet its obligations to Equinox, the
Directors consider that the Group will have sufficient cash flows
to settle, in full, the Coringa Deferred Consideration, all other
trade and other liabilities as they fall due and will also be able
to settle its existing secured loan with Sprott.
The Balance Sheet of the Group shows a net
liability position of US$2.7 million at 31 December 2020 including
a current liability of US$12 million in respect of Coringa Deferred
Consideration. This liability is being financed through the issue
of US$12 million of Convertible Loan Notes to Greenstone which will
not be repayable until 31 August 2021.
Whilst the Directors consider that the
assumptions they have used are reasonable and based on the
information currently available to them, there remains significant
uncertainty regarding further actions that have not been
anticipated but which may be required or imposed and may impact on
the ability of the Group to meet the operational plan and cash flow
forecast.
At the current time the Directors have assumed
that mining operations and gold production will continue at the
Palito Complex. There is no evidence, at this time, to
suggest that the authorities in Brazil have any intention to try
and close down or suspend mining activities as a result of the
current Coronavirus pandemic. On 20 March 2020, it was
stipulated in Decree 10,282/20 that mineral activity was considered
an essential business sector and further actions have subsequently
been invoked to prevent any restrictive measures being applied to
the supplies required by the mining industry including
transportation of supplies, availability of materials required for
processing, and the sale and transportation of the mineral
products.
Whilst recognising all the above uncertainties,
the Directors have prepared the financial statements on a going
concern basis. In the event that additional short term
funding is required, the Directors believe there is a reasonable
prospect of the Group securing further funds as and when required
in order that the Group can meet all liabilities including the
Coringa Deferred Consideration and the secured loan with Sprott as
and when they fall due in the next 12 months. The Directors
have been successful in raising funding as and when required in the
past and consider that the Group continues to have strong support
from its major shareholders who been supportive of and provided
additional funding when required on previous occasions.
As at the date of this report both the medium
and long term impact of COVID-19 on the underlying operations, and
the outcome of raising any further funds that may be required,
remains uncertain and this represents a material uncertainty
surrounding going concern. If the Group fails to achieve the
operational plan or to raise any additional necessary funds, the
Group may be unable to realise its assets and discharge its
liabilities in the normal course of business. The matters explained
indicate that a material uncertainty exists that may cast
significant doubt on the Group and Company’s ability to continue as
a going concern. These financial statements do not show the
adjustments to the assets and liabilities of the Group or the
Company if this was to occur
2.
Finance expense and income
|
3 months ended31 March
2020(unaudited) |
3 months ended31 March 2019 (unaudited) |
|
US$ |
US$ |
Interest expense on secured loan |
(145,091) |
(149,584) |
Expense in respect of non-substantial modification |
(39,900) |
— |
Unwinding of discount on acquisition payment |
— |
(261,521) |
|
(184,991) |
(411,105) |
Income arising upon revaluation of derivatives |
— |
136,842 |
Interest income |
— |
2,217 |
Net finance expense |
(184,991) |
(272,046) |
3.
Taxation
The Group has recognised a deferred tax asset to
the extent that the Group has reasonable certainty as to the level
and timing of future profits that might be generated and against
which the asset may be recovered. The Group has released the
amount of US$185,578 as a deferred tax charge during the three
month period to 31 March 2020.
The Group has also incurred a tax charge for the
period in Brazil of US$343,581.
4.
Earnings per Share
|
|
3 months ended31 March
2020(unaudited) |
3 months ended31 March 2019 (unaudited) |
Profit attributable to ordinary shareholders (US$) |
|
|
772,632 |
1,549,962 |
Weighted average ordinary shares in issue |
|
|
58,909,551 |
58,909,551 |
Basic profit per share
(US cents) |
|
|
1.31 |
2.63 |
Diluted ordinary shares in issue(1) |
|
|
60,912,145 |
62,346,301 |
Diluted profit per
share (US cents) |
|
|
1.27 |
2.49 |
(1) Based on 2,087,587 options vested and
exercisable as at 31 March 2020 (31 March 2019: 3,436,750
options)
4.
Post balance sheet events
On 21 January 2020, the Group entered into a
subscription deed (the “Subscription Deed”) for the issue of US$12
million of Convertible Loan Notes (“the Loan Notes”) by Greenstone
Resources II LP (“Greenstone”) the proceeds of which were to be
applied inter-alia to settle a payment of US$12 million due to
Equinox Gold Corp (“Equinox”) representing a final payment for the
acquisition of the Coringa gold project (the “Coringa Deferred
Consideration”). The subscription deed was subject to
shareholder approval and certain other conditions being fulfilled
at the time of initial drawdown. However, as a consequence of
the uncertainties caused by Coronavirus, the Group subsequently
agreed with Greenstone to extend the period for the satisfaction of
all the conditions necessary for the completion of the subscription
for and issue to Greenstone of the Loan Notes.
On 9 April 2020, the Group announced that it had
reached an agreement with Equinox whereby the date for the
completion of the Coringa Deferred Consideration was extended (the
“Deferral Period”) until such time as there are no international
travel restrictions imposed by the Brazilian authorities and also
no travel restrictions within or into the State of Para, Brazil,
(the “Travel Restriction Condition”) where the Group’s Palito
Complex gold production operations and the Coringa gold project are
located. Under the terms of the extension the Group will
start to make instalment payments in respect the Coringa Deferred
Consideration of US$500,000 per month payable on each of 1 May
2020, 1 June 2020 and 1 July 2020 which will increase to US$1
million per month thereafter until such time as the Travel
Restriction Condition is satisfied. The balance outstanding
of the Coringa Deferred Consideration is expected to be settled
within six weeks of the Travel Restriction Condition being
satisfied.
