26th Sep 2006 07:00
Serabi Mining plc26 September 2006 Serabi Mining plc Interim Report 2006 Highlights • Year-to-date production increases to 17,742 ounces gold equivalent from 6,009 ounces in 2005, with successive quarterly improvements of 43% and 24% for the first two quarters of 2006 • Commercial production imminent at the Palito Gold Mine • Completion of decline access and increased mechanisation at Palito leading to much improved mining rates • Introduction of grid electricity supply to Palito results in a significant reduction of energy costs • 74% year-on-year increase in total resources at Palito to 825,900 ounces gold equivalent • Successful capital raising of US$4.3 million to finance further productivity enhancing initiatives at Palito and acceleration of the exploration programme Report of the Chairman and Chief Executive The first six months of 2006 have seen a number of important milestones in thedevelopment of Serabi. A key focus has been to bring the Palito Mine into a state of sustainablecommercial production and to thisend we have now: • completed a decline ramp which will provide long-term access to ore located at depth; • introduced long-hole stoping operations to improve mining productivity; • connected to the grid electricity system, creating significant reductions in power supply costs; • expanded and enhanced the crushing and milling circuits to improve throughput, reliability and plant availability; • completed expansion of in-house laboratory and geological facilities; and • commissioned two underground drilling rigs to improve ore definition and mining efficiency. A substantial 74% increase in the Palito mineral resource to 825,900 ounces goldequivalent was announced earlier in the year providing a strong foundation forfuture mine development. Meanwhile, we have been expanding exploration followingthe acquisition of two additional surface drill rigs and have now started todeploy some of this capacity on projects outside the Palito Mine, at Jardim doOuro and elsewhere in the Tapajos region. Palito - operating results (1) 2006 Q1 2006 Q2 2006 H1 2005 H1Mined t 31,555 34,055 65,610 21,442Per day 351 374 362 118Milled t 25,514 29,851 55,365 22,228Per day 283 328 306 123Head-grade g/t 9.3 9.7 9.5 8.9Recovery % 91.9 91.3 91.6 86.7Gold oz 7,017 8,527 15,544 5,504Copper t 98.0 107.1 205.1 60.6Gold equivalent (2) oz 7,927 9,815 17,742 6,009 (1) Provisional (2) Includes copper and silver Financial results The Group has reported an unaudited loss for the six months ending 30 June 2006of US$1.71 million. This loss is after accounting for the amortisation of optionawards in accordance with the provisions of IFRS 20 and also reflects adepreciation charge on plant and equipment of $572,000 for the period. Netassets have increased by US$4.9 million to US$31.6 million during the period.This increase reflects, in part, the fund raising which the Company undertook atthe end of March 2006, which raised net proceeds of US$4.3 million, through theissue of 6.5 million shares with a number of institutions, at a price of 40p pershare. Cash balances at the end of the period were US$4.0 million with a furtherUS$1.35 million outstanding for deliveries of copper/gold concentrate made priorto the period end. During the reporting period management decided to implement several optimisationprojects with a total investment of up to US$3.0 million identified.Furthermore, opportunities identified for the acceleration of the explorationprogramme could result in an increase to the budget of up to US$3.0 million. At the time of the Company's listing in 2005 the Board, in conjunction with itsadvisers, established a set of operating and financial targets for the PalitoMine that should be attained in order to reach a point of long-term, sustainableand commercially viable production, thus marking an important and pivotal momentfor the future of the operation. Up until now the Board has considered the mineto be operating in a development phase, with significant additional capitalinvestment required to achieve economic sustainability. As a consequence, duringthis time all mine related costs and revenues generated have been capitalised.As a result of the investment in grid electricity, the decline, new miningequipment and the process plant, management considers that the targetsestablished in May 2005 are now close to being met. As soon as the set criteriaare achieved commercial production will be declared and from that point all minerelated costs and revenues will be reported through the