Annual
Report
2016
High grade
gold mining
in Brazil
PARA
Manaus
Santarem
Belém
Itaituba
Palito &
Sao Chico
Mines
Serabi Gold plc // Report and Accounts 2016
OVERVIEW
Welcome to Serabi Gold plc
Serabi Gold plc is engaged
in the evaluation and
development of gold
projects in Brazil currently
producing 40,000 ounces of
gold per annum from its high
grade (9 grammes per tonne
("g/t") of gold) underground
mining operations located
in the Tapajos region of
Para state.
Its shares are listed on both the TSX in
Canada (ticker “SBI”) and AIM in London
(ticker “SRB”).
The Company benefits from a strong
operational management team, with
extensive experience of South America
and Brazil in particular. Having established
a solid production base, management is
now seeking to grow the company both
organically and through acquisitions.
The Tapajos region is an area of significant
historic artisanal gold production but
systematic exploration has been limited
and underlying hard–rock resources
identified to date represent less than
25 per cent of the total reported artisanal
production, indicative that significant
levels of hard-rock resources remain to be
discovered. Serabi is the only company
operating a hard-rock mine in this
100,000 square kilometre area.
Serabi holds over 40,000 hectares of
contiguous exploration tenement located
around its current operations, located
close to regional infrastructure and Serabi
has established a proven formula for
further resource growth. Management
consider that Serabi is therefore well
placed to significantly expand its
potential over the next couple of years.
2016 Highlights
39,390 ounces
A 21% improvement compared with 2015
US$11.30 million
Gross profit from operations
• Record annual full year production of 39,390 ounces
of gold, exceeding guidance and representing a
21 per cent improvement compared with 2015.
• Gross profit from operations of US$11.30 million for
2016, which represents an improvement of over 99
per cent compared to the same 12 month period
of 2015.
• Post tax profit of US$4.43 million compared with
a loss of US$0.048 million for the same 12 month
period of 2015.
• Earnings per share of 0.66 cents for 2016.
• All-In Sustaining Cost for the year of US$965
per ounce.
• Cash Cost for the year of US$770 per ounce.
• Cash holdings of US$4.16 million at 31 December
2016.
• Total tonnage mined of approximately 159,000
tonnes, a 17 per cent increase compared with
the preceding year.
• Total tonnage processed of approximately 159,000
tonnes, representing a 22 per cent improvement
compared with 2015.
• Milled ore grades of 8.11 grammes per tonne (“g/t”)
of gold.
• New exploration licences at Sao Chico have been
acquired immediately to the east and west of
the Sao Chico Mine deposit, offering excellent
opportunity to expand the deposit, with exploration
already underway.
• Ground induced polarisation (“IP”) survey
undertaken at Sao Chico has identified some
excellent targets within 500 metres of the
current operation.
• The Company has three additional gold discoveries
within three kilometres of the Palito deposit
providing further potential for near term resource
and production growth.
Where we operate
PARA
Manaus
Santarem
Belém
Itaituba
Palito &
Sao Chico
Mines
Contents
Overview
Welcome to Serabi Gold plc
Our Operations
Strategic Report
Our Strategy
Our Business at a Glance
Brazil and the Gold Market
Chairman’s Statement
Performance Review and KPIs
Principal Risks and Uncertainties
Management Discussion and Analysis
Operational Review
Financial Review
Community and Social Responsibility
Social and Environmental Activities
Corporate Governance
Board of Directors and Senior Management
Report on Corporate Governance
Directors’ Remuneration Report
Directors’ Report
1
IFC
2
7
8
10
14
16
18
20
28
36
38
40
44
49
Financial Statements
52
Independent Auditor’s Report
55
Statement of Comprehensive Income
56
Group Balance Sheet
Company Balance Sheet
57
Statements of Changes in Shareholders’ Equity 58
60
Cash Flow Statements
61
Notes to the Financial Statements
Glossary
Shareholder Information
93
IBC
OverviewSerabi Gold plc // Report and Accounts 2016Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements 2
OVERVIEW
Our Operations
APA Tapajos
N
Moraes de Almeida
Jardim do Ouro
163
Mina do Palito
Mina Sao Chico
Rod Transgarimpeira
Km
0
2.5
5
7.5
Rio Novo
FN Jamanxim
Group Mineral Resources
Palito Mineral Resources
Measured
Indicated
Measured and Indicated
Inferred
Sao Chico Mineral Resources
Measured
Indicated
Measured and Indicated
Inferred
Combined Mineral Resources
Measured
Indicated
Measured and Indicated
Inferred
Rio Jamanxim
Riozinho
163
Mining Lease
Trial Mining Lease
Serabi Tenement Area
Gold
(g/t Au)
Contained Gold
(Ounces)
9.51
7.29
7.54
5.85
29,793
176,673
206,466
392,817
Gold
(g/t Au)
Contained Gold
(Ounces)
32.46
29.14
29.77
26.03
5,269
20,006
25,275
71,385
Gold
(g/t Au)
Contained Gold
(Ounces)
10.64
7.89
8.21
6.64
35,062
196,679
231,741
464,202
Tonnage
97,448
753,745
851,193
2,087,741
Tonnage
5,064
21,423
26,487
85,577
Tonnage
102,512
775,168
877,680
2,173,318
Serabi Gold plc // Report and Accounts 2016
3
Why Brazil?
Brazil’s current mining industry traces its
roots to the 1670s, when the first alluvial
gold discoveries were made in streams not
far from present day city of Belo Horizonte.
The country is now host to a number of
world class deposits across a range of
minerals and Brazil today is amongst the
largest producers of iron ore, tantalite,
manganese and niobium, and a significant
producer of several other minerals, such
as bauxite, magnesite, copper, tin and zinc,
as well as gold. The mining sector in Brazil
accounts for about five per cent of the
country’s GDP.
Whilst a major player and with a long mining history, significant
potential still exists in Brazil for new projects as the country has
not experienced the same levels of exploration activity relative
to other parts of the world; a consequence of restricted access
for international mining companies until recent times.
With its history in mining and having been a major beneficiary
of the recent commodity boom, the country boasts a well-
developed mining culture providing an experienced work
force to draw from, and a diverse and established range of
support services across all aspects of mining related activity
and technological development.
A second major gold rush occurred in the 1970s and 1980s
when new hard rock mines were established and artisanal
production by garimpeiros was widespread. During this time
the northern state of Para and the Tapajos region, which
covers an area of approximately 100,000 square kilometres in
the southwest of Para and where Serabi’s current projects are
located, became one of the major centres of this garimpeiro
activity. Historic production in the region from alluvial and
small scale surface mining operations by these garimpeiros
has officially been estimated at up to 10 million ounces
whilst actual production is believed to be two to three times
higher. The garimpeiros were, however, only able to exploit
the relatively shallow oxidised zones and there has been little
systematic exploration of the underlying hard-rock resources
which remain untouched. Serabi’s management believe that
significant potential exists within the Tapajos region. Serabi is
the only company with a full mining licence in the region and
considers that it is well placed to build further on its current
production success.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 4
OVERVIEW
Our Operations
Mining
Palito
The Palito Mine is a narrow-vein underground mining operation and
reflects Serabi’s desire to concentrate on high quality projects with low
capital costs and early repayment of capital. The Palito Mine is a small-
scale, high-grade operation using selective mining techniques with
a production target of around 25,000 to 28,000 ounces per annum.
• Fully permitted.
• Currently operating at 300 tonnes per day at 8-9 g/t gold.
• Mining is undertaken by on-lode development followed by selective
open stoping between 30-40 metre vertically spaced levels.
• The mine is dry with excellent ground conditions.
• Experienced underground mining labour at site with proven
experience in underground selective mining.
• Mains grid-power at site with back up from diesel
powered generators.
• Fully functioning camp for ~250 employees, airstrip, assay laboratory,
hospital, and workshops all in place with all year round road access.
Since restarting its operations at the Palito Mine, the Group has
declared total gold production recovered from the Palito Mine
operations of approximately 74,500 ounces and has mined a total
of approximately 330,000 tonnes at an average grade of 9.72 g/t.
40,000 ounces
Target production per annum
450 tonnes
Daily mining rate
9.0g/t
Planned grade
Serabi Gold plc // Report and Accounts 2016 5
Sao Chico
The Sao Chico Mine is a second orebody providing supplemental high grade gold
ore to the Palito processing plant to increase Serabi’s overall gold production.
Whilst the current NI 43-101 compliant resource is small, management is confident
of the potential for this to be expanded.
• High grade satellite to Palito currently providing ore feed of 150 tpd
at 9 g/t of gold.
• A trial license for mining 50,000 tonnes per year is in place.
• 100,000 ounces of NI 43-101 compliant mineral resources (2012).
• Mining at Sao Chico uses similar open stoping methods to Palito,
but greater ore zone widths offer the opportunity for mechanisation.
Since starting its operations at the Sao Chico Mine, the Group has declared total
gold production recovered from the Sao Chico Mine operations of approximately
15,700 ounces and has mined a total of approximately 64,500 tonnes at an average
grade of 9.57 g/t.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 6
OVERVIEW
Our Operations
Processing
• The processing plant treating ore from both Palito and
Sao Chico Mines is located at the Palito mine-site and
has capacity to mill between 450 tpd and 500 tpd.
• Processing of gold ores commenced in January 2014
with processing by flotation only (70 per cent recovery)
of ore from the Palito Mine. A Carbon in Pulp (“CIP”)
plant was commissioned in October 2014.
• Processing of ore recovered from the Palito Mine is
initially by flotation producing a copper/gold flotation
concentrate, followed by cyanidaton of flotation tailings,
with gold recoveries exceeding 91 per cent.
• Ore from the Sao Chico Mine is processed through the
same CIP plant but initially passes through a gravity
circuit and In-Line Leach Reactor (ILR) achieving overall
gold recoveries or approximately 93 per cent.
The Gold Recovery Process
Palito/Sao
Chico Mines
• The plant is now in full operation averaging
approximately 3,300 ounces of gold production
per month.
• There are three milling lines, allowing total flexibility
of feed from both mining operations.
• Ore sorting test-work has yielded excellent initial results
and has positive implications for the pre-concentration
of ore prior to milling and is a possible low capital and
operating cost solution for future expansion of the gold
production capacity of the existing process plant.
Grinding in
ball mill
Flotation
Gravity
concentration
Tailings Dam
CIP plant
Inline leach
reactor
Copper/Gold
concentrate
Electrowinning
Serabi Gold plc // Report and Accounts 2016 7
STRATEGIC REPORT
Our Strategy
Our goal
Serabi’s objective is to become a pre-eminent junior gold
mining company in Brazil, securing future growth through
expansion of its existing projects and, taking advantage of its
position as a gold producer, to become involved with and
successfully develop, other carefully selected opportunities
within the country.
Focus
Pursue gold mining opportunities
in Brazil appropriate to the Group’s
size and capabilities.
Return
Generate value for all stakeholders
(investors, government and
communities) to encourage the
continuation of the cycle.
Our Strategy
Evaluate
Identify high quality opportunities
through exploration or acquisition.
Operate
Seek continuous operational
improvement to maximise value.
Develop
Plan, finance and build new
mines in a timely and cost
effective manner.
Organic Pipeline for Growth
1. 40,000 ounces currently
2. Resources Extensions
Palito and Sao Chico deposits
3. Three discoveries awaiting final drilling
Currutela, Piaui and Palito South
4. Four exploration targets ready
5. Six geophysical anomalies (VTEM) ready
6. Structural and Conceptual
for discovery drilling
Copper Hill, Rio Novo, Caixas and Sao Chico
for follow up ground geophysics
Exploration Targets
Sao Chico East, Sao Chico West and numerous
garimpo and radiometric anomalies
OverviewSerabi Gold plc // Report and Accounts 2016Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements 8
STRATEGIC REPORT
Our Business at a Glance
Our Strategy
What we have done
see pages 20 to 35 to read more =
Management have undertaken a number of site-visits and desk-top reviews
of exploration development and production projects throughout the year.
Mine-site geophysics programmes were started in the third quarter of 2016
at Palito and Sao Chico to help plan proposed drilling programmes to be
undertaken in 2017.
Management ranks acquisition opportunities against each other and also
its ability to build value from investment in its own exploration tenement.
Although several opportunities have been pursued the commercial
terms have not been sufficiently accretive and the potential returns lower
than management consider could be generated from organic growth
opportunities.
Serabi successfully brought the Palito Mine into commercial production for
approximately US$18 million, in line with the original estimates in the Preliminary
Economic Assessment. The Sao Chico satellite mine was also brought into
commercial production with low up-front capital costs.
Technical studies including mine design, engineering and construction were largely
undertaken by Serabi’s own staff reducing reliance on third party consultants and
ensuring that responsibility for successful commissioning was taken by those who
would also operate on a long term basis.
During 2016, the Group made various improvements and increased plant
capacity including;
• Acquisition and installation of a third ball mill.
•
•
•
Increased leaching capacity through improved screens and flow-rates.
Installed additional flotation cells.
Installed and commissioned an intensive leach reactor to process gravity
concentrate produced from Sao Chico ore.
Introduced mechanised stope mining to the Sao Chico project to improve
ore production rates without affecting dilution.
•
• Commenced underground exploration and mine planning drill programmes.
During 2016 the Group has settled US$8.5 million of debt whilst at the same
time its share price has increased by 50 per cent year on year.
Focus
Pursue gold mining opportunities
in Brazil appropriate to the Group’s
size and capabilities.
Evaluate
Identify high quality opportunities
through exploration or acquisition.
Develop
Plan, finance and build new mines
in a timely and cost effective manner.
Operate
Seek continuous operational
improvement to maximise value.
Return
Generate value for all stakeholders
(investors, government and
communities) to encourage the
continuation of the cycle.
Serabi Gold plc // Report and Accounts 2016 9
How we measure our performance
What we plan to do
see pages 20 to 35 to read more =
see pages 20 to 35 to read more =
Management continues to maintain its focus on Brazil where it can
make use of its existing infrastructure, local knowledge, contact base,
and specialist skills, in particular, successfully developing and operating
smaller scale mining operations.
The Board reviews all projects that management bring to
its attention and only authorise the pursuit of opportunities
including organic growth opportunities, that the Board
considers have synergies, strong growth and good
investment return potential or will in other ways have
strong potential to add value for shareholders.
A significant focus of management during 2017 will be on trying to develop
opportunities within the Group’s existing tenement holding. The Group
has four drilled discoveries near to its existing Palito Mine, significant
geophysical anomalies near to the Sao Chico Mine where there is also
significant potential for further discoveries along strike. In addition within
the wider tenement holding are numerous gold occurrences and other
exploration opportunities that the Group considers should be pursued as a
priority. Nonetheless as other opportunities are identified management will
continue to evaluate and assess these based on their merits.
Development of new opportunities or expansion of existing
operations are measured against development plans and
costings. Performance is judged by considering adherence to
time schedules. cost estimates and performance against plan.
Dependent on exploration success, the Group would be looking to
develop new satellite orebodies in close proximity to either or both of the
Sao Chico or Palito Mines at the earliest possible opportunity to facilitate
production growth. It has already made preliminary plans that would
permit the processing of increased ore volumes at low additional cost
and with negligible impact on existing operations.
Operational performance is judged by considering annual
and quarterly results achieved by comparison with forecasts,
with a blend of measurements to ensure that efficiency is the
key objective, in the use of the Group’s human, equipment
and financial resources.
Management continues to review all aspects of operational performance
to achieve improvements in total gold production but simultaneously
seeking to reduce costs, improve equipment utilisations rates, reduce
machinery down-time and achieving better production rates per shift.
The Board seeks to add value for all of the Group’s
stakeholders and recognises that stakeholders may seek
returns in varying ways. Returns are evaluated by the ability
of the Group to generate cash and sustainable cash flow,
to reduce the investment risk for stakeholders and increase,
on a sustainable basis, the value of the Group.
The Group will initially use existing cash flow to finance its exploration
and development programmes and look to supplement this with
appropriate levels of debt and other sources of capital that will be non-
dilutive for shareholders. Equity will be used where the Group considers
that investments will be accretive to existing shareholders and the nature
of the investment does not lend itself to alternative financing structures.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 10
STRATEGIC REPORT
Brazil and the Gold Market
Brazil continues to be one of the leading
mineral producing countries. It is the world’s
largest producer of niobium, second largest
producer of iron ore and manganese and
among the largest producers of bauxite and
tin. Whilst iron ore is the major contributor to
the Brazilian mineral market, accounting for
nearly 80 per cent of the country’s minerals
exports, the country produces nearly 80
mineral commodities. Within the gold market,
Brazil is the twelfth largest gold producer
accounting for approximately 2.3 per cent
of current world mine production.