On 23 April 2020, The Company and Greenstone
signed an amendment deed which varies the original Subscription
Deed (the “Amendment Deed”).
Under the Amendment Deed certain terms of the
subscription with Greenstone have been amended as follows:
- the Company may, prior to the satisfaction of the Travel
Restriction Condition only submit a subscription request in respect
of Convertible Loan Notes in the amount of US$500,000 each month.
Following the satisfaction of the Travel Restriction Condition, the
Company may then issue further subscription request for amounts of
not less than US$100,000 and not exceeding an amount equal to
US$12,000,000 less the sum of the aggregate principal amount of all
Notes outstanding at that time.
- until such time as the existing secured loan due to Sprott
Resource Lending Partnership (the “Sprott Loan”)
has been repaid, the Convertible Loan Notes shall be unsecured and
will be subordinated to the Sprott Loan. The Sprott Loan was
approximately US$3.45 million as at 31 March 2020 and is being
repaid in three equal monthly instalments ending 30 June 2020.
- Following settlement of the Sprott Loan, the security interests
of Sprott will be discharged and the Company will grant to
Greenstone the security package as originally envisaged save that a
pledge of the shares of Chapleau Resources Limited
(“CRL”) will continue to be held by Equinox until
such time as the Coringa Deferred Consideration is settled in full.
CRL holds 100% of the shares of Chapleau Exploração Mineral Ltda
which in turn holds the exploration licences for the Coringa gold
project
- The period during which the Company may issue an Issue Notice
to Greenstone expires on 31 December 2020 unless otherwise
agreed.
- Subject to Greenstone not having exercised its option to
convert the amount outstanding into Conversion Shares, the
Convertible Loan Notes are due to be repaid 16 months after the
first Issue Date which was 30 April 2020.
Save as set out above there have been no other
material changes to the terms of the Subscription Deed. The
underlying conversion price at which Greenstone may, convert any
outstanding amount into Ordinary Shares (“Conversion
Shares”) in the Company has not been varied and remains at
a price of £0.76 per Ordinary Share. Greenstone may convert any
outstanding Convertible Loan Notes at any time.
The occurrence of the Coronavirus (COVID-19)
pandemic has created significant uncertainty for all business
sectors including the Group and in particular the short-term
effects and actions that may need to be implemented either by the
Group or that may be imposed on the Group by new regulations or
measures taken by government. Already there are limitations
imposed which restrict the ability of certain of the Company’s
personnel and contractors to attend the Group’s operations.
The Group has and is implementing measures that will permit it to
maintain operations albeit at potentially reduced levels of
production than previously envisaged. The Group has
implemented measures to reduce the numbers of personnel and camp
and has ceased all exploration activity to liberate on site
accommodation for personnel dedicated to mining and gold
production. In the short term, current staff at site have
agreed to extend their rosters in order to minimise crew
changeovers in the immediate term, thereby minimising the potential
for the virus to be introduced to the mine site. The Group
started to introduce a testing regime during May 2020 which is
allowing for limited changeover of personnel to be re-introduced
and keep the mine site virus-free. It is expected that the
additional testing capability can be acquired during the second
quarter.
Except as set out above, there has been no item,
transaction or event of a material or unusual nature likely, in the
opinion of the Directors of the Company, to affect significantly
the continuing operation of the entity, the results of these
operations, or the state of affairs of the entity in future
financial periods.
Qualified Persons StatementThe
scientific and technical information contained within this
announcement has been reviewed and approved by Michael Hodgson, a
Director of the Company. Mr Hodgson is an Economic Geologist by
training with over 26 years' experience in the mining industry. He
holds a BSc (Hons) Geology, University of London, a MSc Mining
Geology, University of Leicester and is a Fellow of the Institute
of Materials, Minerals and Mining and a Chartered Engineer of the
Engineering Council of UK, recognising him as both a Qualified
Person for the purposes of Canadian National Instrument 43-101 and
by the AIM Guidance Note on Mining and Oil & Gas Companies
dated June 2009.
Forward Looking
StatementsCertain statements in this announcement are, or
may be deemed to be, forward looking statements. Forward looking
statements are identified by their use of terms and phrases such as
‘‘believe’’, ‘‘could’’, “should” ‘‘envisage’’, ‘‘estimate’’,
‘‘intend’’, ‘‘may’’, ‘‘plan’’, ‘‘will’’ or the negative of those,
variations or comparable expressions, including references to
assumptions. These forward looking statements are not based on
historical facts but rather on the Directors’ current expectations
and assumptions regarding the Company’s future growth, results of
operations, performance, future capital and other expenditures
(including the amount, nature and sources of funding thereof),
competitive advantages, business prospects and opportunities. Such
forward looking statements reflect the Directors’ current beliefs
and assumptions and are based on information currently available to
the Directors. A number of factors could cause actual results to
differ materially from the results discussed in the forward looking
statements including risks associated with vulnerability to general
economic and business conditions, competition, environmental and
other regulatory changes, actions by governmental authorities, the
availability of capital markets, reliance on key personnel,
uninsured and underinsured losses and other factors, many of which
are beyond the control of the Company. Although any forward looking
statements contained in this announcement are based upon what the
Directors believe to be reasonable assumptions, the Company cannot
assure investors that actual results will be consistent with such
forward looking statements.
ENDS
- Q1 2020 Financial Statements
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