profit and loss account. Operations Development of Palito over the last six months has continued at a rapid pace asborne out by the production results. Initial decline access to mineralisation at Palito was completed by thecontractors at the end of February, on time and on budget. Development of thedecline forms the basis for long-term exploitation of the Palito Main Zonemineralisation at depth. This first phase gives access for mechanised equipmentat two underground levels of 210 mRL and 192 mRL, directly beneath the 'PalitoHill', which has to date been a significant source of ore at the higher levels.Prior to this development, access to the 200 mRL was via a small shaft, locatedto the south east of the decline portal. We will in the future continue thedecline development on an incremental basis in order to access mineralisation atdeeper levels. In some areas of the Palito Main Zone, core drilling has identified goodmineralised intersections to a depth of up to 200 metres beneath the currentlimits of the decline. The ore body remains open in all directions and forreasons that are discussed later, we are confident the resource base cancontinue to be expanded further over time. Benefiting from commissioning of the decline and introduction of mechanisation,mining production rates have continued to increase significantly and weanticipate a successful second half performance, with a noticeable pick-up inthe fourth quarter as milling rates also improve. Some increase of ore dilutionis expected to accompany the higher mining output, leading to a lowerrun-of-mine grade. This reflects the increasing proportion of ore from newdevelopment drives accessed from the decline, which are required in order toestablish eventually, the mining of high-grade ore from the long-hole stopes. Asignificant investment since February 2006 has been in the preparation of thesemining stopes from the development drives. The first production from this highergrade, long-hole stope ore is expected to commence soon. For the future, rather than directly processing mined material from lower gradedevelopment drives with high grade ores, we plan to introduce a beneficiation,upgrade circuit. We can then blend this upgraded material with the main ore andmaintain high head-grades to the main mill feed, prior to it entering theprimary flotation and CIP extraction processes.Thus by lowering the total mass and keeping the head grade up we negate therequirement to expand this major part of the process plant. Testwork to datewith lower grade ore indicates that the gold can be concentrated with arelatively simple gravimetric process following only coarse milling, without anexcessive loss of gold. Further testwork is ongoing to determine the optimumprocess route and in the meantime, mining will be carefully directed in order todeliver the best available grade to the plant. Towards the end of 2005, process capacity was expanded with the addition of athird ball mill, in order to achieve sustainable daily capacity of at least 350tonnes. However, as the mill capacity has been impacted by unscheduled downtimeand mining volumes regularly exceed 400 tonnes per day, a fourth larger mill isnow being sourced. The introduction of such a mill would also allow redeploymentof existing mills for use in the planned beneficiation circuit. Amongst a number of important capital projects, the introduction of gridelectricity earlier in the year is noteworthy, providing a long-term cost savingof around $20 per ounce, compared with the previous diesel generated powercosts. Initial problems with lightning strikes causing outages, which weexperienced at the end of the wet season up to April,have now been addressed. Exploration At the beginning of 2006 Serabi reported a major increase in the Palito Mineresource from 416,000 ounces to 734,000 ounces gold or 825,900 ounces goldequivalent (including copper-gold equivalent). The JORC resource classificationalso increased the proportion of ore classified as indicated resources frombeing only 12% in 2005 to 90% in 2006. The remaining 10% of ore remains in theinferred category. Mineralisation on the Palito Main Zone remains open alongstrike, at depth and also across strike. Important features of the new resourceare the increase in the number of veins identified from 20 to 54 and a 50%increase in gold per vertical metre through the main section of the resource,both with potentially significant positive economic implications for the Palitooperation. As most drill holes are orientated at an angle, in order to