Major gold markets
India
514 tonnes
Jewellery demand for 2016
(down 22%)
China
629 tonnes
Jewellery demand for 2016
(down 17%)
Brazil and its outlook
It is likely that 2016 has been one of the
worst years for Brazil in recent times.
The impeachment of the Brazilian president
in connection with a bribery scandal and
illegally disguising the extent of the country’s
debt burden, coincided with the timing of
the worst recession for the country in more
than half a century.
Brazil’s recent economic growth and its more
recent fall, have been driven by the world’s
demand for commodities and Brazil’s ability
to supply significant quantities of these. About
30 per cent of Brazil’s exports are accounted
for by iron ore, soybeans and crude petroleum,
with raw sugar, poultry and coffee all adding
significant value to its export trade. It is
therefore not surprising that the fortunes of the
Brazilian economy and the Brazilian currency
are closely linked to global demand and prices.
Over the past two years the Brazilian Real has
shown a strong correlation with the average
prices of iron ore, oil and soybeans. There is
a general feeling that the economy is now
turning a corner, notwithstanding that there
still appears to be some conflicting signals.
The government is targeting inflation at
4.5 per cent and whilst rates reached double
digits in late 2015, the economic woes helped
drive inflation down to a rate of 6.29 per cent
year on year by the end of December 2016.
Public sector debt at the end of 2016, whilst
increasing as a percentage of GDP, is at lower
levels than had been anticipated, but stresses
the importance of the public sector reforms
and in particular the social security reforms
that the current administration is trying to
implement. Successful implementation of
austerity reforms will be a strong test of the
general levels of support for the current
administration, which itself is not immune from
the corruption scandals that plagued Dilma
Rousseff since her re-election in October 2014.
The recent strengthening of commodity
prices has helped drive recent surpluses in the
country’s trade accounts and provide a further
sign of economic recovery. The recovery is
modest however with Credit Suisse recently
revising its GDP growth forecast from zero to
0.2 per cent, with others revising their forecasts
of a small contraction to being slightly above
zero. The government itself is estimating a one
per cent growth in GDP.
The benchmark SELIC interest rate went as high
as 14.25 per cent during 2016, but as inflation
rates fell the Brazilian central bank has started
to relax interest rates, initially with a 0.50 per
cent cut in the third quarter of 2016 followed
by a 0.75 per cent reduction in January 2017
and a further 0.75 per cent reduction in
February. Forecasters are predicting further cuts
during the year, ending 2017 with the SELIC
rate at below 10.0 per cent and with possibly
one further cut before the end of June 2017.
The reduction in rates is likely to reduce the
yields of the bond market, which early in 2016
provided yields on 10 year bonds of over 16 per
cent, as the political situation was in turmoil
and the sovereign risk was seen to increase.
These yields provide a short term stimulus
to the exchange rate, through the inflows of
foreign currency as overseas investors bring
money into the country looking for returns.
There remain many risks for the Brazilian
economy going forward. The impact of
potential new protectionist trade policies in the
United States of America may indirectly affect
Brazil through slowdowns in the economies
of its big export markets. Brazils’ commodity
export basket is expected to remain flat but
slowing of Chinese demand would affect
this and drive the Real weaker. If interest rate
reductions are faster than predicted then this
could in turn lead to a sell off of the Real, again
weakening the currency. Similarly if yields
in the USA start to rise as predicted during
2016, this may reduce the attractiveness of
the yields on Brazilian bonds leading in turn
to a repatriation of foreign currency. As the
government seeks to reduce its social security
obligations, unemployment levels remain high.
Having increased 33 per cent during 2016, the
unemployment rate stood at 11.9 per cent at
the end of the third quarter of 2016. Just three
years ago the rate was 4.5 per cent.
Serabi Gold plc // Report and Accounts 2016 Gold Price in US$ and BrR$ from 2012 to date
US$
1800
1600
1400
1200
1000
Jan-12
BrR$ per ounce
US$ per ounce
Apr-12
Jul-12
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Jan-14
Apr-14
Jul-14
Oct-14
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
11
BrR$
5000
4000
3000
2000
The government has stopped public works
projects, ranging from oil refineries to subways
in Sao Paulo, that were contracted out to a
number of the civil construction giants now
caught in the corruption net. These work
stoppages led to tens of thousands of lay-offs
over the last 24 months. Brazilian workers
have been paying the price for high-level
corruption. However, it is thought unlikely that
the Brazilian states will shed public sector jobs
in the face of near zero per cent economic
growth. The last thing Brazil needs is a higher
head count receiving unemployment benefits.
Finally the current government is still proving
its credentials and markets will want to see
evidence that it can continue to push through
the necessary fiscal reforms. Within the country
the sense is that the public will give this
administration the opportunity to complete
the current term and judgement will only be
passed when elections are due again at the
end of 2018.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 12
STRATEGIC REPORT
The Gold Market and Brazil continued
Change in annual gold demand, 2016 v 2015
5200
5000
4800
4600
4400
4200
4000
3800
660.2
-9.5
-17.9
-192.9
4215.8
4308.7
92.9
-347.0
2015
ETF's and similar
Technology
Bar and coin
Central banks
Jewellery
2016
Net change
(2016 v 2015)
The Gold Market and Outlook
Mirroring the start to 2016, the first few
months of 2017 have seen a strengthening
of the gold price which having risen 25 per
cent by the end of September 2016, gave
back some of its gains in the fourth quarter of
2016, following the US presidential election
results, the conciliatory acceptance speech
from Donald Trump and interest rate rises
announced by the FOMC. Overall the gold
price ended 2016 having risen eight per cent
since the end of 2015.
Notwithstanding the forecast US interest rises
for 2017, which would generally be considered
a negative influence on the gold price,
observers are optimistic on the prospects for
the gold price in 2017.
At the heart of this optimism lies uncertainty
fuelled by a number of factors. Political
uncertainty remains, not least in Europe
where elections during the year make the
direction of on-going EU policy as well as
Brexit and its associated implications, hard to
judge. Whilst the US Dollar has strengthened
following the presidential elections, there is
uncertainty regarding on-going trade relations
as well as geopolitical tension being created
by some of the statements coming from the
new administration.
The prospect of other economies being able
to follow the lead of the USA in tightening
monetary policy seems unlikely and again
looking to Europe, it seems likely that the
Eurozone economies can expect to face
continued expansionist monetary policy. This
raises the possibility for currency depreciation
and both investors and central banks looking
to gold to preserve their capital.
Whilst US Dollar interest rates may be set
to rise this will be to counter anticipated
inflation which will dampen the rate of
real interest rate increases and, in doing so,
reduces the attraction of fixed income and
bonds and support gold’s historic role as an
inflationary hedge.
Finally demand from investors and
therefore price will be driven by the relative
performance of the stock markets. Many
markets have started to perform, having been
sluggish or contracting in preceding years.
In the USA in particular, historic highs have
been achieved with the result that valuations
are being raised. Any corrections could see
an increased movement to gold as part of
general portfolio diversification especially
if fixed income markets are also weaker.
Physical demand for gold in 2016 (as shown in
the table above) was fairly static year on year
rising by five per cent with significant demand
for ETF’s in the first half of the year driving price
improvement, with ETF selling following the US
presidential elections paring back the gains at
the end of 2016.
Serabi Gold plc // Report and Accounts 2016
13
Gold supply 2014 to 2016
5000
4000
3000
2000
1000
0
2014
2015
2016
Mine Production
Net producer hedging
Recycled gold
Physical supply (as shown in the table above)
increased by five per cent primarily from
recycled materials and possibly in response
to higher prices. Mine supply remained static,
perhaps not surprising given the limited
number of new development and expansion
projects and the cost cutting drive that has
been a key focus since 2013. This has affected
exploration budgets and the pipeline of new
development. This trend does seem to be
about to reverse with apparent increases
in exploration budgets being approved as
companies address the inevitable need to
replace their reserves and resources.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 14
STRATEGIC REPORT
Chairman's Statement
Serabi has successfully delivered another
year of production growth, with gold
production for 2016 representing a 21 per
cent year on year improvement and a very
satisfying 6.5 per cent improvement over
the initial production guidance provided
by management. The Palito and Sao Chico
Mines are now operating at planned levels
and 40,000 ounces of gold production
is forecast for 2017. Therefore, our focus
is, now, very much on evaluation of the
existing discoveries and other exciting
exploration opportunities that exist around
both mines and successful development
of these will bring a further opportunity to
increase production and for a significant step
change in the Group’s evolution.
Serabi’s Board continues to see growth
as the key to the long term success for
the Company, although it will remain
focused on maximising cash generation
and it is not lost on the Board that small
producers such as Serabi can generate
greater levels of operational cash flow
than larger producers by being focused
on establishing high quality operations.
Ultimately there should always be
increased economies associated with
scale. To maximise the Group’s leverage
in the short term on its existing skill,
knowledge and contact base, Serabi
remains very much a Brazilian focused
producer and developer. We have
established a loyal and experienced
management team that has been
together for several years. The extensive
collective operational experience
that they have has been a key factor
in the ability to bring two mines into
production, on budget and within a short
time frame, and will be key to the Group’s
future growth.
The sentiment within the mining sector
feels more positive than 12 months ago
and it is evident to me that the larger
mining groups having been focused
on cost reduction for the past few
years and getting their houses in order,
are once again putting investment
into their own exploration and have
a renewed appetite for looking to the
junior sector for opportunities to support
their own growth. This, in turn, brings
renewed investor interest and support
for the sector to boost growth and
new developments. After the last few
difficult years it is a welcome indicator
for renewed optimism.
Serabi Gold plc // Report and Accounts 2016 15
I am optimistic about
the outlook for gold
and believe that we
have now positioned
Serabi to benefit from
and grow on the
back of it.
Management continue to actively
assess other opportunities in Brazil and
our track record of moving exploration
projects into production makes Serabi
an attractive partner for companies with
less operational experience. However,
it remains difficult to find the blend
of project and price that makes an
acquisition compelling and, whilst we
recognise that Serabi needs to grow and
make a step change that will be reflected
in its valuation, the Board will only pursue
opportunities that will bring strong, long
term returns to our existing shareholders.
The next 12 months will continue to bring
challenges but also, I am sure, rewards.
I am optimistic about the outlook for gold
and believe that we have now positioned
Serabi to benefit from and grow on the
back of it. We have built a strong platform
for our longer term growth and will do all
that we can to realise this growth quickly
and efficiently.
On behalf of the Board of Directors
I would like to extend my appreciation
to the employees and management of
Serabi for a job well done during the past
year. Their hard work and determination
to succeed means your Company is well
positioned to reap the benefits of the
higher gold price environment we expect
during 2017 and beyond. Finally, thank
you to our shareholders, large and small,
for your patience during the last few
years. I continue to believe the future
is extremely bright for Serabi.
T Sean Harvey
Chairman
30 March 2017
The successful
acquisition of the
exploration rights,
during 2016, over
exploration tenements
surrounding the
current Sao Chico
operations was
very important.
However, as the last 12 months have
shown, the world is an unpredictable
place. Commodity price volatility is not
a friend to the resource sector and for
good reason can stimulate a cautionary
approach. Your Board will therefore be
judicious in its own strategy for growth
as it seeks to maximise the value that
it can achieve from each dollar spent.
We will insist that management continue
to follow its tested risk reducing formula
and systematic approach to exploration
activity. We continue to be very excited
about the prospects that we have in our
own tenements and whilst we insist on
a pragmatic and risk reduction approach,
we are also aware that we need to build
value quickly and make the most of the
Group’s current position and strength.
This needs to be balanced with the
concurrent need to continue to improve
the Group’s working capital position
and improve its resilience to short term
market movements that can negatively
impact on cash flow and margin.
We started the first phase of an increased
exploration effort during the second
half of 2016 with some initial geophysics
programmes around the Palito and Sao
Chico Mines. The results at Palito from
the down the hole electromagnetic
(“EM”) programmes have helped us
better understand the size and location
of existing discoveries and will help us
plan the next phase of evaluating these.
At Sao Chico the work was suspended
because of weather conditions but the
initial signs have been very encouraging
and continue to support management’s
belief that the current Sao Chico Mine
is just a small part of a much larger
regional feature and structure. In this
respect the successful acquisition of the
exploration rights, during 2016, over
exploration tenements surrounding the
current Sao Chico operations was very
important. The weather in the early part
of the year can limit the efficiency and
nature of exploration programmes, but
management is actively planning the
next stages of work and considering the
optimum solutions that will ensure the
Group can properly finance these.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 16
STRATEGIC REPORT
Performance Review and KPIs
The Board assesses the performance of the
Group and its senior management by setting
annual performance targets appropriate
to the individual’s areas of responsibilities.
These targets focus on those areas that
the Board considers are important for the
short and long term success of the Group
and its operations and will build value for
the Group’s stakeholders. In common with
many similar companies in the industry, these
KPI targets primarily focus on production,
management of costs and safety which can
be measured and the Board anticipates that,
subject to global economic factors that may
be outside of management’s general control,
attainment of the KPI targets should build
returns for the Group’s shareholders.
Annual mine development completed
Plant throughput
11,139 metres
Up 16% year-on-year
158,966 tonnes
Up 22% year-on-year
Palito
2016
2015
Sao Chico
2016
2015
3,794
2,800
7,345
2016 actual
158,966
6,800
2015 actual
130,299
Average plant grade
Annual gold production
8.11 g/t
4% reduction year-on-year
2016
2015
39,390 ounces
Up 21% year-on-year
8.11
8.43
2016
2015
39,390
32,629
Operational Performance Review
Having declared commercial production at
the Sao Chico Mine effective as of 1 January
2016, the key operational challenge for the
Group was to build on the production of 2015
and meet and if possible exceed production
guidance issued to the market at the beginning
of 2016.
These key production metrics were achieved
and for the first three quarters there was
successive improvement in plant throughput
and gold production, the pattern broken in
the fourth quarter only by some unplanned
stoppages in the plant. That production was
not significantly affected reflected another
key KPI, that of management being pro-active
to change, planning for and anticipating
issues to ensure, where appropriate, the
Group, when faced by unexpected change,
is either well placed to take advantage or
is not adversely affected.
On a monthly basis the Board reviews key
productions statistics to ensure that operations
are being undertaken in a manner that is
efficient and, more particularly, sustainable.
In this respect and in common with any
underground mining operation, it is critical
that, on a monthly basis, mine development
rates are maintained to ensure new production
areas are regularly being established to replace
the production stopes that are being mined.
Average mined grades at Palito were at less
than one per cent variance with the grades
mined in 2015, whilst the average mined
grade from Sao Chico rose by 17 per cent, in
part reflecting the better understanding of
the nature of the deposit and the deposition
of gold within the mineralisation that was
achieved during 2015.
Further details regarding the operational
performance during 2016 are set out in the
Operational Review on pages 20 to 27.
Serabi Gold plc // Report and Accounts 2016
17
Annual Cost breakdown – unit costs
BrR$/tonne
Cash balances
BrR$652 per tonne
13% reduction year-on-year
US$4.16m
Cash at period end
2016
2015
405
472
4.16
2.19
Mining Cost / Tonne
2016
2015
Milling Cost / Tonne
2016
125
2015
154
Site Costs / Tonne
2016
122
2015
121
Borrowings
US$8.47m of debt repaid
Secured Loan
2016
2015
1.37
Trade Finance
2016
0.42
2015
Finance Leases
2016
1.25
2015
0.86
4.00
6.65
Financial Performance Review
The Board adopts a variety of metrics to evaluate
the financial performance of the Group and
considers, on a regular basis, the level of cash
holdings of the Group compared with monthly
forecasts, management’s control of capital
expenditure programmes compared with an
annually approved plan, the level of operational
costs compared with annually approved plans
and headcount and staffing levels. In assessing
operational efficiency, the Group has adopted
and reports industry standard metrics such as
Cash Costs and All-In Sustaining Costs (“AISC”)
to review the performance of the operations
on a monthly basis.
