PRESS RELEASE - 22nd September 2009
SERABI MINING plc ("Serabi" or "the Company")
Announcement of Interim Financial Results for the 6 months to 30 June
2009
Highlights
* Production for the first six months of the year was 3,775
ounces
* Operating profit of US$539,000
* Results impacted by strong gold price and relative
weakness of the Brazilian Real
* Drill programme underway to identify additional oxide ore
sources
The continuing modest success of the oxide mining operations at
Palito has made a valuable contribution to the Company's cash flow
this year, potentially allowing us the opportunity to benefit from
the improved markets and investor sentiment, compared with those
prevailing in the earlier part of this year. The oxide ores had not
previously formed a significant part of our production strategy for
Palito because of processing issues when being treated together with
the sulphide ore. For this reason we had never focused before on
establishing significant oxide resources; what resources had been
identified were an incidental consequence of exploration targeted
towards the underlying sulphide mineral deposits.
Production for the first six months of the year was 3,775 ounces with
an average head grade of 3.42 g/t gold. Whilst this represents a
high grade for an open pit operation, the nature of the ore bodies
means that ore volumes are limited and thus by necessity each pit is
fairly small. From this production we have recorded a small
operating profit for the six months ended 30 June 2009 of $539,000,
although after taking account of administration costs and
depreciation charges the Group recorded an overall loss of $2.02
million (before impairment charges), compared with $3.33 million for
the corresponding period of 2008.
We have benefited during the period from a strong gold price and the
relative weakness of the Brazilian Real. The gold price for the
first six months averaged US$915 per ounce and traded in a range of
US$813 to US$990, whilst the average exchange rate of the Brazilian
Real to the US Dollar was 2.208. However, the Brazilian Real has
been strengthening throughout this year as inward flows of foreign
money have helped rebuild the country's currency reserves. These
inward flows are a mixture of direct infrastructure and manufacturing
investments driven by a renewed confidence in the long-term global
economic recovery, the expectation that the stronger emerging market
economies will again drive demand, institutional investment into the
recovering stock market, equity issues by the largest Brazilian
corporations and finally the restoration of the "carry trade"
attracted by the high prevailing interest rates available in Brazil.
At the end of June 2009 the exchange rate stood at 1.95 and has
appreciated further over the last two months, at times appearing to
test but not break the 1.80 barrier. The gold price has meanwhile
showed signs of further strengthening and has traded in a range
between US$908 and US$1004 per ounce. These conditions clearly have
an effect on the on-going profitability of the operation and we
continue to seek ways of reducing the cost base to mitigate any
potential adverse effects of currency fluctuations.
Administration charges for the period include a one-off charge for
employment terminations of personnel in Brazil amounting of
$189,000. Combined with cost reduction initiatives that are already
in hand, we would expect to see a reduction in administration costs
for the remainder of the year. Additionally the Directors have
agreed to defer a proportion of salary payments in order to conserve
cash. Administration costs include an amount of $126,000 that has
been accrued but not paid in respect of remuneration of the
Directors. The half year depreciation expense on plant and equipment
includes some one-off charges totaling $215,000; we would also
therefore expect charges for the remainder of the year to be reduced
accordingly. No amortisation expense has been made in respect of the
carrying cost of the Palito underground mine itself on the basis that
during the period there has been no exploitation of the underground
reserves and resources which underpin this asset value. When
production is recommenced from underground operations the Group will
again amortise this cost over the remaining anticipated useful life.
An effect of the appreciation of the Brazilian Real has been to
increase the carrying value of all assets that are owned by our 100%
owned Brazilian subsidiary company, Serabi Mineracao Ltda, which
maintains its accounting records in Real. This has resulted in an
increase in the carrying value of Property Plant and Equipment of
US$5.4 million compared with the value as at 31 December 2008. This
increase in carrying value has impacted on the impairment review that
the Directors are required to undertake. The uplift in value has
resulted in the carrying value of the Palito mine and its related
infrastructure, being greater than the estimated net present value of
the projected cash flows that could be derived. Further information
regarding the impairment review is set out in the notes to the
Interim financial statements, but it has necessitated that the Group
record an impairment provision of US$2.4 million for the six months
ended 30 June 2009, in order to reduce the carrying value to the
Director's estimate of the value in use of Palito which at 30 June
2009 was estimated as $34.4 million.