test the depth ofthe mineralisation of the Palito Main Zone it is necessary to 'step back' fromthe zone in order to obtain deeper intersections. In doing so additionalparallel veins have also been intersected. Such structures had already beenidentified at places such as Palito West, which lies 200 metres to the southwest of the Main Zone, and the Chico do Santo area, some 300 metres to the northeast. Whilst further work is required, these results indicate the possibilitythat a series of mineralised veins could extend between the Palito West andChico do Santo areas, encompassing those already identified within the PalitoMain Zone. The new resource also showed a close correlation between the number ofdrill-hole intersections and the gold per vertical metre. The resourceidentified to date is mainly concentrated above the 150 mRL level and itsdistribution at each level correlates closely with the density of drillingundertaken so far. Such a result suggests that as further drilling is undertakenat depth the resource should continue to grow proportionately. The drill programme for 2005 resulted in some 18,000 metres being completed onthe Palito Main Zone. This productivity was greatly enhanced by a programme ofclose-spaced, shallow drilling that was undertaken towards the end of the yearand is unlikely to be repeated this year. During the first eight months of 2006we have completed a total of 7,600 metres of drilling on the Palito Main zoneitself, and a further 6,000 metres at satellite areas around Palito and onSerabi's other tenements. During the earlier part of 2006 we have improved and expanded our explorationfacilities with the acquisition and commissioning of additional drilling rigsand the expansion of our 'in-house' preparation and laboratory facilities. The exploration programme outside the work being undertaken on the Palito MainZone is focused on two strategic goals in order to provide short/medium andlonger term growth potential. Correspondingly the approach to this programme isdivided into two areas: 1. Jardim do Ouro - the district immediately adjacent to the Palito Mine wherethere is a number of advanced projects with good resource potential which couldbecome satellite deposits feeding the Palito operation. 2. The Tapajos - the wider region in which Palito is situated has historicallyhosted extensive artisanal gold production from alluvial and weathered bedrocksources and has potential for large tonnage, low-grade style deposits as well asfurther Palito style, high-grade gold mineralisation. Within the Jardim do Ouro region we have been undertaking extensive geochemistryand surveying of existing and new targets, assessing various garimpeiro workingsand commenced preliminary drilling programmes on Bill's Pipe, Ruari's Ridge,Copper Hill and Rio Novo South. Rio Novo South, which lies 5 km south of Palito, is an area of old garimpeiroworkings where sampling has confirmed the presence of extensive goldmineralisation. A follow-up geochemical survey has now identified widespreadgold and copper values at two locations, which remain open and are now beinginvestigated further. A preliminary drill programme will commence shortly. Preliminary drilling at Bill's Pipe has encountered high-grade goldmineralisation on several structures near the surface, where infill drilling isnow being planned. At Ruari's Ridge the first drill hole encountered massivesulphides at depth, returning encouraging gold and high-grade copper assayresults. The ongoing programme will continue to test the strike and depthextension of this strong gold geochemical and electromagnetic anomaly. Within the wider Tapajos region geochemistry and initial drilling has identifiedmineralisation at the Sucuba project area, located approximately 10 km west ofPalito. The drilling undertaken has confirmed the occurrence of a poly-metallicstructure that will now be further evaluated along strike and at depth. Meanwhile at the Pombo project situated in Mato Grosso state, drilling has beenundertaken along the main west-east structure, with results confirming extensivegold-copper mineralisation across the central section, which includes values of16.41 metres at 2.28g/t gold and 0.174% copper, including 9.95 metres at 3.5 g/tgold and 0.23% copper. Drilling has moved west and east of the centralmineralised section, where initial holes completed some 100-150 metres alongstrike indicate continuing strong alteration with associated sulphidemineralisation. Further information on the exploration programme is contained in the