Much of the Group’s expenditure is incurred in
Brazilian Reais and accordingly the Group has
significant exposure to the fluctuations in the
exchange rate between the Brazilian Real and
the US Dollar which is the reporting currency
of the Group. In order for the Board to assess
underlying performance and in particular
operational performance and cost control,
it considers the production costs in local
currency. Whilst the 20 per cent strengthening
of the Brazilian Real between the beginning
and end of 2016 has negatively impacted on
the Group’s reported performance compared
with management’s expectations, when
looking at the unit costs of production
compared with 2015, the underlying trend
has been for an overall reduction in unit costs
when looked at in local currency terms.
During the year the Group has settled a
significant level of the debt that it had in place
at the start of the year. All of its borrowings
are denominated in either US Dollars or
Euros. During 2016 the Group has paid back
approximately US$8.50 million of borrowings
representing 75 per cent of the debt
outstanding at the start of 2016, in addition to
the settlement of a US$2.0 million convertible
loan received in January 2016 that has been
converted into new ordinary shares. This has
significantly enhanced the working capital
position of the Group compared to its position
at the end of December 2016.
Much of the cash generated by the
Group during the year has been used to
pay down debt of the Group or to fund
capital expenditure at the operating mines.
Nonetheless the cash position at the end of
2016 had been increased by approximately
US$2.0 million compared with the position
as at 31 December 2015.
Further details regarding the financial
performance during 2016 are set out in the
Financial Review on pages 28 to 35.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
18
STRATEGIC REPORT
Principal Risks and Uncertainties
There are many risks inherent with mining operations which to a greater or lesser degree companies can anticipate, plan for and seek to mitigate.
These risks may impact on a company only in the short term or may have longer term implications for the success and development of the
enterprise and its mining projects.
The Board considers that the following risks are those which present the most significant uncertainty for the Company at the current time.
Risk
Comment
Changes in gold prices.
The profitability of the Group’s operations is dependent upon the market price of gold.
Gold prices fluctuate widely and are affected by numerous factors beyond the control
of the Group.
Reserve calculations and life-of-mine plans using significantly lower metal prices could
result in material write-downs of the Group’s investment in mining properties and
increased amortisation, reclamation and closure charges.
The Group’s major products are traded in prices denominated in US Dollars. The Group
incurs most of its expenditures in Brazilian Reals although it has a reasonable level
of expenses in US Dollars, UK Pounds and other currencies. Following a period of
significant weakening of the Brazilian Real against the US Dollar during 2015, the
currency appreciated by approximately 20 per cent during 2016, significantly affecting
the margins that can be achieved.
The Company whilst having little debt is reliant on generating regular revenue and
cash flow from its operations on a monthly basis to meet its monthly operating costs
and to fund capital investment and exploration programmes. It has no overdraft or
stand–by credit facilities in place in the event of any operational difficulties or other
events that may reduce or delay revenue receipts on a short term.
Currency fluctuations
may affect the costs of
doing business and the
results of operations.
Availability of working
capital.
No guarantee that the
Group’s applications for
exploration licences and
mining licences will be
granted.
There is no guarantee that any application for additional exploration licences will be
granted by the Departamento Nacional do Produçăo Mineral (“DNPM”). The DNPM
can refuse any application. Persons may object to the granting of any exploration
licence and the DNPM may take those objections into consideration when making
any decision on whether or not to grant a licence.
Existing exploration
licences may not be
renewed or approved or
converted into mining
licences.
Title to any of the Group’s
mineral properties
may be challenged
or disputed.
The exploration licence for the Sao Chico property expired in March 2014. The Group
applied for a full mining licence and the application and all supporting information
and reports have been made in accordance with prescribed regulations. The Group
has received no indications that the full mining licence will not be granted.
At the current time mining operations at the Sao Chico Mine are carried out under
a trial mining licence which is renewable annually.
If and when exploration licences are granted, they will be subject to various standard
conditions including, but not limited to, prescribed licence conditions. Any failure to
comply with the expenditure conditions or with any other conditions, on which the
licences are held, can result in licence forfeiture.
Mitigation
Management closely monitors commodity
prices and economic and other events that
may influence commodity prices.
The Board will use hedging instruments
if and when it considers it appropriate.
Management closely monitors fluctuations
in currency rates and the Board may,
from time to time, make use of currency
hedging instruments.
Management, in designing and planning
the Group’s operations, incorporates
contingency planning. The Group has
multiple mining faces to minimise
geological and mining risk to operations,
it has a modular plant to ensure gold
processing can be maintained to the
greatest extent possible at all times and
its deals with customers for its products
with good credit and standing in the
industry. Management also manage the
Group’s commitments and obligations
to maximise the level of cash holdings at
any time and works closely with existing
and potential lenders and other potential
financing partners to ensure that, to the
greatest extent possible, it can have access
to additional cash resources should any
unexpected need arise.
Management maintains on-going
dialogue with the DNPM and other
relevant government bodies regarding its
operations to ensure that such bodies are
well informed and also to help ensure that
the Group is informed at an early stage
of any issues of concern that such bodies
may have.
The Group employs staff and consultants
who are experienced in Brazilian mining
legislation to ensure that the Group is in
compliance with legislation at all times.
Serabi Gold plc // Report and Accounts 2016 19
Mitigation
Management has made its own
assessment of the Sao Chico Mine and
whilst during 2015, when the mine was
in the early stages of development,
that the mineralisation was found to be
more complex than had initially been
envisaged, management has put in place
changes to the mine plans and mining
methodology to address the issues that
were encountered.
Management is confident, based on its
experience and knowledge, that the Sao
Chico Mine will be a commercially viable
long term mining operation.
Risk
Comment
The Sao Chico Mine has a small NI 43-101 compliant Measured and Indicated Resource
and Inferred Resource and the Group has declared that commercial production
has been attained effective as of 1 January 2016. The Group did not however ever
commission an independent technical assessment to demonstrate whether or not
the resource could be mined on a commercial scale or that any mining activities that
might be undertaken will be profitable in the future.
The Group declared
commercial production
effective as of 1 January
2016 at the Sao Chico
gold mine located close
to the Group’s Palito
Mine. There is however
no certainty that the
Group will be able to
establish a commercially
viable long term
operation at Sao Chico.
By order of the Board
Clive Line
Company Secretary
30 March 2017
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 20
MANAGEMENT DISCUSSION AND ANALYSIS
Operational Review
For the next 12 months the focus will be
on identifying and developing the future
production growth for the Group. The target
is to expand annualised production to 60,000
to 70,000 ounces by the end of 2018 and for
a similar level of increase within a further two
years. It is believed that this can be achieved
from the exploration opportunities that exist
in the Group’s current tenements.
Highlights
39,390 ounces
An 21% improvement compared with 2015
40,000 ounces
Forecast production for 2017
Post Year End Highlights
• Approximately 6,600 ounces of gold produced during the first
two months of 2017.
Operational Highlights
• Record annual production of 39,390 ounces of gold, exceeding
guidance and representing a 21 per cent improvement compared
with the 2015 calendar year.
• Plant capacity increased with installation of third ball mill. Average
milled tonnage now approximately 500 tonnes per day (“tpd”).
• Total tonnage mined of approximately 159,000 tonnes, a
17 per cent increase compared with the preceding year.
• Total tonnage processed of approximately 159,000 tonnes,
representing a 22 per cent improvement compared with 2015.
• Milled ore grades of 8.11 g/t of gold.
• New exploration licences at Sao Chico have been acquired
immediately to the east and west of the Sao Chico Mine deposit,
offering excellent opportunity to expand the deposit, with
exploration already underway.
• Ground induced polarisation (“IP”) survey undertaken at Sao
Chico has identified some excellent targets within 500 metres
of the current operation.
• The Company has three additional gold discoveries within three
kilometres of the Palito deposit providing further potential for
near term resource and production growth.
• At Sao Chico the main ramp has now been deepened to
the 71mRL, some 170 vertical metres below surface.
• Two new sectors brought into development at Palito, being
•
Senna to the west and Chico da Santa to the east.
In the Palito Main Zone, the main ramp has now reached the
-50mRL, where the G3 vein has been intersected and is ready
to be developed.
Outlook and Strategy
Mining
The Palito Mine is currently operating across
four key mining sectors and the current
mining plans for the next two years take
into account only eight of the 24 veins that
comprise the measured indicated and inferred
resources of the Palito Mine. Underground
drilling at the Palito Mine is helping to identify
mineralisation at depth, making the rate and
location of future mine development more
efficient and also identifying additional smaller
parallel vein structures that could be accessed
from existing mine development.
Within the Main Zone of the Palito Mine,
the principal G3 vein has been developed
to a depth of over 250 metres and over a
strike length of approximately 1.5 kilometres.
Management consider that there is
strong potential for the Palito set of veins
to continue southwards through to the
Currutela discovery. If this were to be the
case the overall strike length would extend to
approximately four kilometres. The strike width
from the Chico da Santa sector to the east to
the Senna sector to the west is approximately
500 metres.
Management considers that the likelihood
of being able to continuously replenish and
increase the resource potential in and around
the Palito Mine remains very high, with
good potential to establish satellite mining
opportunities close by. The Palito South,
Currutela and Piaui discoveries are advanced
prospects that provide excellent opportunities
for identifying additional resources, which
could both enhance current production levels
as well as extend the mine life.
At Sao Chico the mine development has,
to date, focused on the central ore shoot of
the Main Vein. The Sao Chico Mine, whilst
contributing to the Group’s gold production,
was primarily in development during 2015 and
the early part of 2016, as the Group sought to
ensure that it secured a rolling medium term
production plan for up to two years into the
future. It was only in the second half of 2016
that the level of stoping activity began to
increase, and the long term balance between
development mining and stope mining rates
only started to be reached at the end of
2016. During 2017 management expects that
monthly development and production rates
will continue to stabilise. The Group is driving
development galleries east and west towards
additional ore shoots that have been identified
by surface drilling. Management is confident
that these ore shoots will provide additional
Serabi Gold plc // Report and Accounts 2016 21
mineable ore at Sao Chico. Underground
drilling is being undertaken at Sao Chico for
short term operational and mine planning
purposes with a second parallel campaign
being undertaken to test the deeper resource
potential of the deposit.
Near-term production growth
Management continues to evaluate the
Group’s options for expanding its gold
production. Mine-site geophysical studies
undertaken during the third quarter of 2016
over the Currutela and Piuai discoveries and
other areas close to the current Palito Mine
have been designed to improve the drill
targeting of a planned 2017 surface drilling
campaign. Management feel that this drilling
campaign could provide sufficient confidence
to justify commencement of new mine portals
and underground exploration development
drives to access and fully evaluate any
new discoveries that are considered to be
potentially commercially viable. In time
these discoveries could become established
as new near-mine satellite deposits adding
incremental production.
Exploration
The Group has also commenced mine-site
surface geophysics programmes around the
Sao Chico deposit. Management considers
that the mineralisation at Sao Chico is hosted
in a regional shear zone and is now using
geophysics to try and identify additional
deposits that may lie along a four kilometre
strike zone around the current Sao Chico
deposit. Again, in time, this exploration work
may lead to the identification of additional
near-mine satellite mining operations.
All exploration has been on-hold since the end
of 2011 when the Group took the strategic
decision to focus its immediate efforts on
bringing the Palito Mine back into production.
Whilst currently the immediate focus of
management is to evaluate the near-mine
potential within two to three kilometres of its
existing operation, on a wider regional basis
the Group is developing plans to progress the
evaluation of its whole tenement package.
The Group has flown approximately 14,650
hectares of airborne VTEM surveys, but has had
limited funds and therefore opportunity, to
follow up on many of the areas of interest that
were highlighted by this initial aerial survey.
Conscious that the exploration tenements it
holds are only granted for limited terms, the
Group is keen to implement, as and when
adequate funding is available, a regional
exploration programme to highlight the
tenement areas that should be prioritised as
Management
considers that the
likelihood of being
able to continuously
replenish and
increase the resource
potential in and
around the Palito
Mine remains very
high, with good
potential to identify
further mineable
orebodies.
Sao Chico shows strong progress one year after
commercial production began
Mining at Sao Chico uses
sub-level open stoping
with the sub-levels spaced
approximately 12 vertical
metres apart. This mining
method is better suited to the
wider mineralised structures
of the Sao Chico orebody and
the erratic deposition of gold
within the alteration zone,
improving the economics
compared with a more
selective method.
Mine development was the
principal focus for 2016, to
quickly establish mineable
blocks for at least the next
two years. With five sub-levels
having been developed
below the current production
levels, this objective has
been achieved and mine
development is comfortably
ahead of production.
having the highest potential. With a number
of historic garimpo operations lying within the
Group’s tenements, management is confident
that, in the fullness of time, it will be able to
make further discoveries all of which, in time,
could have the potential to be additional
satellite operations lying within 15 kilometres
of its current Palito or Sao Chico operations
and contributing further resource and
production growth.
Through this combination of near-mine and
regional exploration and evaluation, the
Group expects to establish a strong pipeline
of development opportunities that will allow
the Group to grow its production base at
low capital cost, avoid the need for major
infrastructure improvements to be in place for
new operations to be commercially viable and
have low environmental impact.
At this time, no surface drilling or other
surface exploration activities are currently
planned on any other exploration properties
of the Group.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 22
MANAGEMENT DISCUSSION AND ANALYSIS
Operational Review continued
Management has and will continue to
evaluate other value adding, cost effective
opportunities within Brazil that it considers
could increase the resource base and
longer term production potential of the
Group as well as having the potential to
be value enhancing for its shareholders.
These opportunities will always be assessed
and only considered, if they outrank existing
organic growth options.
2017 Production Guidance
The Group is currently forecasting gold
production for 2017 to be approximately
40,000 ounces with All-In Sustaining Cost
expected to be between US$950 to US$975
per ounce. The Group’s cost profile is subject
to change as a result of exchange rate
variations and in particular the exchange rate
between the Brazilian Real and the US Dollar.
Operational review for the 2016
calendar year
Total gold production for the fourth quarter
of 2016 was 9,413 ounces making total gold
production for the year of 39,390 ounces
representing a 21 per cent improvement
on the gold production level for the 2015
calendar year which totaled 32,629 ounces
(fourth quarter of 2015 : 7,925 ounces).
The Palito Mine has now been in full
production for over two years and has
achieved a steady state of mine output.
The Sao Chico Mine was in development
throughout 2015 with no ore production
in the first quarter of 2015. Mining rates at
the Sao Chico Mine in the fourth quarter
of 2015 reached levels that allowed the
Group to declare commercial production
had been achieved from 1 January 2016.
The ore generated from the Sao Chico Mine
in the 12 months of 2016 has continued to
be derived principally from development
operations rather than from stoping, although
with a number of development headings
now established during the third and fourth
quarters of 2016, the Company is increasing
the level of stoping activity and increasing the
tonnage of ore that is being recovered from
stope mining.
Mining operations
Performance of the combined mining
operations of both the Palito and Sao Chico
Mines has resulted in approximately 158,900
tonnes of ore being extracted during 2016
which compares with a total of approximately
135,800 tonnes produced in the same 12
month period of 2015, an improvement of 17
per cent. The majority of the 2015 production
was from the Palito Mine, but nonetheless,
ore output in 2016 from the Palito Mine was
approximately 6,700 tonnes (six per cent)
greater than for the same period in 2015.
The introduction, at the end of the second
quarter of 2016, of increased processing
capacity eliminated limitations in the amount
of ore that can be processed and allowed the
increased levels of ore from the Sao Chico
Mine, which supplement the mine production
from the Palito Mine, to be accommodated.
The mine production for the fourth quarter
of 2016 from the Palito Mine of 34,611 tonnes
was higher than the corresponding period
of 2015 by approximately 7,650 tonnes,
representing an improvement of 28 per cent.
Average mined grades achieved for the
fourth quarter of 2016 at the Palito Mine
were lower than preceding quarters and
the corresponding quarter in 2015 as a
result of ore being cemented in two stopes.
The production shortfall was partially
compensated by increased production of
development ore albeit at a lower gold grade.
Overall the mined grade at Palito averaged
9.62 g/t for the 2016 calendar year, a reduction
of four per cent compared with the average
grade of 10.05 g/t reported for the 2015
calendar year.