As was noted at the time of this year's Annual General Meeting on 18
August and in our June 2009 Investor Update, heavy seasonal rains
earlier this year precluded us from undertaking any systematic
exploration of the oxide potential and, for this reason, production
has so far only been derived from the limited number of known
occurrences previously outlined. However, a drill programme is now
underway that we hope will lead to the identification of additional
oxide ore feed and thus establish a longer term source of gold
production. Test work is also underway to assess the viability of
reprocessing Palito's tailings as a further source of gold
production.
We consider there are now two paths that can be pursued in order to
generate returns for shareholders. Either a transaction could be
undertaken that would result in value being generated through the
disposal of the projects in Brazil or we attract new funding either
directly or through the introduction of a joint venture partner in
order to advance identified projects and thus enhance the underlying
value of those assets. As noted in our investor newsletters, the
production level that we are likely to be able to sustain from the
oxide gold sources and the resulting cash flow this will generate, is
unlikely to be adequate to allow the Company to grow and so new
capital is needed for this purpose.
Since the AGM on, when we detailed the strategic options that were
being pursued, we have continued to progress all avenues but at this
stage are not in a position to provide any further updates to
shareholders. The month of August is traditionally a quiet month for
any corporate activity and this year the holiday effect would appear
to have been exaggerated by the general malaise of the markets.
However, we would hope that before the next Quarterly Investor Update
(due for release at the end of October) we might be in a position to
provide some positive news on the corporate front, in addition to
some initial results from the oxide exploration drilling that is now
underway.
Our operational focus for the rest of the year will be to continue to
optimise the current oxide mining operations, adding additional oxide
resources and in so doing extending the life of this activity and
giving the Group the opportunity to asses the potential for
sustainable increases in production. Meanwhile, if successful in
identifying a joint venture partner or raising capital as outlined
above, the resulting funds would be directed towards further detailed
evaluation of the 18 priority targets that have been identified in
close proximity to Palito, with the objective of establishing a
larger reserve and resource base that could support an expanded
underground mining operation in the future.
The first six months of 2009 have been difficult but as the results
demonstrate, one that has been better than might have been expected
at the start of the year. The remaining six months of the year will
continue to be challenging but we have entered the period with an
improved level of optimism and a wider range of options than existed
in January. There remains considerable work to be done in
re-building value for shareholders and the Group is reliant on a
small group of individuals who have demonstrated their continuing
belief in the long-term potential of the Group's assets and have
already shown a substantial commitment to the Company. Whilst
Serabi's future and growth is dependent on a number of factors, their
continuing involvement will be a significant factor in the Group's
on-going development and we hope that their dedication and belief
will ultimately be realised, concurrent with the generation of
significant improvements in shareholder value.
Palito - operating results(1)
2009 2009 2009 2008
UNIT Q1 Q2 YTD YTD
Milled - total tonnes 17,580 19,151 36,731 66,506
- daily average 197 210 203 365
Head-grade(2) grammes/ tonne 3.78 3.09 3.42 4.82
Recovery % 92.3 94.7 93.6 89.0
Gold(3) ounces 1,973 1,802 3,775 10,738
(1) Provisional.
(2) Ore feed to the process plant.
(3) For 2008 includes copper and silver credits.