updaterelease of 13 September 2006. Meanwhile, Serabi continues to review other opportunities in Brazil. It remainsour goal to build up the production capability of Serabi through theidentification, evaluation and development of areas that have a history of goldmining, with appropriate infrastructure, enabling them to be brought intoproduction for an attractive capital outlay. People As a final comment none of the Company's achievements this year would have beenpossible without the support of our staff. They have shown great loyalty andcommitment to ensuring that the Company achieves the goals which your Board hasset. Our thanks and gratitude continues to be extended to all of them. Graham Roberts Bill CloughChairman Chief Executive26 September 2006 Profit and Loss Accountfor the six months to 30 June 2006(expressed in US$) Group Six months to Six months to Three months to 30 June 2006 31 July 2005 31 December 2005 (unaudited) (unaudited) (audited)Administration expenses (1,320,150) (792,791) (621,422)Share-based payment costs (331,338) (597,260) (422,298)Write-off of exploration and development cost - (43,051) -Depreciation (plant and equipment) (572,364) (157,459) (339,552)Loss on ordinary activities before interest and other (2,223,852) (1,590,561) (1,383,272)incomeForeign exchange gain/(loss) 582,390 (789,612) (35,703)Interest payable (116,992) (19,072) (69,929)Interest receivable 48,531 103,556 21,044Loss on ordinary activities before taxation (1,709,923) (2,295,689) (1,467,860)Taxation - - -Loss on ordinary activities after taxation (1,709,923) (2,295,689) (1,467,860)Earnings per ordinary share (basic and diluted) (1.61c) (2.62c) (1.42c) Statement of Total Recognised Gains and Lossesfor the six months to 30 June 2006(expressed in US$) Group Six months to Six months to Three months to 30 June 2006 31 July 2005 31 December 2005 (unaudited) (unaudited) (audited) US$ US$ US$Loss for the period (1,709,923) (2,295,689) (1,467,860)Exchange gain/(loss) on foreign currency net investment 1,521,633 (233,410) (175,330)Total recognised loss for the period (188,290) (2,529,099) (1,643,190) Balance Sheetas at 30 June 2006(expressed in US$) Group As at As at 30 June 2006 31 December 2005 Notes (unaudited) (audited)Fixed assetsIntangible assetsGoodwill on acquisition 1,752,516 1,752,516Tangible assetsProperty, plant and equipment 4 6,367,766 5,375,621Capitalised exploration and development expenditure 5 17,569,792 15,831,875Investments - -Current assetsStock and work in progress 3 2,754,891 1,825,479Debtors due within one year 3,124,395 2,818,551Cash at bank and in hand 3,973,212 2,152,452 9,852,498 6,796,482Creditors: amounts falling due within one year (3,326,254) (2,451,537)Net current assets 6,526,244 4,344,945Total assets less current liabilities 32,216,318 27,304,957Creditors: amounts falling due after more than one (210,846) (244,724)yearProvision for liabilities and charges (448,121) (428,944)Net assets 31,557,351 26,631,289 Capital and reservesCalled up share capital 6 19,170,496 17,974,336Share premium reserve 6 15,045,251 11,818,128Share-based payment reserve 3,381,121 2,690,052Profit and loss account (6,039,517) (5,851,227)Equity shareholders' funds 31,557,351 26,631,289 These unaudited results do not amount to statutory accounts within the meaningof Section 240 of the Companies Act 1985. The statutory accounts for the three months ended 31 December 2005 have beenfiled with the Registrar of Companies. The auditors' report on these accountswas unqualified and did not contain a statement under Section 237(2) or 237(3)of the Companies Act 1985. Consolidated Cash Flow Statementfor the six months to 30 June 2006(expressed in US$) Group Six months to Six months to Three months to 30 June 2006 31 July 2005 31 December 2005 (unaudited) (unaudited) (audited) Net cash inflow/(outflow) from operations 157,177 (2,673,961) (2,725,970)Returns on investment and servicing of financeInterest received 48,531 103,556 21,044Interest paid (116,992) (19,072) (69,929)Net cash (outflow)/inflow from returns on investmentsand servicing of finance (68,461) 84,484 (48,885)Capital expenditure and financial investmentPurchase of tangible fixed assets (1,564,509) (1,501,953) (1,627,113)Exploration and evaluation expenditure (1,378,186) (3,474,197) (967,746)Net cash outflow on capital expenditure andfinancial investment (2,942,695) (4,976,150) (2,594,859)Cash outflow before financing (2,853,979) (7,565,627) (5,369,714)Financing activitiesIssue of ordinary share capital 4,423,283 17,053,752 -Net cash inflow