At Sao Chico mined grade for the fourth
quarter of 2016 is reported as having been at
a gold grade of 14.38 g/t which is 48 per cent
higher than the mined grade for the same
quarter of 2015. This ore grade is however
considered to be a one-off event reflecting
particularly high-grade areas that were being
mined in the quarter and management
consider that normal mined grade of the Sao
Chico ore will be between approximately
9.0 to 10.0 g/t over the life of the mine.
The average grade of ore mined for the 2016
calendar year was 10.12 g/t an improvement
of 17 per cent over the reported average
grade of 8.66g/t achieved for the 2015
calendar year. This improvement reflects the
fact that during 2015 the Sao Chico Mine was
primarily in development and higher grade
ore from stoping operations only started to
be produced in the second half of 2016.
At the end of the fourth quarter of 2016
combined coarse ore stocks from the Palito
and Sao Chico Mines were approximately
21,000 tonnes with an average grade
of 4.0 g/t of gold (31 December 2015:
approximately 16,000 tonnes with an
average grade of 4.7 g/t of gold).
Palito Mine
Mining activities at the Palito Mine are now
very much in regime with approximately
112,000 tonnes of ore mined at a grade of
10.05 g/t of gold during 2015 and a further
118,477 tonnes mined at a grade of 9.62 g/t
during 2016.
During 2016, the Company focused on
opening up new sectors in the mine as well
as continuing to develop the existing sectors.
Up until 2016, mining operations at Palito had
focused on the G1, G2 and G3 vein complex
(“the Main Zone”) as well as the Palito West
sector. During 2016, the Company continued
development of these two sectors but also
gave increased priority to developing and
accessing previously drilled, but undeveloped
sectors in the upper levels, namely Senna
and Chico da Santa. Chico da Santa lies to
the east of the Main Zone, with the Senna
zone located to the west. With four sectors
now being developed underground at
Palito, during the 2016 calendar year the
Group has completed approximately 7,350
metres of horizontal development of which
approximately 1,900 metres was completed
in the fourth quarter of 2016. This represents
an increase of eight per cent by comparison
with 2015, reflecting the opening of the
new sectors, with a total of 6,800 metres
of development completed during 2015,
of which 1,960 metres was completed in
the final quarter of the year.
In the G1, G2 and G3 vein complex, the
main ramp has been deepened further
and has now reached the -50 metre relative
level (“mRL”) where the G3 vein has been
intersected and is ready to be developed
and is the lowest production level in the
Palito Mine.
The Senna zone was mined during 2008 and
2009 as a small open pit where approximately
25,000 tonnes of oxide ore with a grade
of 3.0 g/t gold was extracted. It is now in
underground development and to date has
been very successful. Mine development on
the 250mRL, 237mRL, 225mRL and 210mRL
is on-going with the ramp now being taken
down to the 180mRL. All ore being mined
from the Senna sector is currently from
development activity with stoping yet to start.
Based on the ore grades recovered from the
open pit operation and deeper exploration
drill-holes, management is hopeful of the long
term potential within the Senna zone which,
whilst part of the main Palito Mine complex,
has the benefit of an independent access
from surface.
Serabi Gold plc // Report and Accounts 2016 23
The Main Vein…at
Sao Chico…most
commonly is a 2.5
metre alteration zone.
The grades are often
truly spectacular, very
often being excess of
100 g/t.
Since this time, the Main Vein has continued
to be developed and evaluated with a
combination of ‘on-lode’ development and
underground drilling. The main ramp has
now reached the 71mRL, approximately
170 metres below surface and will continue
to be deepened during 2017. Development
has now been undertaken on seven levels
and is active on the 100mRL, 86mRL and the
new 71mRL, whilst stoping activity is currently
focused on the 186mRL, 170mRL 156mRL
and 140mRL.
During 2016, the decision to implement
sublevel open stoping as the principal mining
method was taken, which resulted in the
development of sublevels with 12 metre
vertical spacings floor to floor. Each sublevel
is advanced three metres at a time and
channel sampled. The closer sample spacing
that this allows has greatly increased the
understanding of the orebody and the
increased level of mine development has
enabled the Company to define a clear
24 month mine plan.
The Main Vein or ore zone at Sao Chico
can vary from one metre to eight metres
wide, but most commonly is a 2.5 metre
alteration zone, which itself is structurally
continuous. However, the gold grades within
this alteration zone are quite erratic and are
hosted in three steeply plunging pay-shoots.
In these pay-shoots, the grades are often truly
spectacular, very often being in excess of
100 g/t of gold. Outside the pay-shoots the
vein is continuous but with low gold grades
and, as a result, it is unavoidable that, as the
mine development passes between the pay-
shoots, lower grade ore has to be mined.
Whilst the alteration zone itself is readily
identifiable, the high grade gold zones within
this alteration zone are much less so and, as a
result, the mining operations require on-lode
development at regular vertical intervals, with
regular channel sampling and in-fill drilling
between these levels to best define the high
grade gold mineralisation. This approach
allows the Group’s mining personnel to readily
identify stoping blocks and optimise mining
of the high gold grade zones.
Underground
diamond drilling
is being used to
evaluate numerous
known, but
underexplored, veins
and…the Group
hopes to open up
numerous new
mining faces.
In the Chico da Santa sector, the 114mRL
has been developed on the Ipe, Jatoba
and Mogno veins. Good grades have been
encountered in all three veins, though the
veins in the sector tend be slightly narrower
than the veins being mined elsewhere in the
Palito Mine.
During 2015, the Group continued mine
development on G3 towards the Palito South
area, primarily on the 114mRL, which has
been driven approximately 700 metres further
south than any other underground working
at Palito. This development has not been
advanced significantly in 2016 as it is awaiting
underground diamond drilling to test the
down-dip continuity of the G3 vein at depth.
Management hopes that subject to available
cash resources, a drilling programme can
be undertaken during 2017 to evaluate this
area further.
Opening up new sectors of the Palito Mine
has created options and flexibility, an essential
part of any underground mining operation.
Underground diamond drilling is being
used to evaluate numerous known, but
underexplored, veins and together with
these two new sectors, the Group hopes
to open up numerous new mining faces in
the upper levels. These have the advantage
of being in close proximity to existing mine
infrastructure and will not require any new
ramp development.
This lateral development also reduces the
requirement to continue to deepen the mine
at the rates that the Group undertook in 2015.
This could be expected to extend the life of
the operation with the identification of mining
areas that are not currently part of the mining
plans and will also increase the amount of ore
than can be recovered in each vertical metre
of mine development, which can improve
margins and reduce costs.
Sao Chico Mine
At the Sao Chico Mine, underground
development commenced in the fourth
quarter of 2014. During 2015 approximately
2,800 metres of development were
completed allowing mining on three levels.
During January 2015, the ramp development
intersected the principal vein, the Main Vein,
approximately 30 vertical metres below the
portal entrance. The initial sampling confirmed
a payable intersection with a true width of
3.6 metres and a gold grade of 42.0 g/t.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 24
MANAGEMENT DISCUSSION AND ANALYSIS
Operational Review continued
The central pay-shoot is the most established
of these three high grade shoots, and is
some 100 metres long. The Group has, and
will continue to focus in the near-term, on
developing this part of the Main Vein, and
some consistent higher grade development
ore is being generated as a result. Access to
the other pay-shoots along the strike will
not be lost and these will be available for
development later in the year.
During the second quarter of 2016, the
Company commenced underground
exploration drilling of the central pay-shoot
targeting its down dip extension. The drilling
has intersected the Main Vein in all holes and
is confirming the belief that the Sao Chico
Main Vein, is a regional shear structure. This
bodes well for the continuation and strike
extension outside the immediate and current
mine limits.
Plant operations
Total gold production for the 2016 calendar
year was 39,390 ounces of gold, generated
from the processing of the run of mine
(“ROM”) ore from the Palito and Sao Chico
Mines, combined with the Palito surface
coarse ore and the stockpiled flotation tailings
accumulated from the processing of Palito
Mine production in 2014.
Gold production for the 12 month period
came from the processing of 158,966 tonnes
of hard rock ROM ore from the Palito and Sao
Chico Mines with an average grade of 8.11g/t
of gold (12 months to 31 December 2015:
130,299 tonnes at 8.43 g/t of gold). The total
mined ore for the same period was 158,864
tonnes with an average grade of 9.74 g/t
of gold (12 months to 31 December 2015:
135,847 tonnes at 9.8g/t of gold). The increase
in mined and processed ore reflects the
increased levels of ore being produced at Sao
Chico compared with the same period in 2015
when ore production was only just beginning.
In addition to the ROM ore, an additional
16,716 tonnes of flotation tailings with a
grade of 3.23 g/t of gold (12 months to 31
December 2015: approximately 18,000 tonnes)
was processed through the cyanidation plant.
The flotation tailings were generated in 2014
as a result of operating the process plant for
the first nine months with recovery of gold
from flotation only, prior to completion of
the CIP circuit which became operational in
October 2014.
The Group made the decision before the end
of 2015 to acquire a third ball mill and modify
the plant to increase nominal daily plant
throughput capacity from an average of 400
tpd to at least 500 tpd. Further improvements
undertaken within the process plant during
2016 have included the installation of
additional flotation capacity and automation,
along with new carbon screens within the
CIP tanks to improve inter-tank flow rates.
A carbon regeneration kiln was installed,
commissioned and became operational
during the fourth quarter of 2016. This kiln
will regenerate fouled carbon reducing the
need to purchase fresh carbon and is also
anticipated to enhance gold recoveries.
Since the Group’s operations began, they have
been limited by the capacity of its process
plant and the Group has not yet been able
to run down the surface ore stocks, initially
established in 2013 and 2014 when the mine
was being re-opened. However, and perhaps
more importantly, a third mill provides
essential contingency in the processing
operations that has never previously existed.
Once the surface stocks have been consumed,
and with the Group’s current understanding
of the mining resources at both Palito and
Sao Chico, management currently consider
it unlikely that, in the near term, future mine
plans can match the increased plant capacity.
As a result the operation will have milling
capacity in excess of the mining rates and the
third ball mill will revert to its primary purpose
of providing much needed contingency
in the plant. Since the plant commenced
operating, the time available for essential
routine planned maintenance has been
scarce. The third mill means the operation can
comfortably accommodate much needed
maintenance time, as well as absorbing any
unexpected interruptions to operations.
Serabi Gold plc // Report and Accounts 2016 25
Summary Production Statistics for the Four Quarters Ending 31 December 2016 (Palito and Sao Chico)
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Horizontal development – Palito
Horizontal development – Sao Chico
Horizontal development – Total
Metres
Metres
Metres
Mined ore – Palito
Mined ore – Sao Chico
Mined ore – Total
Milled ore
Tonnes
Gold grade (g/t)
Tonnes
Gold grade (g/t)
Tonnes
Gold grade (g/t)
Tonnes
Gold grade (g/t)
Gold produced
Ounces
1,900
1,025
2,925
26,752
11.84
10,794
9.00
37,546
11.02
36,615
8.58
9,771
1,910
1,031
2,941
25,198
10.48
8,408
6.81
33,606
9.56
39,402
8.17
9,896
1,607
1,042
2,649
31,916
9.52
11,217
9.88
43,133
9.61
42,464
8.08
10,310
1,928
696
2,694
34,611
7.38
9,968
14.38
44,579
8.94
40,485
7.60
9,413
Total
2016
7,345
3,794
11,209
118,477
9.62
40,387
10.12
158,864
9.74
158,966
8.11
39,390
Total
2015
6,800
2,800
9,600
111,751
10.05
24,096
8.66
135,847
9.8
130,299
8.43
32,629
(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 2016 include treatment of 16,716 tonnes of flotation tails.
...a third mill provides
essential contingency
in the processing
operations that has
never previously
existed.
Milling rates for ROM ore have increased
by 22 per cent from an average of 357
tpd for the 12 months to 31 December
2015 to an average rate of 435 tpd for the
12 month period to 31 December 2016.
The introduction of the third ball mill at
the end of June 2016 has had a significant
effect on throughput rates. The average
daily milling rate was 460 tpd for the second
six month period of 2016 compared with
an average rate of 417 tpd for the first six
months of 2016. The increase in processing
rates also reflects the improvements in the
operational efficiency of the process plant
which have been assisted by the introduction
of the gravity circuit and ILR for treating Sao
Chico ore, reducing the levels of gold that
would otherwise have been treated in the
CIP circuit. This improved efficiency has also
allowed the rate of processing of the flotation
tails to be maintained at similar levels to the
corresponding period in 2015. This has meant
that the effective process rates for the CIP
circuit have increased from an average of 406
tpd for the 12 month period to 31 December
2015 to an average rate of 481 tpd for the 12
month period to 31 December 2016.
At 31 December 2016, there were
approximately 20,800 tonnes of flotation tails
with an average grade of 2.5 g/t of gold (31
December 2015: approximately 37,500 tonnes
at 2.5 g/t of gold) waiting to be processed.
Exploration and Licensing Matters
The Group undertook a surface diamond
drill programme in March 2015 at the Sao
Chico Mine and the completed programme
consisted of 42 diamond drill holes totalling
7,204 metres. A further 30 underground
diamond drill holes were completed during
2015 totalling an additional 1,459 metres
of drilling. The drill programme was a
combination of in-fill and step-out drilling
and the results from this, in conjunction with
the on-lode development mining that took
place during the remainder of 2015, greatly
enhanced the understanding of the ore body
and facilitated mine planning for 2016 and
2017. It built on the results and understanding
gained from the 2011 and 2013 drilling
campaigns and reported numerous high
grade intersections, with some gold grades
in excess of 100 g/t, and indications that the
grade and resource potential continues at
depth. Further details are set out in a news
release issued by the Group on 21 October
2015, which is available on the Group’s
website www.serabigold.com and has been
filed on SEDAR. The understanding of the
orebody has also been assisted by paragenetic
studies on mine ore samples including
detailed petrological descriptions, SEM and
QemScan analysis.
The increase in
processing rates
also reflects the
improvements in the
operational efficiency
of the process plant
which have been
assisted by the
introduction of the
gravity circuit and
ILR for treating Sao
Chico ore, reducing
the levels of gold
that would otherwise
have been treated in
the CIP circuit.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
26
MANAGEMENT DISCUSSION AND ANALYSIS
Operational Review continued
In February 2014, the Final Exploration
Report (“FER”) for the Sao Chico gold project
was completed and submitted to the
Departamento Nacional de Produção Mineral
(“DNPM”), who issued notification of their
approval of this report in November 2014.
This represented the first part of the process
of transforming the Sao Chico exploration
licence into a mining licence. As the next
major step in the conversion procedure,
Serabi submitted, in September 2015, the
Plano Approvimiento Economico, a form of
economic assessment prepared in accordance
with Brazilian legislation. However, with the
Guia de Utilização (a trial mining license)
already in place, all mining operations can
continue in parallel. A submission for a
further extension of the Guia de Utilização
for a period of one additional year was
also submitted in September 2015. The
issuing of the mining licence also requires
the submission of a risk assessment and
management plan, safety assessments,
environmental and social impact studies,
closure and remediation plans all of which
have been submitted to the relevant
government bodies.
Two geophysical exploration programmes
commenced during the second half of 2016,
one at each mine site. The first of these
programmes involved using down-the-hole
electromagnetics (“DHEM”) in the discovery
holes drilled by the Group in 2011 at the
Currutela, Piaui and Palito South prospect
areas and other areas of interest close to the
Palito Mine. DHEM provides data to model
the likely geographical location and extent
of the sulphide rich zones intersected in the
2011 drill holes. The results are expected to
generate better targets for drilling in a follow-
up campaign planned for 2017. The on-site
programme has been completed and the
data readings interpreted and collated and
correlated with existing geological data.
The second programme is being undertaken
at Sao Chico using surface induced
polarisation (“IP”) and, whilst it includes areas
immediately around the Sao Chico Mine, it is
also being undertaken in some of the recently
acquired tenements around Sao Chico. The
programme had to be suspended during
the fourth quarter due to poor weather and
is expected to re-commence in the second
quarter of 2017. Management consider that
these new tenements which are located to
the south and the west of the original Sao
Chico licence area offer excellent potential
for hosting strike extensions of the current
Sao Chico veins.
Serabi Gold plc // Report and Accounts 2016 27
It has always been the intention of the Group
to use cash flow generated from its production
operations to advance its exploration
opportunities. As already noted, the Group
conducted DHEM in close proximity to the
Palito Mine and commenced IP around the
Sao Chico during the second half of 2016 with
the intention of using the results from these
programmes to plan drilling campaigns that
can be undertaken during 2017.