Graham Roberts Mike Hodgson
Chairman Chief Executive
21 September 2009
Enquiries
Serabi Mining plc
Graham Roberts Tel: 01737 773691
Chairman Mobile: 07768 902475
Clive Line Tel: 020 7246 6830
Finance Director Mobile: 07710 151 692
Email: contact@serabimining.com
Website: www.serabimining.com
Beaumont Cornish Limited
Nominated Adviser and Broker
Roland Cornish Tel: 020 7628 3396
Michael Cornish Tel: 020 7628 3396
STATEMENT OF COMPREHENSIVE INCOME
Group
For the For the For the
six months six months year
ended ended ended
30 June 30 June 31 December
2009 2008 2008
(expressed in US$) Notes (unaudited) (unaudited) (audited)
CONTINUING OPERATIONS
Revenue 3,601,349 9,887,239 16,523,577
Operating expenses (3,061,975) (9,499,132) (16,964,067)
Gross profit/(loss) 539,375 388,107 (440,490)
Administration expenses (1,178,935) (1,635,070) (3,740,134)
Share-based payments (40,161) (89,926) (123,498)
Write-off of past - (502,591) (1,174,269)
exploration costs
Loss on sale of fixed (209,661) - -
assets
Depreciation of plant and (1,126,106) (983,785) (2,132,633)
equipment
Depreciation of mine asset - (502,069) (997,473)
Provision for impairment 8 (2,422,737) - -
Operating loss (4,438,226) (3,325,334) (8,596,693)
Foreign exchange gain 93,755 1,732,583 (1,629,138)
Finance costs (158,936) (385,365) (1,219,107)
Investment income 1,481 366,874 471,283
Loss before taxation (4,501,926) (1,611,242) (10,973,655)
Income tax expense - - -
Loss for the period from (4,501,926) (1,611,242) (10,973,655)
continuing operations (1)
(2)
Other comprehensive income
(net of tax)
Exchange differences on 6,119,656 2,033,961 (11,303,603)
translating foreign
operations
Total comprehensive 1,617,730 422,719 (22,277,258)
income/(loss) for the
period (2)
Loss per ordinary share (3.21c) (1.29c) (7.83c)
(basic and diluted) (1)
(1) All revenue and expenses arise from continuing operations.
(2) The Group has no minority interests and all income/(losses) are
attributable to the equity holders of the Parent
Company.
CONSOLIDATED BALANCE SHEET
Group
As at As at As at
30 June 30 June 31 December
2009 2008 2008
(expressed in US$) Notes (unaudited) (unaudited) (audited)
Non-current assets
Goodwill - 1,752,516 1,752,516
Development and deferred 3 6,225,795 6,461,865 5,351,921
exploration costs
Property, plant and 4 34,445,949 43,348,962 31,620,364
equipment
Total non-current assets 40.671,744 51,563,343 38,724,801
Current assets
Inventories 5 1,005,956 3,844,888 931,413
Trade and other 264,388 1,169,402 992,698
receivables
Prepayments and accrued 1,089,099 3,229,146 1,401,627
income
Cash at bank and in hand 6 1,370,442 9,681,080 1,538,956
Total current assets 3,729,885 17,924,516 4,864,694
Current liabilities
Trade and other payables 3,254,544 5,427,102 3,197,543
Accruals 205,627 18,789 136,762
Interest bearing 150,200 1,493,372 1,046,936
liabilities
Total current liabilities 3,610,371 6,939,263 4,381,241
Net current assets 119,514 10,985,253 483,453
Total assets less current 40,791,258 62,548,596 39,208,254
liabilities
Non-current liabilities
Trade and other payables 84,037 4,733 25,467
Provisions 784,788 845,427 735,905
Interest bearing - 771,859 182,340
liabilities
Total non-current 868,825 1,622,019 943,712
liabilities
Net assets 39,922,433 60,926,577 38,264,542
Equity
Called up share capital 7 25,285,679 25,285,679 25,285,679
Share premium reserve 33,402,649 33,402,649 33,402,649
Option reserve 3,101,256 3,023,153 3,061,095
Translation reserve (1,684,082) 5,533,826 (7,803,738)
Profit and loss account (20,183,069) (6,318,730) (15,681,143)
Equity shareholders' 39,922,433 60,926,577 38,264,542
funds
The interim financial information has not been audited and does not
constitute statutory accounts within the meaning of Section 435 of
the Companies Act 2006. The Group statutory accounts for the year
ended 31 December 2008, prepared under IFRS as adopted in the EU,
have been filed with the Registrar of Companies. The auditors' report
on these accounts was unqualified but did contain an Emphasis of
Matter with respect the ability of the Company and the Group to
continue as a going concern. The auditors' report did not contain a
statement under Section 498 (2) or 498 (3) of the Companies Act 2006