from financing activities 4,423,283 17,053,752 -Increase in cash at bank and in hand 1,569,304 9,488,125 (5,369,714) Reconciliation of Operating Loss to Net Cash Flow from Operating Activitiesfor the six months to 30 June 2006(expressed in US$) Group Six months to Six months to Three months to 30 June 2006 31 July 2005 31 December 2005 (unaudited) (unaudited) (audited) Operating loss (2,223,852) (1,590,561) (1,383,272)Depreciation 572,364 157,459 339,522Increase in stocks (753,002) (541,237) (1,003,810)Share-based payment costs 331,338 597,260 422,298Increase in debtors and prepayment (518,212) (215,737) (1,754,743)Increase/(decrease) in creditors and accruals 770,837 (31,519) 709,714Foreign exchange 1,977,704 (1,049,626) (55,679)Net cash inflow/(outflow) from operating activities 157,177 (2,673,961) (2,725,970) Reconciliation of Cash to Net Fundsfor the six months to 30 June 2006(expressed in US$) Group Six months to Six months to Three months to 30 June 2006 31 July 2005 31 December 2005 (unaudited) (unaudited) (audited) Cash at bank and in hand beginning of period 2,152,452 474,059 7,557,138Cash flow 1,569,304 9,488,125 (5,369,714)Exchange gain/(loss) 251,456 (727,005) (34,972)Cash at bank and in hand at end of period 3,973,212 9,235,179 2,152,452 Notes to Interim Financial Statements 1. Basis of preparation These interim accounts are for the six month period ended 30 June 2006.Comparative information has been provided for the unaudited six month period to31 July 2005 and the audited three month period from 1 October to 31 December2005. The accounts for the period have been prepared in accordance with the policieswhich 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 eachof the licence areas that it holds and will amortise these costs over the lifeof any mine that is developed 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 PalitoHill. Given the history of the development of the Palito mine and in particularthe ability, unlike many mines, to generate cash flow at a very early stage ofmine development through the availability of an existing plant at the site, theBoard has considered that the current activities represent development activityrather than commercial production. At this stage, the operations have notreached the targets set by the Board for commercial production and accordinglyall mine and plant costs have been capitalised as ongoing development costs. Allsales revenue to date has been set off against the development costs; (vi) revenues are recognised only at the time of sale. Any unsold production andin particular concentrate is held as inventory and valued at production costuntil sold. 2. Taxation The Group as a whole has been in a loss making situation up to balance sheetdate and consequently has made no provision for any income tax charge. Nodeferred tax asset arising from carried forward losses has been recognised inthe financial statements because of uncertainty as to the time period over whichthis asset may be recovered. 3. Stocks 30 June 2006 31 December 2005 (unaudited) (audited)Bullion and work in progress 1,029,596 424,950Consumables 1,725,295 1,400,529 2,754,891 1,825,479 4. Property, plant and equipment 30 June 2006 31 December 2005 (unaudited) (audited)CostBalance at beginning of period 6,042,815 4,415,702Additions 1,564,509 1,627,113Disposals - -Balance at end of period 7,607,324 6,042,815 DepreciationBalance at beginning of period (667,194) (327,672)Charge for period (572,364) (339,522)Balance at end of period (1,239,558) (667,194)Net book value 6,367,766 5,375,621 5. Exploration and development costs 30 June 2006 31 December 2005 (unaudited) (audited)Balance at beginning of period 15,831,875 14,609,905Net additions 1,737,917 1,221,970Write down for impairment - -Balance at end of period 17,569,792 15,831,875 6. Share capital 30 June 2006 30 June 2006 31 December 2005 31 December 2005 (unaudited) (unaudited) (audited) (audited)Called up capital Number $ Number $Balance at beginning of period 102,991,636 17,974,336 102,991,636 17,974,336Issue of shares 6,500,000 1,134,055 - -Conversion of employee share options 343,306 62,105 - -Balance at end of period 109,834,942 19,170,496 102,991,636 17,974,336 30 June 2006 31 December 2005 (unaudited) (audited)Share premium reserve $ $Balance at beginning of period 11,818,128 11,818,128Issue of shares 3,402,165 -Conversion of employee share options 78,980 -Share issue expenses (254,022) -Balance at end of period 15,045,251 11,818,128 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Serabi