Other Exploration Prospects
The Group has three other project areas,
although activities on each of these projects
has been limited in recent periods.
The Sucuba Project is located in the state of
Para, and the Group holds two exploration
permits covering an area of 10,449 hectares.
The Pizon Project, located in the state of
Amazonas, represents 4,733 hectares, in one
exploration licence and the Modelo Project,
also in Amazonas, represents 2,971 hectares
in one exploration licence. The Group has not
engaged in any exploration activity at any of
these projects during the past 12 months and
has currently not budgeted for any exploration
activity during the next 18 months.
Mike Hodgson
Chief Executive
30 March 2017
Both geophysical programmes are using well
established techniques to identify conductive
bodies and sulphide mineralisation as
pathfinders to locating gold occurrences
which are associated with these features.
Jardim do Ouro Exploration
With the addition of the new tenement to the
west and south at Sao Chico, the Jardim do
Ouro exploration area (“JDO Project”) covers
a total area of approximately 42,000 hectares,
incorporating the Palito and Sao Chico mining
licence areas. The Palito mining licence was
granted on 23 October 2007 covering an
area of 1,150 hectares, whilst the Sao Chico
licence is in the process of being converted
into a full mining licence. The remainder of
the tenement area comprises exploration
licences either granted or in application. The
JDO Project is located in the Tapajós Mineral
Province in the south east part of the Itaituba
Municipality in the west of Pará State in
central north Brazil.
The focus of the Group has been on the
identification and development of satellite
ore deposits located in close proximity to
Palito. The Group completed two air-borne
electro-magnetic (“VTEM”) surveys in 2008
and 2010 over a total area of 14,650 hectares.
From these surveys the Group identified a
number of geophysical anomalies which it
considers worthy of further investigation.
During 2010 and 2011 the Group undertook
a 12,000 metre drilling campaign over nine
of these anomalies, which resulted in the
discovery of the Palito South, Currutela and
Piaui prospects.
The Sao Chico Mine is located in the
south west corner of the JDO Project area.
During 2013 the Group completed a 6,000
metre drilling programme which more
than doubled the known 150 metre strike
extension of the principal mineralised
structure (“the Main Vein”) at Sao Chico
and confirmed the presence of a number
of parallel mineralised structures. The
development mining activities undertaken
during 2015 and 2016, in conjunction with
the 7,000 metre surface drilling programme,
have provided essential data for the
further evaluation of the Main Vein and the
immediate parallel structures.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 28
MANAGEMENT DISCUSSION AND ANALYSIS
Financial Review
Growth is seen to be the key to the long term
success for the Group, maintaining a focus
on maximising cash generation and high
quality operations that can generate greater
levels of operational cash flow than larger
gold producers. With increased economies
associated with scale the Group wants to
leverage on its existing skill, knowledge
and contact base and remains very much a
Brazilian focused producer and developer.
Highlights
US$11.3 million
Gross operating profit for 2016
US$4.43 million
Post tax profit for 2016
US$965 per ounce
All-In Sustaining Cost for 2016
Financial Highlights
• Gross profit from operations of US$11.30 million for 2016 which
represents an improvement of over 99 per cent compared to
the same 12 month period of 2015.
• Post tax profit of US$4.43 million compared with a loss of
US$0.048 million for the same 12 month period of 2015.
• All-In Sustaining Cost for the year of US$965 per ounce.
• Cash Cost for the year of US$770 per ounce.
• Earnings per share of 0.66 cents for 2016.
• Cash holdings of US$4.16 million at 31 December 2016
(31 December 2015 : US$2.2 million)
• Average gold price of US$1,245 received on gold sales in 2016.
• Negligible borrowings with secured debt facilities outstanding
at 31 December of only US$1.37 million.
• Borrowings of approximately US$8.50 million settled during
the year.
• Unit production costs per tonne reduced by 12.7 per cent
in local currency terms year on year.
12 month period ended 31 December 2016
compared to the 12 month period ended
31 December 2015
The Group has recognised a gross profit for
the 12 month period ended 31 December
2016 of US$11,302,587 (2015: US$5,660,281)
and an operating profit of US$6,023,906 (2015:
US$876,436).
The gross profit of US$11,302,587 for the
period ended 31 December 2016 is analysed
in the table overleaf.
Revenue
Sales are only recognised when the risks
and rewards of ownership of the goods are
transferred to the buyer. During the month
of September 2016, the Group entered into
a new contract for the sale of its copper/
gold concentrate. Under this new contract
the sale is recognised when the goods depart
from Brazil, whilst under the Group’s previous
contract the sale was only recognised when
the goods arrived at the purchasers premises.
During the 12 month period ending 31
December 2016 the Group recognised total
sales of US$52,593,751 (2015: US$35,086,113).
The sales can be separated between sales of
copper/gold concentrate of US$26,268,676
(2015: US$25,453,418) and sales of gold
bullion of US$26,225,075 (2015: US$9,632,695).
Included within the Group’s total concentrate
revenue of US$26,268,676 in 2016 is
US$636,558 relating to sales recognised and
recorded during 2015, but which were not
settled until during the first quarter of 2016.
Revenue for sales made during the fourth
quarter of 2015 were initially estimated using
the year end gold price. However as the gold
price increased during Q1 2016 the resulted
in this increased revenue for the Group of
US$636,558 which was reported in the results
of the first quarter of 2016.
During 2016 the Group produced 2,039
wet tonnes of copper/gold concentrate,
(containing an estimated 17,571 ounces of
gold). Revenue has been recognised for sales
of 2,240 tonnes, (containing an estimated
19,445 ounces). During the 12 months ended
31 December 2015 the Group produced
2,188 wet tonnes of copper/gold concentrate,
(containing an estimated 20,984 ounces of
gold). However sales were recognised on
2,200 tonnes sold containing 20,702 ounces.
All unsold material is held as inventory.
Serabi Gold plc // Report and Accounts 2016 Concentrate sold (Ounces)
Bullion Sold (Ounces)
Total Ounces
Revenue from Ordinary Activity
Gold (in Concentrate)
Copper (in Concentrate)
Silver (in Concentrate)
Total Concentrate Revenue
Gold Bullion
Full Year 2016
US$
Full Year 2015
US$
17,569
20,992
38,561
20,702
8,284
28,986
23,676,825
2,498,933
192,918
26,268,676
26,225,075
22,970,460
2,340,609
142,349
25,453,418
9,632,695
Variance
US$
(3,133)
12,708
9,575
706,364
158,324
50,569
915,257
16,592,381
Total Sales
52,593,751
35,086,113
17,507,638
Costs of sales
Operational costs
Shipping costs
Treatment charges
Royalties
Amortisation of Mine Property
Depreciation of Plant & Equipment
(28,962,200)
(1,889,111)
(1,085,039)
(970,076)
(6,308,840)
(2,075,898)
(20,053,318)
(2,054,896)
(1,074,428)
(402,421)
(4,540,432)
(1,300,337)
(8,098,882)
165,785
(10,611)
(567,655)
(1,768,408)
(775,561)
Total Operating costs
(41,291,164)
(29,425,832)
(11,865,332)
Gross Profit
11,302,587
5,660,281
5,642,306
29
For the year ended 31 December 2016,
the Group also recognised revenue for
20,992 ounces of gold bullion earning total
revenue of US$26,225,075 (2015: revenue of
US$9,632,695 from the sale of 8,284 ounces).
However, the 2015 recognised revenue does
not include revenue of US$3,337,071 earned
from the sale of 2,955 ounces of bullion
from ore produced from the Sao Chico Mine.
For the year ended 31 December 2015, this
income had been treated as capitalised
income and set off against capitalised costs of
the Sao Chico Mine development as the Sao
Chico operation had not attained commercial
production until 1 January 2016.
Operating Costs
Operating costs for the 12 months ended
31 December 2016 of US$28,962,200 (2015:
US$20,053,318) comprise all mining costs at
both the Palito and Sao Chico Mines, plant
processing costs, as well as all general site
costs incurred on both mine sites during the
12 month period to produce the final product
sold as shown in the table below. During the
same period in the previous year all mining
and processing costs associated with the
Sao Chico Mine were capitalised as the mine
had not reached commercial production.
Production activity and operating costs for the
full year are broken down in the table below:
Tonnes Mined
Tonnes Milled
Ounces Produced
Operating Costs
Labour
Mining consumables & Maintenance
Plant Consumables
General Site
12 months ended
December 2016
12 months ended
December 2015
161,086
158,966
39,390
111,751
114,131
29,841
12 months ended
December 2016
12 months ended
December 2015
US$’000
US$’000
13,843
7,902
4,197
3,020
28,962
10,020
5,010
3,080
1,943
20,053
Variance
49,722
44,835
9,549
Variance
US$’000
3,823
2,892
1,117
1,077
8,909
Variance
%
44%
39%
32%
Variance
%
38%
58%
36%
55%
44%
Note: All production numbers in the table above relate to operational activity included within the income statement and does not consider 2015 activity which was capitalised. The Sao Chico Mine
achieved commercial production on 1 January 2016 therefore all activity and costs associated with the Sao Chico Mine during 2015 were not included in the numbers above, including tonnes mined
of 23,658 tonnes milled of 10,307 and production of 3,163 ounces of gold.
As shown in the table above, the Group has extracted 44 per cent more tonnes from the mine in 2016 in comparison to 2015 as well as milling 39
per cent more tonnes which has resulted in the Group producing 32 per cent more gold in the form of both copper concentrate and gold bullion.
This increase in activity has resulted in an increase on operating costs year on year of 44 per cent.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
30
MANAGEMENT DISCUSSION AND ANALYSIS
Financial Review continued
Labour Costs
Labour costs show an increase of 38 per cent
as a result of labour costs associated with the
Sao Chico Mine being capitalised during 2015
and now being recognised in the income
statement. In addition, Brazilian employees
were awarded an average salary increase of
10 per cent in May 2016 as part of the national
collective agreement.
Mining Costs
For the year ended 31 December 2016
operating costs include all mining costs
relating to 161,473 tonnes extracted from
the mine (2015: 111,751 tonnes) adjusted for
movements in the value of the Group’s various
stockpiles of material in process or awaiting
sale. For the year ended 31 December 2016
costs relate to 121,086 tonnes extracted
from the Palito mine (2015: 111,751 tonnes
extracted) and 40,387 tonnes extracted from
the Sao Chico Mine. In 2015 23,658 tonnes of
ore were extracted from the Sao Chico mine
but, as the Sao Chico Mine did not achieve
commercial production until 1 January 2016,
all costs associated with the Sao Chico Mine
during 2015 were capitalised. Mining costs
have increased by 58 per cent year-on-year
even though productivity only increased
by 44 per cent. The primary reason for this
increase in mining costs is that both reactive
and preventative maintenance costs have
increased during 2016 compared to 2015
as all the Groups underground equipment
is a year older and required more reactive
maintenance. During 2016, the Group also
rented some transport trucks and other
underground mining equipment as a result
of the increase in activity, for which there was
no corresponding cost in the previous year.
However, as a result of this increase in these
rental and maintenance costs, during the
second half of 2016 the Group replaced a lot
of the older equipment by purchasing new
underground equipment including two new
drill rigs, two new loaders, an excavator and
two new 20 tonne transport trucks.
Plant processing costs
For the year ended 31 December 2016, the
plant processing costs relate to 158,966
tonnes of milled ore in comparison to 114,131
tonnes in 2015. During 2015 the plant also
processed 10,307 tonnes of ore relating to
the Sao Chico Mine the costs of which were
capitalised and therefore not included on
the income statement. Plant milling activity
increased by 39 per cent, ounces produced
increased by 32 per cent and the increase in
costs associated with the plant are roughly
in line with this at 36 per cent. During 2016
the Group took the decision to power the
process plant at the Palito site using electricity
produced from its own diesel generators
instead of taking electricity from the power
grid which was felt to lack the reliability
required for continuous processing of ore at
an operationally efficient rate. These increased
power costs cancelled out some of the
other processing savings that the Group had
generated during 2016.
Site Costs
Site costs relating to all general support costs
at both the Palito and Sao Chico Mines have
increased by 55 per cent reflecting costs
associated with the Sao Chico Mine no longer
being capitalised. The Group also incurred
increased costs on rental equipment during
2016, primarily relating to the rental of three
diesel generators and electrical distribution
equipment, costs which the Group did not
incur in 2015.
Shipping costs of US$1,889,111 (2015: US$
2,054,896), show a decrease of 8 per cent
for the year ended 31 December 2016
in comparison to the same period in the
previous year. This covers domestic road
and river freight in Brazil for the copper/gold
concentrate and international sea freight
from Belem to the final destination. For the
first nine months of the year the Group sold
its copper concentrate product to a refinery
in Germany however from September 2016
the material was sent to refineries based in
Japan. The shipping charges are recognised
as soon as the goods depart from the port of
Belem. During the 12 month period ended
31 December 2016 2,240 tonnes departed
from the port of Belem, in comparison to the
2,220 tonnes which departed from Belem
in the previous year. The small decrease in
shipping costs of 8 per cent is principally
the result of the movement in the average
exchange rate, which for the 12 month period
ended 31 December 2016 was approximately
US$1.00 to BrR$3.48 in comparison to an
average exchange rate of US$1.00 to BrR$3.33
during the same 12 month period in 2015,
a strengthening of 4 per cent.
Treatment Charges of US$1,085,039 (2015:
US$1,074,428) are the costs for the processing
of copper/gold concentrate and include
US$991,363 of charges levied by the refinery,
(2015: US$991,363), and US$78,515 for the
cost of weighing, sampling and assay analysis
carried out by a third party on behalf of the
Group (2015: US$83,065). The treatment
charges of copper concentrate levied by the
refinery are a best estimate based on volume
and values of sales achieved during the period
and are subject to amendment with the final
invoiced treatment charges usually agreed
approximately three months after the arrival
of the goods.
Royalty payments of US$970,076, (12
months to 31 December 2015: US$402,421)
comprise statutory levies payable in Brazil
on both copper/concentrate sales as well
as bullion sales. Rates are uniform across all
mining operations and currently comprise
a 1 per cent royalty on gold production and
a 2 per cent royalty on copper production.
Royalty charges on shipments of copper/
gold concentrate are incurred as soon as the
goods they relate to depart from the port of
Belem. During the 12 month period ended
31 December 2016 the royalty charge on
copper/gold concentrate was US$247,111 in
comparison to US$274,410 in 2015. Royalties
on bullion sales totalled US$282,830 for the
12 month period to 31 December 2016 in
comparison to US$115,009 in 2015. This
increase in royalty costs in part reflects royalty
payments now being expensed rather than
capitalised on the sale of Sao Chico bullion in
2016. In addition, Sao Chico gold production
is also subject to an additional three per cent
royalty on the production from the Sao Chico
Mine to a former owner of that property,
creating an additional expense of US$440,134.
Charges for the amortisation of mine property
are calculated by reference to the depletion
during the period of the total estimated
mineable resource at each of the Palito
and Sao Chico Mines. The base carrying
cost is adjusted to include a provision for
future mine development costs for each
of these operations.
The total amortisation charge for the Palito
and Sao Chico Mines for the 12 month period
ended 31 December 2016 is US$6,107,837
(2015: US$4,405,385).
The charge reported in the income statement
is, however, adjusted to reflect the level of
sales rather than the level of production
with part of the depreciation being carried
in inventory and released to the Income
Statement when the goods are sold.
The increase of US$1,768,508 between the
charge recorded in the Income Statement for
2016 in comparison to the previous year is
primarily because Sao Chico had not achieved
commercial production during 2015. As a
result there was no amortisation charge
in relation to Sao Chico recorded in the
Income Statement. In addition, the change
Serabi Gold plc // Report and Accounts 2016 31
Twelve Months Ended Twelve Months Ended
December 2015
US$
December 2016
US$
281,333
1,474,618
355,663
294,398
–
137,049
1,338,426
36,194
3,917,681
–
–
–
(573)
3,917,108
586,667
–
–
364,656
526,500
22,797
–
32,388
1,533,008
(674,520)
(332,173)
(196,330)
(1,123)
328,862
The interest expense on convertible
loan stock relates to the interest on the
unsecured convertible loan facility provided
by Fratelli. The initial loan facility was for
up to US$5 million and carried interest at
a rate of 12 per cent per annum. An initial
US$2 million was drawn down on 5 January
2016. Fratelli had the right to convert the loan
into new Ordinary Shares of Serabi at a price
of 3.6 pence per new Ordinary Share. During
August 2016, Fratelli exercised their right to
convert the US$2 million loan into Ordinary
Shares of 0.5 pence each in the Company. The
amount of interest incurred during the 2016,
before Fratelli exercised the right to convert
its US$2 million convertible loan into Ordinary
Shares, was US$137,049.
in the contract arrangement for the sale of
copper/gold concentrate has accelerated the
recognition of sales revenue and reduced
inventory levels resulting, in turn, in a one-
off release of an amortisation charge carried
as part of the inventory valuation to the
Income Statement.
other than US Dollars as at the period end.