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(expressed in Share Share Share Translation Profit and
US$) option
(unaudited) capital premium reserve Reserve loss account Total equity
Equity 25,285,679 33,402,649 2,923,543 3,499,865 (4,707,488) 60,404,248
shareholders'
funds at 31
December 2007
Foreign - - - 2,033,961 - 2,033,961
currency
adjustments
Loss for the - - - - (1,611,242) (1,611,242)
period
Total - - - 2,033,961 (1,611,242) 422,719
comprehensive
income for
the period
Share option - - 99,610 - - 99,610
expense
Equity 25,285,679 33,402,649 3,023,153 5,533,826 (6,318,730) 60,926,577
shareholders'
funds at 30
June 2008
Foreign - - - (13,337,564) - (13,337,564)
currency
adjustments
Loss for the - - - - (9,362,413) (9,326,413)
period
Total - - - (13,337,564) (9,362,413) (22,699,977)
comprehensive
income for
the period
Share option - - 37,942 - - 37,942
expense
Equity 25,285,679 33,402,649 3,061,095 (7,803,738) (15,681,143) 38,264,542
shareholders'
funds at 31
December 2008
Foreign - - - 6,119,656 - 6,119,656
currency
adjustments
Loss for the - - - - (4,501,926) (4,501,926)
period
Total - - - 6,119,656 (4,501,926) 1,617,730
comprehensive
income for
the period
Share option - - 40,161 - - 40,161
expense
Equity 25,285,679 33,402,649 3,101,256 (1,684,082) (20,183,069) 39,922,433
shareholders'
funds at 30
June 2009
CONSOLIDATED STATEMENT OF CASH FLOWS
Group
For the For the For the
six months six months Year
ended ended Ended
30 June 30 June 31 December
2009 2008 2008
(expressed in US$) (unaudited) (unaudited) (audited)
Operating activities
Operating loss (4,438,226) (3,325,334) (8,596,693)
Depreciation - plant, equipment 1,126,106 1,485,854 3,130,106
and mining properties
Impairment provision 2,422,737 - -
Loss on sale of plant and 209,661 - -
equipment
Option costs 40,161 89,926 123,498
Write-off of past exploration - 502,591 1,174,269
costs
Interest paid (158,936) (385,365) (1,219,107)
Foreign exchange (90,224) 366,215 (1,496,018)
Changes in working capital
Decrease/(increase) in 104,715 (151,299) 2,024,099
inventories
Decrease/(increase) in 1,290,312 (32,621) 1,049,230
receivables, prepayments and
accrued income
(Decrease)/increase in (394,453) 597,677 3,019
payables, accruals and
provisions
Net cash inflow/(outflow) from 111,853 (852,366) (3,807,597)
operating activities
Investing activities
Proceeds of sale of fixed assets 903,017 - 23,393
Purchase of property, plant and (59,780) (3,669,452) (5,608,449)
equipment
Exploration and development (139,037) (3,875,826) (5,248,892)
expenditure
Interest received 1,481 366,874 471,283
Net cash inflow/(outflow) from 705,681 (7,178,404) (10,362,665)
investing activities
Financing activities
Capital element of finance lease (1,057,638) (725,808) (1,402,482)
payments
Net cash outflow from financing (1,057,638) (725,808) (1,402,482)
activities
Net decrease in cash and cash (240,104) (8,756,578) (15,572,744)
equivalents
Cash and cash equivalents at 1,538,956 18,529,795 18,529,795
beginning of period
Exchange difference on cash 71,590 (92,137) (1,418,095)
Cash and cash equivalents at end 1,370,442 9,681,080 1,538,956
of period
Notes to the Interim Financial Statements
1. Basis of preparation
These interim accounts are for the six month period ended 30 June
2009. Comparative information has been provided for the unaudited six
month period ended 30 June 2008 and the audited twelve month period
from 1 January to 31 December 2008.
The accounts for the period have been prepared in accordance with
International Accounting Standard 34 "Interim Financial Reporting"
and with the policies which the Group will adopt for its annual
accounts notably:
* The financial statements are presented in US Dollars.
They are prepared on the historical cost basis or the fair value
basis where the fair valuing of relevant assets and liabilities has
been applied.
* The financial statements have been prepared in accordance
with International Financial Reporting Standards in force at the
reporting date and their interpretations issued by the
International Accounting Standards Board and adopted for use within
the European Union (IFRS), and those parts of the Companies Act
1985 applicable to companies reporting under IFRS.