The exchange movements on cash holdings
do not necessarily reflect actual realised
profits or losses. The Company holds funds
in certain currencies in anticipation of future
expenditures that are anticipated to be settled
in those currencies.
There was also a deprecation charge of
US$2.07 million charged during 2016 on
mining plant and equipment (2015: US$1.30
million). The Group purchased new mine,
production and mobile equipment totalling
US$3.92 million during 2016. It is the
company’s policy to charge depreciation to
profit or loss on a straight-line basis over the
estimated useful lives of each part of an item
of property, plant and equipment beginning
in the month subsequent to the month that
the item of plant and equipment is purchased.
The Group has recognised an operating
profit before interest and other income of
US$6,023,906 (2015: profit of US$876,436)
after incurring US$4,962,524 in administrative
expenses, (2015: US$4,379,770) as well as
a charge of US$350,899 on share based
payments, (2015: US$404,075). The deemed
value assigned to these share options is
amortised over the expected option life
and is calculated using the Black Scholes
model. The charge for 2016 is in respect
of options granted between January 2012
and 31 December 2016.
Administration expenses have increased by
US$582,754 from US$4,379,770 in 2015 to
US$4,962,524, primarily because during 2016
the Group recorded an expense of US$517,108
for old tax settlements dating back to the
period between 2006 and 2011. During 2015
the Group recorded an expense of US$106,804
in relation to similar agreements. There was
also a small general increase in administrative
costs as a result of increased personnel and
related costs for providing support to the
increased level of operational activities and
the average 10 per cent salary increase from
May 2016 as a result of the national collective
agreement in Brazil.
The Group recorded a foreign exchange
loss of US$236,619 in the 12 month period
to 31 December 2016 which compares
with a foreign exchange loss of US$71,280
recorded for the same period in 2015. These
foreign exchange gains and losses primarily
relate to the settlement of foreign currency
liabilities from Brazil reflecting the devaluation
of the Brazilian Real and the revaluation of the
cash holdings of the Company in currencies
Net interest charges for the 12 month period
to 31 December 2016 were US$3,917,108
compared with a net gain of US$328,862 for
2015. An analysis of the composition of these
charges is set out in the table below:
Interest on secured loan
Charge on revaluation of derivatives
Amortisation of fair value of derivatives
Interest and charges for trade finance facility
Financing cost for secured loan
Interest on convertible loan
Settlement of hedging arrangements
Asset finance charges
Finance income
Gain on revaluation of warrants
Gain on revaluation of derivative
Interest income
Net finance expense
The interest on the secured loan of
US$281,333, (2015: US$586,667) is the cost
of 12 months of interest paid in relation to
funds advanced under the credit agreement
with Sprott Resource Lending Partnership
LLP (“Sprott”).
The charge on the revaluation of derivatives
of US$1,474,618 includes the cost arising
from the call options granted to Sprott
(US$432,600) which were exercised during the
year and the equity element of the convertible
loan stock (US$966,018).
The interest on trade finance loans of
US$256,898 (2015: US$364,656) is the interest
charged by Auramet Trading LLC who
provide a working capital and gold trading
facility secured against the debts due to
the Group in respect of the sale of copper/
gold concentrates.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
32
MANAGEMENT DISCUSSION AND ANALYSIS
Financial Review continued
The Group’s net
assets amounted
to US$63.38 million
compared with
US$46.78 million
at the end of 2015.
The finance cost on gold hedging
arrangements of US$1,338,426 (12 months to
31 December 2015: income of US$674,520)
is actual and estimated variations arising
from short term movements in the gold
price between the contractual pricing
arrangements with the end purchaser of the
copper/gold concentrate and the prices fixed
when the Group draws down on the trade
finance arrangement that it had in place.
Asset finance charges relate to mining
equipment acquired under supplier credit
terms. The lease terms range from a 12 month
period to a twenty four month period and bear
interest at a rate between 6.7 per cent and 6.85
per cent per annum. Lease interest charges
are reducing as the capital element of the
financing is paid down in monthly instalments.
Liquidity and Capital Resources
Non-Current Assets
On 31 December 2016, the Group’s net
assets amounted to US$63.38 million, which
compares to US$46.78 million as reported at
31 December 2015. This increase primarily
reflects the effect of the strengthening of the
Brazilian Real between 31 December 2015
when the rate was BrR$3.9042 to US$1.00,
and 31 December 2016, when the rate was
BrR$3.2585 to US$1.00. Whilst the Group has
reported a profit after taxation of US$4.43
million, it has also incurred a gain of US$17.40
million on the re-translation of the assets of
its Brazilian operations in the 12 month period
since 31 December 2015.
Non-current assets totalling US$58.64 million
at 31 December 2016 (31 December 2015:
US$48.83 million), are primarily comprised of
property, plant and equipment, which as at
31 December 2016 totalled US$45.40 million
(31 December 2015: US$40.15 million) as well
as development and deferred exploration
costs with a value of US$10.00 million (31
December 2015: US$8.68 million). The Group
has also established a provision for a deferred
tax asset of US$3.25 million.
The Group’s Brazilian subsidiary, Serabi
Mineracao SA has historic tax losses which
can be utilised in future years to reduce the
income tax liability that will be assessed on
future profits. In both 2015 and 2016, SMSA
reported taxable profits and as the Board
of Serabi considers that there is reasonable
certainty that SMSA will continue to make
profits in the future, the Group is recognising
a deferred tax asset for the first time in the
current year.
The Group’s property, plant and equipment
include the value of its mine assets at
31 December 2016 of US$31.79 million (2015:
US$21.47 million). During the year, the Group
transferred assets with a value of US$9.37
million from assets in construction into mine
assets, primarily reflecting the Sao Chico Mine
having achieved commercial production
from 1 January 2016. Assets in construction
valued as at 31 December 2016 were valued
at US23.83 million (2015: US$11.23 million).
During 2016 the Group also transferred
US$558,895 from deferred exploration costs
to mine assets.
The Group owns land, buildings, plant and
equipment with a cost of US$10.78 million
(31 December 2015: US7.44 million). During
2016 the Group has acquired additional plant
and machinery to the value of US$3.92 million
and capitalised expenditure of US$2.37 million
for on-going capital development of the Palito
and Sao Chico Mines.
The gross value ascribed to both the Palito
and Sao Chico properties is now being
amortised over the expected recoverable
ounces of each mine. An amortisation charge
totalling US$6.1 million has been recorded
for the 12 month period to 31 December
2016, (2015: US$4.4 million). The increase of
US$1.7 million in the amortisation charge for
2016 arises because during the 12 month
period ended 31 December 2015 there was
no amortisation charge in relation to the
Sao Chico Mine. However, following the
announcement by the Group that commercial
production had been achieved effective from
1 January 2016, an amortisation charge is now
being made in respect of the value ascribed
to this mine. The net book value of property,
plant and equipment has been increased by
US$6.61 million as a result of the retranslation
of the underlying values from Brazilian Reais
to US Dollars.
Deferred exploration costs as at 31 December
2016 totalled US$10.00 million (31 December
2015: US$8.68 million), which relates to
capitalised exploration expenditures around
the Palito Mine, Sao Chico Mine and the wider
Jardim Do Ouro project area. During 2016
the Group incurred costs of US$525,444 on
exploration and evaluation expenditure and
also transferred US$558,895 from deferred
exploration costs to mining property.
The carrying value of deferred exploration
costs also increased by US$1.34 million as a
result of the variation in the exchange rates
since the start of the year.
The Group has
decreased its trade
finance debt by
US$6.65 million
and repaid US$3.10
million of its secured
loan during 2016.
Serabi Gold plc // Report and Accounts 2016
33
Working Capital
The Group had a working capital position of US$8.88 million at 31 December 2016 compared to
US$1.84 million at 31 December 2015, the improvement of US$7.04 million being detailed in the
table below:
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
December 2016
US$
December 2015
US$
Variance
US$
8,110,373
1,233,049
3,696,550
4,160,923
6,908,790
6,133,284
2,429,506
2,191,759
1,201,583
(4,900,235)
1,267,044
1,969,164
Total current assets
17,200,895
17,663,339
(462,444)
Current liabilities
Trade and other payables
Interest-bearing liabilities
Accruals
4,941,775
2,964,057
415,810
4,212,803
11,385,155
226,197
728,972
(8,421,098)
189,613
Total current liabilities
8,321,642
15,824,155
(7,502,513)
Working capital
8,879,253
1,839,184
7,040,069
Non-current liabilities
Trade and other payables
Provisions
Interest-bearing liabilities
2,211,078
1,851,963
77,798
1,857,914
1,898,714
128,641
Total non-current liabilities
4,140,839
3,885,269
353,164
(46,751)
(50,843)
255,570
2016
BrR$
9,220,252
6,047,269
2,309,543
1,092,511
6,047,269
18,669,574
7,758,074
2015
US$
2,829,600
1,855,844
708,775
335,280
1,855,844
5,729,500
2,380,873
2016
BrR$
5,595,346
9,758,771
4,166,727
2,139,018
9,758,771
21,659,862
5,313,435
2015
US$
1,433,161
2,499,557
1,067,242
547,876
2,499,557
5,547,836
1,360,954
26,427,649
8,110,373
26,973,298
6,908,790
Stockpile of mined ore
Finished goods awaiting sale
Stockpile of flotation tails
Other material in process
Finished goods awaiting sale
Consumables
Total Inventory
acquires stocks of certain materials including
reagents, explosives and other consumables
in quantities that are sufficient for up to three
to four months’ consumption requirements
to minimise freight and other logistics costs
and improve pricing. The levels of inventory
of consumables have increased between
31 December 2015 and 31 December 2016
as a result of the increased activity with
the Sao Chico Mine now fully operational
and, with a third ball bill in place, increased
production capacity.
Whilst in Brazilian Real terms the value of
inventory of goods in progress and finished
goods has decreased by 14 per cent from
BR$21,659,862 to BR$18,669,574 between 31
December 2015 and 31 December 2016, this
decrease has been offset by the effect of the
strengthening of the Brazilian Real, so that in
US Dollar terms there has been a three per
cent increase in value.
Inventory
The levels of inventory held by the Group
have increased by US$1.2 million, or 17 per
cent, compared with 31 December 2015.
However, as all the inventory is calculated in
Brazilian Reais and converted into US Dollars
the valuation is also subject to exchange rate
fluctuations. The total value of the inventory in
local currency has decreased by two per cent
or BR$0.55 million between 31 December
2015 and 31 December 2016. A breakdown of
the Group’s total inventory balance at the end
of 2015 and 2016 in both Brazilian Real and US
Dollar are set out in the table to the right.
Inventories of consumables (fuel, spare parts,
chemicals, explosives etc.) at 31 December
2016 of US$2.38 million have increased by
approximately US$1.01 million or 75 per cent
in comparison with the same inventory of
consumables at 31 December 2015 (US$1.36
million). As all consumable stock is valued in
Brazilian Reais, the valuation is also subject
to exchange rate fluctuations. The level of
inventory in Brazilian Reais increased by
BrR$2.44 million or 46 per cent, from BrR$5.31
million to BrR$7.76 million. The Group
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
34
MANAGEMENT DISCUSSION AND ANALYSIS
Financial Review continued
At 31 December 2016, the Group had a
total of 21,429 tonnes of surface stockpile
from both the Palito and Sao Chico Mines
with a value of US$2.83 million or BR$9.22
million in comparison to 18,482 tonnes
at 31 December 2015 with a value of
US$1.43 million or BR$5.60 million. The cost
per tonne of stockpiled ore increased by
42 per cent in Brazilian Real terms and 71 per
cent in US Dollar terms as a result of changes
made during the year to the allocation of
costs within the mining and plant process
cost centres.
At 31 December 2016, the Group had, on
hand, an inventory of approximately 162
wet metric tonnes (31 December 2015:
363 tonnes) of copper/gold concentrate,
of which 22 tonnes was located at Palito
(31 December 2015: 63 tonnes), and the
remaining 140 tonnes were on route to
the port of Belem (31 December 2015:
160 tonnes). During the month of September
2016, the Group entered into a new contract
for the sale of its copper/gold concentrate
and the sale is now recognised when the
goods depart from Brazil, whilst previously
the sale was only recognised when the goods
arrived at the purchaser’s premises. As a
result, at 31 December 2015 the Group also
included as inventory, 160 tonnes of copper/
concentrate which had departed from the
port of Belem and was being shipped to
the refinery in Germany. This reduction in
inventory levels is the major reason for the
reduced inventory value.
Included in the finished goods awaiting
sale is bullion on hand for smelting
which, at 31 December 2016, was valued
at US$0.62 million or BR$1.99 million
in comparison to US$0.55 million or
BR$2.14 million as at 31 December 2015.
During 2014 the Group had established a
stockpile of approximately 54,000 tonnes of
material that had passed through the flotation
processing circuit but retained a gold grade
of approximately 2.5 g/t. At 31 December
2015, there were approximately 37,500 tonnes
of flotation stockpile on site with a value of
US$1.07 million or BR$4.17 million. During
2016 the Group processed approximately
16,700 tonnes of this stockpile leaving
approximately 20,800 tonnes at 31 December
2016 with a value of US$0.71 million or
BR$2.31 million.
The valuation attributable to gold locked up
within the processing plant has decreased
to US$0.34 million as at 31 December 2016
(31 December 2015: US$0.0.54 million).
Trade Receivables
Trade and other receivables at 31 December
2016 of US$1.23 million have decreased by
US$4.90 million from US$6.13 million at 31
December 2015. As at 31 December 2016,
the Group was owed US$1.05 million (2015:
US$6.00 million) in respect of shipments
of concentrate that had been made to
the refinery but, in accordance with the
contractual payment terms, remained
outstanding at that date. During September
2016, the Group changed the customer to
whom it sells its copper concentrate. The new
customer now pays an advance to the Group
of 85 per cent of the value of the copper
concentrate a few days after the ship carrying
the goods departs from the port of Belem. As
part of the old agreement, the end customer
did not provide any advance payment for the
goods, but would settle all invoices in three
instalments after the goods arrived at their
location. Therefore, to help manage working
capital requirements, the Group used a trade
finance agreement whereby a separate third
party would provide short term financing
to the Group for a small fee. As a result of
this change in the invoicing and settlement
process the trade receivables balance has
decreased by 82 per cent. In parallel this
change has eliminated the need for a trade
finance facility resulting in a reduction in
interest-bearing liabilities as detailed below.
Also included within trade and other
receivables are other some trade advances for
freight and insurance which has increased by
US$42,342 from US$136,692 at 31 December
2015 to US$179,035 at 31 December 2016.
Cash at Bank
Between 31 December 2015 and 31
December 2016 cash balances have increased
by approximately US$1.97 million. During
2016 the Group converted the US$2.00
million convertible loan received from
Fratelli Investments Limited in January
2016 but also generated US$16.15 million
from cash flow from operations, as well as
spending US$5.90 million on capital and
development expenditure.
The Group also repaid US$3.11 million of the
Sprott loan, decreased its liability under the
short term finance liability by US$6.24 million
and settled finance lease arrangements of
US$0.76 million.
Current Liabilities
Current liabilities have decreased by US$7.5
million from US$15.82 million at 31 December
2015 to US$8.32 million at 31 December 2016.
Trade Creditors
Trade and other payables amounting to
US$4.94 million at 31 December 2016
compare with an amount owed by the
Group of US$4.21 million at 31 December
2015, an increase of US$0.73 million. This
increase in trade creditors is as a result of
increased activity at both the Palito and Sao
Chico Mines, but also reflects the 20 per cent
appreciation of the Brazilian Real during 2016.
Interest-Bearing liabilities
The main reason for this decrease in liabilities
arises from the Group changing customers for
its copper/gold concentrate during 2016 and
as a result no longer requiring a short term
trade financing arrangement. At 31 December
2015, the Group owed US$6.65 million in
relation to this trade finance provision which
was decreased by US$6.24 million to US$0.42
million by 31 December 2016.
The Group also repaid US$3.1 million of
the Sprott loan during 2016 reducing the
US$4 million balance which was outstanding
at 31 December 2015. However, during
2016 Sprott exercised options relating to
their loan with a cost of US$0.43 million to
the Group of which US$0.15 million was
paid by 31 December 2016. The Group also
incurred, in January 2016, an extension fee of
US$0.2 million which is included in the total
balance of US$1.37 million outstanding as at
31 December 2016.
Obligations under finance leases have
increased by US$0.45 million from
US$0.73 million at 31 December 2015 to
US$1.17 million at 31 December 2016. The
Group repaid US$0.75 million in finance leases
during 2016 but also bought four new items
of underground equipment at a total cost of
US$1.2 million. The lease terms range from a
22 month period to a 30 month period and
bear interest at a rate between 6.7 per cent
and 6.85 per cent per annum.
Serabi Gold plc // Report and Accounts 2016
35
Total cash cost and all-in sustaining cost
The following table provides a reconciliation between non-IFRS cash cost and non-IFRS all-in sustaining
cost to production costs included in cost of sales as disclosed in the consolidated statement of
comprehensive income.
Twelve months ended Twelve months ended
31 December 2015
December 2016
(US$)
(US$)(1)
Total operating costs (calculated on a sales basis)
Add/(subtract)
Finished goods and WIP inventory stock adjustment
Grossing up of revenue for metal deductions
By-product credits
32,906,426
23,585,063
(914,050)
1,022,048
(2,691,851)
(1,780,142)
880,331
(2,482,958)
Total cash cost of production
30,322,573
20,202,294
Corporate G&A
Share-based remuneration
Capitalised cost for mine development
4,962,524
350,899
2,366,486
4,379,770
404,075
1,637,135
All-In Sustaining Cost of production
38,002,482
26,623,274
Gold ounces produced(2)
Gold production from Sao Chico
Gold production for Cash Costs and AISC purposes
39,390
–
39,390
Twelve months ended Twelve months ended
31 December 2015
31 December 2016
(ounces)
(ounces)(1)
32,629
(2,788)
29,841
Twelve Months Ended
31 December 2016
(US$)
Six month Ended
31 December 2015
(US$)
Total Cash Cost of production (per ounce)
Total All-In Sustaining Cost of production (per ounce)
US$770
US$965
US$677
US$892
(1)
The Sao Chico Mine was only declared to be in Commercial Production with effect from 1 January 2016 and all costs and
revenues relating to this mine were capitalised prior to this date. The Income Statements for 2015 therefore only reflect
the revenues and costs arising from the gold produced from the Palito Mine and the Cash Cost and AISC for the 2015
comparative period therefore also only reflect the activities from the Palito Mine.
(2) 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.
Non-Current Liabilities
The Group makes provision for the
future estimated rehabilitation costs for
its mine sites at Palito and Sao Chico.
The value of the provision carried by the
Group at 31 December 2015 was US$1.89
million. The value at 31 December 2016
is US$1.85million. There has been a small
increase of US$0.17 million in the estimations
underlying the provision, but these have been
offset by changes in the discount rate used
to calculate the present value of the provision,
as well as exchange rate movements between
31 December 2015 and 31 December 2016.
The property acquisition payment due by the
Group has increased by U$0.35 million as a
result of strengthening of the Brazilian Reais
compared to the US Dollar from 31 December
2015 to 31 December 2016.
The Group does not have any asset backed
commercial paper investments.
Non-IFRS Financial Measures
The gold mining industry has sought to
establish a common voluntary standard to
enable investors to assess and compare the
performance of companies engaged in gold
mining activities. The Group has elected
to provide calculations of Cash Costs and
All-In Sustaining Costs and has conformed
its calculation of these performance
measurements with the guidance notes
released by the World Gold Council. The
measures seek to capture all the important
components of the Group’s production
and related costs. In addition, management
utilises these and similar metrics as a
valuable management tool to monitor cost
performance of the Group’s operations.
These measures and similar measures, have
no standardised meaning under IFRS and
may not be comparable to similar measures
presented by other companies. This measure
is intended to provide additional information
and should not be considered in isolation or
as a substitute for measures of performance
prepared in accordance with IFRS.
Clive Line
Finance Director
30 March 2017
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
36
COMMUNITY AND SOCIAL RESPONSIBILITY
Social and Environmental Activities
Serabi has been active in
the Tapajos region and the
area around the towns of
Jardim do Ouro and Moraes
d’Almeida, in particular, for
over 12 years, during which
time it has established strong
relationships with these local
communities.
Governmental bodies we work with
Overall responsibility for federal regulation
and enforcement for environmental
matters rests with the Instituto Brasileiro
do Meio Ambiente e dos Recursos
Naturais Renovaveis (“IBAMA”).
Serabi works closely and transparently
with Secretaria de Meio Ambiente e
Sustentabilidade to ensure that, from
a social and environmental aspect,
its operations are run in compliance
with and above the requirements of
prevailing legislation.
The town of Jardim do Ouro was a centre of
support for garimpo operations in the past,
but with declining garimpeiro numbers,
the presence of Serabi’s operations in the
region has provided employment and service
opportunities to this community.
Moraes d’Almeida, a larger town at the
junction of the BR163 (the main north south
highway through the State of Para) and the
Transgarimpeira Highway to the west, is a
source of key services as well as personnel.
Serabi seeks to maximise the use of service
businesses (particularly engineering,
construction and fabrication) located here
and in the towns of Itaituba to the north and
Novo Progresso to the south to maximise the
economic benefits to local businesses and
individuals and to the State of Para.
Environmental regulation in Brazil is well
developed and whilst overall responsibility for
federal regulation and enforcement rests with
the Instituto Brasileiro do Meio Ambiente e
dos Recursos Naturais Renovaveis (“IBAMA”),
each state also has its own environmental
bodies that issue and regulate environmental
permits. Serabi seeks to work closely and
transparently with Secretaria de Meio
Ambiente e Sustentabilidade (“SEMAS”),
the environmental agency for the State of
Pará, to ensure that its operations are run in
compliance with and above the requirements
of prevailing legislation. In addition to
Serabi’s on-going environmental monitoring
procedures, it agrees annual plans for the
remediation of areas of the Palito and Sao
Chico Mines with SEMAS. Some of this work
will include remediation of damage caused by
activities prior to Serabi’s involvement. Whilst
Serabi does not have legal responsibility
for these past activities, it considers it good
practice to recuperate those areas that were
subject to past garimpo operations.
Serabi provides further support to the
welfare and development of its neighbouring
communities through assistance with
education and health facilities. It has
established schools at Jardim do Ouro and the
village of Sao Chico and continues to provide
support to these through the provision of
computers and books.
Serabi has also established its own small
farm at Palito which produces salads and
vegetables for consumption in its own
cafeterias, therefore reducing the need
to transport some foodstuffs. This farm
also acts as a nursery for the cultivation of
plants and trees that are planted as part of
Serabi’s remediation activities, ensuring that
indigenous species are planted as areas are
returned to their native form.
Site rehabilitation works completed in 2016
During 2015 the Company was very active
in remediation works at both the Palito and
Sao Chico mine-sites, concentrating at Palito
on the restoration of some old open pit mine
workings in the Senna area and at Sao Chico
the remediation of areas that had been
damaged by historical artisanal activity with
an area of approximately 30,000m2 affected
and needing to be re-contoured using
material from the mine excavations.
With the preparatory earthworks completed,
the Company, in 2016, followed up this work
with the planting of over 6,000 seedlings of
native forest trees which had been cultivated
in its own nursery. It has also planted a further
eight hectares of land with native grasses
providing a food source for small birds and
mammals. This use of a mix of trees and grasses
ensures that to the greatest extent possible the
degraded areas are being returned to a state
consistent with their native appearance.
Social development programme – 2016
With significant support provided to the
village of Sao Chico during 2015, with the
building of the new school and the provision
of power and an improved water supply to
the village community, the focus in 2016
moved to the community of Jardim do Ouro
and providing a greater level of support to its
population. A new outdoor leisure area has
been established in the town and Serabi has
provided exercise equipment for adults, whilst
playground equipment has been installed at
the school for children.
Serabi has also partnered with the State
Government in the installation of a new water
system for the town of Jardim do Ouro and,
in a separate project, has provided materials
and equipment to upgrade sections of the
Transgarimpeira Highway, which runs from
Moraes de Almeida past Palito and Sao Chico
and continues south west towards village of
Creporizinho. The works undertaken by Serabi
include resurfacing, rebuilding of bridges
and improvements to the layout of particular
sections that were accident blackspots.
Serabi Gold plc // Report and Accounts 2016 37
This was all targeted to provide improved
transport access for a number of the
communities along this road including the
citizens of Jardim do Ouro and Sao Chico.
Serabi continues to support its community
medical and dental programmes. The medical
programme gives priority to the women
and children of the local community and in
particular healthcare for babies and mothers.
The weekly clinics which use Serabi’s own
medical clinic and doctor dispense general
healthcare, allow for the diagnosis and
treatment of illness and disease, in particular
tropical diseases such as malaria and dengue,
and provide pre-natal and post-natal care.
During 2017 Serabi plans to construct and
provide personnel for a similar clinic at Sao
Chico and, by doing so, further improve the
level of community support that it provides.
The Company has also been active in the
community putting together programmes
supported by the Ministry of Culture
to improve cultural understanding and
awareness. These programmes are aimed
at encouraging children, in particular, in the
pursuit of art and music, and helping bring
communities closer together.
Environmental training
Serabi places great importance on ensuring
that its operations are run in a manner
that creates the minimum possible risk to
the environment and the neighbouring
communities and has daily monitoring
programmes in place. While the Group
employs a specialist team to implement and
manage these and all its other environmental
and safety programmes, it places responsibility
also on each employee to observe and
report any weaknesses, potential problems
or failings in its programmes. Regular training
campaigns are run internally at both the
Palito and Sao Chico Mines for all employees
to both increase awareness in general of
environmental issues, preventative actions
and contingency planning in the event of
any issue arising.
As part of the Group’s community
engagement programmes it also provides
educational sessions to the local communities
with a strong focus on the children who,
in the longer term, will be those most affected
by the decisions and actions taken today.
Serabi provides support to the welfare and development of its neighbouring communities.
It has constructed schools at Jardim do Ouro and Sao Chico and provides health and dental
care at its own medical facility.
Future Community Programmes
During the coming 12 months, Serabi
will continue to work closely with its local
communities to improve the overall quality of
life of the population through both improved
education as well as financial assistance.
Programmes that the Group would like to
implement during 2017 include:
• The completion of a building within
the town of Jardim do Ouro that can
be a permanent health centre for
the community;
• Expansion of the water supply system
within the town of Jardim do Ouro;
• Continued improvement of the roads and
streets within Jardim do Ouro;
• Expansion of the water supply system
•
•
within the Sao Chico village;
Improved illumination of the roadway
within the Sao Chico village; and
Improving and expanding the electrical
distribution system to the village of
Sao Chico.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 38
CORPORATE GOVERNANCE
Board of Directors and Senior Management
T Sean Harvey
Non-Executive Chairman
A
R
Clive Line
Finance Director and Company Secretary
Nicolas Bañados
Non-Executive
R
Appointed: March 2011
Experience: Sean spent 10 years working in
investment and merchant banking, primarily
focused on the basic industry (mining) sector
and for the last 17 years has held senior
executive and board positions with various
mining companies. Sean was President and
CEO of Orvana Minerals Corp. from 2005 to
2006. Previously, he was President and CEO of
TVX Gold at the time of its sale to Kinross Gold
in 2003 and, subsequent to that, was President
and CEO of Atlantico Gold, a private company
involved in the development of the Amapari
Project in Brazil that was sold to Wheaton
River Minerals Ltd. (presently Goldcorp Inc.).
Sean also currently sits on the board of
directors of several other mining companies.
Qualifications: Sean has an Honours B.A.
in economics and geography and an M.A.
in economics, both from Carleton University.
He also has an L.L.B from the University
of Western Ontario and an M.B.A. from
the University of Toronto. He is a member
of the Law Society of Upper Canada.
Appointed: March 2005
Experience: Clive is a Chartered Accountant
and has been involved in mining and natural
resources companies since 1987, overseeing
financial and legal affairs of exploration
and development projects and producing
operations in Africa, Europe and the former
Soviet Union. Having worked with Price
Waterhouse in both the UK and Australia,
he joined Cluff Resources plc in 1987, where
he was finance director prior to joining the
privately owned Quest Petroleum Group
in a similar position in 1993. Following the
successful sale of this group he became
involved with both Eurasia Mining plc and
Northern Petroleum plc, both of which were
admitted to AIM in 1996. Between 1999
and 2005 he worked as a divisional finance
director within the Interpublic Group, one of
the world’s largest marketing services groups,
prior to joining Serabi in 2005.
Qualifications: He has an Honours degree
in Accounting and Finance and is a member
of the Institute of Chartered Accountants of
England and Wales.
Appointed: May 2013
Experience: Nicolas is Managing Director of
Private Equity and attorney-in-fact at Megeve
Investments, a non-discretionary portfolio
manager of Fratelli Investments. Formerly, he
held the position of VP and Portfolio Manager
at Megeve Investments, and research analyst
at Consorcio Life Insurance in Chile. He has
more than 14 years of experience investing
in Latin America and serves as Director for
several companies including two private
mining companies in Chile, Haldeman Mining
Company and Minera Las Cenizas, and
Colgener, a power company in Colombia.
Qualifications: Nicolas has an MBA from
The Wharton School at the University of
Pennsylvania and also received a Master’s
degree in Financial Economics from
Universidad Católica de Chile.
Mike Hodgson
Chief Executive
Aquiles Alegria
Non-Executive
Eduardo Rosselot
Non-Executive
Appointed: July 2014
Experience: Aquiles has more than 20 years
of experience in the mining industry and has
acted as exploration manager in a number of
mining companies, most recently as Deputy
Manager at Antofagasta Minerals.
Qualifications: He graduated with a degree
in geology from the Universidad de Chile.
Appointed: February 2007
Experience: Mike has worked in the mining
industry for over 30 years and has extensive
international experience. Most recently he
worked as chief operating officer and vice
president technical services for Canadian-
based Orvana Minerals Corporation. Prior
to that, he provided consulting services to
a number of mining companies in Europe
and South America. Previous appointments
include manager of technical services and
operations for TVX Gold Inc., mining technical
consultant at ACA Howe International
Ltd and similar roles at Rio Tinto plc and
Zambia Consolidated Copper Mines Ltd.
He has, during his career, acquired extensive
experience in narrow vein underground
mining operations.
Qualifications: Originally qualified in mining
geology, Mike is a Fellow of the Institute of
Materials, Minerals and Mining, a Chartered
Engineer of the Engineering Council of UK
and a “Qualified Person” in accordance with
Canadian National Instrument 43-101 –
Standards of Disclosure for Mineral Projects.
Appointed: October 2012
Experience: Eduardo is a mining engineer with
over 25 years’ experience in the mining industry,
having worked extensively in the Americas and
Europe. Currently he works as an independent
consultant for various mining companies and
mining funds mainly in South America, and
is a partner of the privately owned mining
company HMC Gold SCM, with development
projects in Chile. Eduardo is also a director of
Haldeman Mining Company, a Chilean private
copper and gold producer. Prior to that, he
worked as VP business development and special
projects for Orvana Minerals Corp. Previous
appointments include senior positions with
European Goldfields Ltd. and TVX Gold Inc. Prior
to that he was a partner of the South American
based mining consultancy firm NCL Ingeniería y
Construcción Ltd.
Qualifications: Eduardo has a Mining
Engineer degree from Universidad de Chile,
and is a member of the Institute of Materials,
Minerals and Mining, a Chartered Engineer of
the Engineering Council of UK and a "Qualified
Person" in accordance with the Canadian
National Instrument 43-101 – Standards of
Disclosure for Mineral Projects.