* The adoption of new accounting standards that are in
effect for the calendar year ending 31 December 2009 notably , IAS1
(revised) "Presentation of financial statements". IFRS8 "Operating
Segments" and IAS23 "Borrowing costs"
(i) Going Concern
In respect of the financial statements of the Company and the Group
for the year ended 31 December 2008 and which were approved by the
Board on 25 June 2009, the Directors, following a review of the
Company's financial position and its budgets and plans, concluded
that sufficient financial resources would be available to meet the
Company's current and foreseeable working capital requirements, this
being a period of not less than twelve months from the date of
approval of those financial statements. On this basis, they
considered it appropriate to prepare those financial statements on
the going concern basis. The Directors consider that it remains
appropriate to prepare the financial statements for the period ended
30 June 2009 on the same going concern basis. However, they would
anticipate that the Company will, prior to the end of a twelve month
period ending in September 2010, need to receive additional funds to
supplement its current cash holdings. The level of such fund
raising, if any, will also be dependent of the on-going results of
the current gold mining operations in Brazil and the potential for
these to generate any cash surpluses that can be remitted to the
Company to meet its on-going working capital requirements. The
Company has received expressions of interest regarding the
exploration and mining assets of the Group and in the event that the
Company undertakes a sale of whole or part of the interests of its
operating subsidiary this may result in an injection of liquid or
tradeable assets which may significantly enhance the liquidity of the
Company. Otherwise additional funding is likely to be achieved
through the issue of new equity.
The Group as a whole has limited cash resources and, whilst its gold
mining operations in Brazil have been cash generative during 2009,
any disruption or significant decline in the current levels of
operation could have a significant effect on the Group's liquidity.
The viability of the Group's operations in Brazil is dependent upon
the ability to continue to manage the accrued liabilities of the
subsidiary entity, to identify additional sources of ore to maintain
production and any operational difficulties not adversely affecting
short-term cash flow or requiring an injection of capital that is
beyond the limited capability of the Company to provide. The
Directors are currently seeking and have held discussions regarding
terms relating to new sources of finance that would provide the Group
with a stronger financial base but there can be no guarantee that
such funding will be forthcoming.
The use of any funds raised will be dependent on the levels of
funding that are available and the Directors will determine the
strategy of the Group accordingly. In the meantime the Group will
continue to seek to conduct its operations in a manner that will
allow it to continue to at least cover the cost base of its operating
subsidiary, will dispose of assets if such action is necessary and
continue to exercise tight control over its available working
capital. In the event that it is necessary to dispose of assets to
support the activities of the Group it is possible that such
disposals may be undertaken at values below current carrying values.
Ultimately if it is not possible to raise additional funds from any
source and the Company cannot afford to provide funds to its
operating subsidiary, it may become necessary to place the Group's
Brazilian subsidiary into administration, in order that the Company
can continue as a going concern.
(ii) Impairment
The Directors have undertaken a review of the carrying value of the
mining and exploration assets of the Group and considered the
implications of the operational difficulties experienced and the
current operational status of Palito. Following this review they have
assessed the value of the existing assets on the basis of value in
use involving a future recommencement of underground mining
operations which is dependent on the ability of the Group to raise
future finance and to operate the mine in line with the mine plan
that forms the basis of the value in use calculation. The carrying
values of assets have not been adjusted to reflect a failure to raise
sufficient funds, only maintaining the current levels of operation or
that if a sale transaction were undertaken the proceeds may not
realise the value as stated in the accounts.
(iii) Inventories
Inventories - are valued at the lower of cost and net realisable
value.
(iv) Property, plant and equipment
Property, plant and equipment is depreciated over its useful life.
(v) Mining property
The Group commenced commercial production at the Palito mine
effective 1 October 2006. Prior to this date all revenues and
operating costs were capitalised as part of the development costs of
the mine. Effective from 1 October 2006 the accumulated development
costs of the mine were re-classified as Mining Property costs and
such cost is being amortised over the anticipated life of the mine on
a unit of production basis.
(vi) Revenue
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.
2. Taxation
Taxation represents a provision for corporate taxes due on taxable
profits arising in Brazil. No deferred tax asset arising from carried
forward losses incurred outside of Brazil has been recognised in the
financial statements because of uncertainty as to the time period
over which this asset may be recovered.
3. Exploration and development costs
30 June 31 December
2009 2008
(unaudited) (audited)
Cost
Opening balance 5,351,921 13,254,658
Exploration and development expenditure 139,037 5,248,892
Write-off of past exploration costs - (1,174,269)
Exchange 923,185 (1,617,946)
Transfer to tangible assets (188,348) (10,359,414)
Balance at end of period 6,225,795 5,351,921
4. Property, plant and equipment
30 June 31 December
2009 2008
(unaudited) (audited)
Cost
Balance at beginning of period 38,295,092 31.325,246
Additions 59,780 7,063,637
Transfer from intangible assets 188,348 10,359,414
Exchange 6,749,819 (10,341,944)
Disposals (1,524,285) 111,261
Balance at end of period 43,768,754 38,295,092
Depreciation
Balance at beginning of period 6,674,728 5,494,240
Charge for period 1,157,265 3,130,106
Provision for impairment 670,221 -
Exchange 1,339,822 (1,869,192)
Eliminated on sale of asset (519,231) (80,426)
Balance at end of period 9,322,805 6,674,728
Net book value at 30 June 2009 34,445,949 31,620,364
5. Inventories
30 June 30 June 31 December
2009 2008 2008
(unaudited) (unaudited) (audited)
Bullion and work in progress - 1,464,835 100,821
Consumables 1,005,956 2,380,053 830,592
Inventories 1,005,956 3,844,888 931,413
6. Cash and cash equivalents
30 June 30 June 31 December
2009 2008 2008
(unaudited) (unaudited) (audited)
Cash at bank and in hand 1,370,442 9,681,080 1,538,956
Bank overdraft - - -
Cash and cash equivalents 1,370,442 9,681,080 1,538,956
7. Share capital
30 June 30 June 31 December 31 December
2009 2009 2008 2008
(unaudited) (unaudited) (audited) (audited)
Called up capital Number $ Number $
Balance at beginning 140,139,065 25,285,679 140,139,065 25,285,679
of period
Issue of shares for - - - -
cash
Exercise of options - - - -
Balance at end of 140,139,065 25,285,679 140,139,065 25,285,679
period
8. Impairment
Consistent with the review process performed as at 31 December 2008,
the Directors have undertaken an impairment review of the Group's
exploration, development and production assets. The Directors note
that as a result of changing exchange rates between 31 December 2008
and 30 June 2009 the value of these assets in the accounts of the
Group has increased. The majority of the assets are held by and
recorded in the accounts of the Serabi Mineracao Limitada, the
Group's 100% owned Brazilian subsidiary, the financial statements of
which are denominated in Brazilian Real. Following this review and
making estimates of the value in use, the Directors have concluded
that as a result of the variation in exchange rates the carrying
value of the Palito mine property and its associated infrastructure
has increased to a level in excess of the valuation supported by the
value in use calculation. As a result and in accordance with the
provisions of IAS 36 - Impairment of Assets, the Directors have
agreed to make an impairment charge of US$2,422,737 against the
carrying value of the assets of the Group relating to the Palito
mine. No impairment charge has been made in respect of any of the
remainder of the Group's exploration and development projects.
In deriving an estimate of the value in use in respect of the Palito
mine the Directors' have calculated a Net Present Value of the
projected cash flow to be derived from the exploitation of the known
reserves of 187,538 gold equivalent ounces as estimated at the end of
March 2008. The key assumptions underlying the Net Present Value are
unchanged from those detailed in the Annual Report 2008 save that
commencement of operations has been set as 1 July 2011 (six months
later than previously), the exchange rate BrR$ to US$ has been set at
1.9516 (previously 2.356) and the long term gold price set at US$800
(previously $750). The value in use taking into account these
parameters of Palito has been estimated at US$34.4 million
(previously US$34.8 million)
Qualified Persons Statement
All technical information contained within this Interim Report has
been reviewed by and verified by Michael Hodgson as required by the
AIM Guidance Note on Mining, Oil and Gas Companies dated March 2006.
Michael Hodgson is an Economic Geologist by training with 20 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 the UK.
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