Serabi Gold plc // Report and Accounts 2016 39
Our Diverse Board
Nationalities
Background experience
• Geology
• Mine Engineering
•
• Corporate Finance
• Accounting
• Asset and Investment Management
Investment Banking
Tenure
1–3 Years 37.5%
(3 Directors)
4–9 Years 37.5%
(3 Directors)
10+ Years 25%
(2 Directors)
Non-Executive 75%
(6 Directors)
Executive 25%
(2 Directors)
Composition
Committee Membership
A Audit Committee
R
Remuneration Committee
Chairman
Member
Felipe Swett
Non-Executive
Senior Management in Brazil
A
Ulisses Melo
General Manager
Experience: Ulisses, who was previously the
Chief Financial Officer of Serabi Mineraçăo
Limitada in Brazil, took over the role of
General Manager in April 2009. He has overall
responsibility for the day-to-day affairs of
Serabi in Brazil. Prior to joining Serabi he spent
five years working with the international
accounting firm Arthur Andersen and a
further 10 years working with Samarco
Mineraçăo, Companhia de Fomento Mineral
and Rio Capim Caulim S/A as controller and
finance director.
Qualifications: Ulisses is a graduate in
Economics and Business Administration
from the University of PUC Minas Gerais
and holds a MBA from the University of
Fundação Dom Cabral.
Appointed: September 2014
Experience: Felipe is a Partner and heads
the asset management team at Asset Chile,
a Chilean-based investment bank. Mr. Swett
joined Asset Chile in 2003 as an Analyst and as
part of the corporate finance team and has led
the Asset Management division since 2010.
Qualifications: Felipe holds a degree in Civil
Engineering with a Diploma in Environmental
Engineering from the Pontificia Universidad
Católica de Chile and an MBA from the
Kellogg School of Management, Northwestern
University.
Melvyn Williams
Non-Executive
A
R
Appointed: March 2011
Experience: Mel Williams was, until June
2011, the Chief Financial Officer and Senior
Vice President of Finance and Corporate
Development of Brigus Gold. Mr. Williams has
over 40 years of financial experience, much of
that time spent within the mining industry.
From November 2003 through January
2004, Mr. Williams served as Chief Financial
Officer of Atlantico Gold, a private Brazilian
mining company which held the Amapari
gold project, and was sold to Wheaton River
Minerals Ltd. in January 2004. From 2000 to
November 2003, he served as Chief Financial
Officer of TVX Gold Inc., a gold mining
company with five operating mines and an
advanced development project in Greece.
His background also includes services with
Star Mining Corporation, LAC North America,
Riominas LSDA and Rossing Uranium, (both of
which are Rio Tinto subsidiaries).
Qualifications: He is a Chartered Certified
Accountant and received an MBA from
Cranfield in the United Kingdom. Mel is also
a director of Western Troy Capital Resources.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 40
CORPORATE GOVERNANCE
Report on Corporate Governance
The Directors give due regard to the principles set out in The UK Corporate Governance Code published in September 2014 by the Financial
Reporting Council (the “Code”) and the Quoted Companies Alliance (QCA) published Corporate Governance Guidelines. Under the AIM rules
compliance with the Code is voluntary. Although the Board has not formally adopted the Code, throughout the year ended 31 December 2016
it has sought adopt procedures to institute good governance insofar as is practical and appropriate for a group of its size while retaining its
primary focus on the success of the business.
Board of Directors
The Board of Directors is responsible for the management of the Group on behalf of its shareholders. The objective of the Group is to create
long term value for shareholders, and the Board is responsible for delivering that objective by governing the Company and its subsidiaries.
The Board is responsible for approving the Group strategy and policies, for safeguarding the assets of the Group, and is the ultimate decision-
making body of the Group in all matters except those that are reserved for specific shareholder approval. Matters that are specifically reserved for
the Board’s decision include business acquisitions or disposals, authorisation of major capital expenditure and material contractual arrangements,
changes to the Group’s capital structure, setting policies for the conduct of business, approval of budgets, remuneration policy of Directors
and senior management, and taking on debt and approval of financial statements. Other matters are delegated to the Committees of the
Board and Executive Directors, supported by policies for reporting to the Board.
The Board consists of two Executive Directors who hold the key operational positions in the Group and six Non-Executive Directors
(including a Non-Executive Chairman), who bring a breadth of experience and knowledge.
The Board, as a matter of practice, meets at least every two to three months and is supplied with appropriate and timely information. Other
meetings will be, and are, called by executive management or by any Board member when there is any matter which according to the terms
of reference of the Board and the powers delegated to the Executive Directors is required to be discussed with, and considered by, the Board.
In 2016, the Board met twelve times. Where appropriate, the Board invites external advisers and/or senior management to attend meetings
to discuss matters where their expertise may be beneficial.
The responsibilities of Sean Harvey as Chairman include providing leadership to the Board, ensuring its effectiveness in all aspects of its role
and setting its agenda; ensuring that adequate time is available for discussion of all agenda items; ensuring that the Directors receive accurate,
timely and clear information; ensuring effective communication with shareholders; promoting a culture of openness and debate by facilitating
the effective contribution to the Board of Non-Executive Directors in particular; and ensuring constructive relationships between the Executive
and Non-Executive Directors.
The Company provides independent professional and legal advice to all Directors where necessary, to ensure they are able to discharge their
duties. In addition, all Board members have access to the services of the Company Secretary, who is responsible for ensuring all Board procedures
are complied with.
The articles of association provide that any Director who was not appointed or re-appointed at one of the preceding two annual general
meetings retire and stand for re-election. All new Directors appointed since the previous Annual General Meeting need to stand for election
at the following Annual General Meeting.
Board Independence
Sean Harvey
Melvyn Williams
Nicolas Bañados
Felipe Swett
Eduardo Rosselot
Aquiles Alegria
Michael Hodgson
Clive Line
Position
Appointed
Status
Audit
Committee
Remuneration
Committee
Non-Executive Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive
Financial Director
30 March 2011
30 March 2011
13 May 2013
30 September 2014
20 October 2012
7 July 2014
1 February 2007
14 March 2005
Independent
Independent
Not independent(1)
Independent
Not independent(2)
Independent
Executive
Executive
Member
Chair
–
Member
–
–
–
–
Member
Chair
Member
–
–
–
–
–
(1) Mr Bañados is appointed as a representative of Fratelli Investments and holds the position of Managing Director of Private Equity. He is therefore not considered to be fully independent by virtue
of his relationship with the Company’s major shareholder. He has never held an executive position with the Group.
(2) Mr Rosselot is appointed as a representative of Fratelli Investments and acts for Fratelli as a consultant on mining matters and investments. He is therefore not considered to be fully independent
by virtue of his relationship with the Company’s major shareholder. He has never held an executive position with the Group.
Serabi Gold plc // Report and Accounts 2016
41
Board and Committee meetings
The Board has established an Audit Committee and a Remuneration Committee. A formal technical committee has not been established
at this time. Mr Eduardo Rosselot, a mining engineer and Non-Executive Director undertakes visits to the Group’s operations every two to three
months and will report to the Board on any issues that he considers require attention that are not already being addressed by management.
Mr Aquiles Alegria, a geologist, undertakes annual visits to the Group’s operations and will report to the Board on his findings and is also involved
in reviewing proposed exploration programmes and providing expertise, from a geological perspective, for any new projects being considered.
The Board has not had reason given the stability of management to establish a Nomination Committee but anticipates that were such a
Committee to be established it would be drawn from the members of the Remuneration Committee.
Attendance at the meetings of the Board and sub-committee meetings, by the relevant Board members, is set out below:
Sean Harvey
Michael Hodgson
Clive Line
Aquiles Alegria
Nicolas Bañados
Eduardo Rosselot
Felipe Swett
Mel Williams
Board
Audit
Committee
Remuneration
Committee
12
12
12
10
11
12
11
11
4
n/a
n/a
n/a
n/a
n/a
4
3
2
n/a
n/a
n/a
2
n/a
n/a
2
n/a – indicates that a Director was not a member of the committee at any time during the year.
Additionally, the Board has appointed an Executive Committee to oversee and coordinate the day-to-day running of the Group. It is empowered
to make decisions over a number of areas without reference to the full Board and specifically to deal with all matters relating to the daily
operation of the Group.
The Executive Committee comprises the Chief Executive and the Finance Director. The Executive Committee is responsible for the daily operation
of the Group and for making recommendations to the Board regarding short and medium-term budgets, targets and overall objectives and
strategies for the Group.
Audit Committee
Purpose
The Audit Committee reviews the principles, policies and practices adopted in the preparation of the financial statements of Serabi Gold plc
and its subsidiaries, as well as ensuring any other formal announcements relating to the financial performance of the Group comply with
relevant statutory and regulatory requirements.
The Audit Committee is also responsible for assisting the Board in discharging its responsibilities with respect to the integrity of the Group’s
financial statements, the effectiveness of the systems of governance, risk management and internal control, and monitoring the effectiveness
and independence of the external auditors.
Composition
The Audit Committee is required to consist of not less than three non-executive Directors. The Audit Committee is chaired by Mel Williams,
and also comprises Sean Harvey and Felipe Swett. The UK Corporate Governance Code stipulates that at least one of the members of the
Audit Committee must have recent and relevant financial experience. The Company believes that all members have such experience,
in particular Mel Williams, who has served for many years as Chief Financial Officer for several international mining companies.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
42
CORPORATE GOVERNANCE
Report on Corporate Governance continued
Audit Committee (continued)
Operations
The Audit Committee is required to meet at least four times a year to consider and approve each of the quarterly financial statements and the
annual financial statements. In 2016, the Committee met on four occasions. In addition to its members, the Audit Committee also routinely invites
the Group’s auditors, the Finance Director, and other Board members to attend its meetings as required.
During 2016, the Audit Committee considered the key areas of risk and judgement relevant to the Group. These included:
the liquidity and going concern of the Group;
the valuation and impairment of the Group’s assets;
the valuation of stocks of material comprising work in progress;
the policy for capitalisation of development costs and policies for amortisation;
•
•
•
•
• determination of commercial production at the Sao Chico Mine;
• determination of the potential recoverability of past tax losses.
In addition to matters raised at the Committee meetings, Serabi’s management submit working papers and notes outlining the key issues,
which are be circulated to the Committee for consideration ahead of the meetings.
The Audit Committee also reviews, and discusses plans for, and the conduct of, the Group’s external audit and the findings of the auditors
in respect of their work undertaken at the end of each calendar year, prior to approving the financial statements for release.
Responsibilities
The Audit Committee reviews and monitors the integrity of the Group’s financial statements and related press releases, as well as any other
formal announcements relating to the Group’s financial performance. As part of this review, it focuses in particular on areas of judgement,
appropriateness of policies, going concern matters, and any other areas it identifies as risks (e.g. on the grounds of materiality or uncertainty).
Through its involvement in the audit process the Audit Committee considers that it can monitor not only the performance of the Group’s finance
teams but also that of the auditors themselves. The Audit Committee also has responsibility for any internal audit function but at this time has
determined that in view of the size of the organisation, a separate internal audit team is not required.
Remuneration Committee
Purpose
The Remuneration Committee is responsible for determining and agreeing with the Board the framework for the remuneration of the Chief
Executive, all other Executive Directors, the Chairman of the Company (if an Executive Director), the Company Secretary and such other members
of the Executive Management as it feels appropriate to consider. Furthermore it is responsible for setting the structure and determining the total
individual remuneration packages of each Director including, where appropriate, bonuses, incentive payments and share options with due regard
to the interests of the shareholders and the overall performance of the Group and the Company’s overall philosophy and policy with respect to
executive compensation.
It also considers recommendations from the Executive Directors in respect of proposals for bonuses, incentive payments and share options
to be awarded to senior managers within the Group and makes recommendations on the overall remuneration plans adopted by the Company.
The remuneration of the Non-Executive Directors is a matter that is dealt with by the Board as a whole.
The Remuneration Committee has expertise in, among other things, evaluating overall compensation policies, plans and practices, as well as
setting compensation for executive officers; overseeing and administering equity compensation plans; and establishing employment, retention
and severance arrangements for executive officers.
Composition
The Remuneration Committee is required to consist of not less than two Non-Executive Directors. Its members, and chairman, are to be
determined by the Board. The current membership of the Committee comprises Mel Williams (Chairman), Sean Harvey, and Nicolas Bañados.
Operations
The Remuneration Committee meets at least twice a year, or more frequently as required. In 2016, the Remuneration Committee met twice.
The Committee evaluated and made recommendations to the Board in respect of bonuses for key executives relating to both their individual
and the Group’s performance during the preceding year against pre-determined targets. It also established and recommended targets in respect
of the 2016 calendar year for executive Directors and senior management and evaluated and made recommendations for the award of share
options for senior management and Directors.
Full disclosure of the policies can be found in the Remuneration Report on pages 44 to 48.
Serabi Gold plc // Report and Accounts 2016 43
Responsibilities
The Remuneration Committee is responsible for the following matters:
•
•
•
•
•
to review the performance objectives and determine and agree the appropriate levels of remuneration for the Executive Directors,
and the senior management of the Group;
to determine the remuneration of the Chairman of the Board, Non-Executive Directors, as well as Chairmen and members of all Board
Committees, subject to the condition that no person shall participate in discussions relating to his or her own remuneration;
to review the design and management of Group salary structures and incentive schemes, and to ensure proper authorisation for any awards
made under such schemes;
to review the recommendations of the Chief Executive of the Group as to the grant of share awards and other bonuses, and to approve
such awards as appropriate; and
to review and approve the Remuneration Report in the Serabi Gold plc Annual Report.
Service Contracts
No Director has any service contracts, consultancy agreements or other such arrangements with a notice period in excess of one year.
Non-Audit Services
The Board regularly reviews the provision of non-audit services from its auditors, at least annually through discussion at Committee meetings.
The Board is satisfied that the provision of non-audit services by BDO LLP is compatible with the general standard of independence for auditors
and does not give rise to any conflict of interest.
Communications with Shareholders
The Board is accountable to the Company’s shareholders and as such it is important for the Board to appreciate the aspirations of the shareholders
and equally that the shareholders understand how the actions of the Board and short term financial performance relate to the achievement of the
Group’s longer term goals.
The Board reports to the shareholders on its stewardship of the Company through the publication of quarterly operational updates and the
quarterly and final financial results. News releases are issued throughout the year and the Company maintains a website (www.serabigold.com)
on which press releases, corporate presentations and the Report and Financial Statements are available to view. Additionally, this Report and
Financial Statements contains extensive information about the Group’s activities. Enquiries from individual shareholders on matters relating
to the business of the Company are welcomed. Shareholders and other interested parties can subscribe to receive notification of news updates
and other documents from the Company via email. In addition the executive Directors meet with major shareholders to discuss the progress
of the Company and provide periodic feedback to the Board following meetings with shareholders.
The Annual General Meeting provides an opportunity for communication with all shareholders and the Board encourages the shareholders
to attend and welcomes their participation. The executive Directors attend the Annual General Meeting and are available to answer questions.
Details of resolutions to be proposed at the 2017 Annual General Meeting to be held on 15 June 2017 will be sent to all shareholders and will
be also be available on the Company’s website in due course.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 44
CORPORATE GOVERNANCE
Directors’ Remuneration Report
For the year ended 31 December 2016
Compensation plays an important role in achieving short and long term business objectives that ultimately drive business success. The Group’s
compensation philosophy is to foster entrepreneurship at all levels of the organisation by making long term equity-based incentives, through the
granting of stock options, a significant component of executive compensation. This approach is based on the assumption that the performance
of the Group’s share price over the long term is an important indicator of long term performance.
The Group’s compensation philosophy and objectives are based on the following fundamental principles:
1. Compensation programs align with shareholder interests – the Group aligns the goals of executives with maximising long term
shareholder value;
2. Performance sensitive – compensation for executive officers should be linked to operating and market performance of the Group
and fluctuate with the performance; and
3. Offer market competitive compensation to attract and retain talent – the compensation program should provide market competitive pay
in terms of value and structure in order to retain existing employees who are performing according to their objectives and to attract new
individuals of the highest calibre.
The Group’s principal goal is to create value for its shareholders. The Group’s compensation philosophy is based on the objectives of linking the
interests of the executive officers with both the short and long term interests of the Group, of linking executive compensation to the performance
of the Group and the individual and of compensating executive officers at a level and in a manner that ensures the Group is capable of attracting,
motivating and retaining individuals with exceptional executive skills. The executive compensation program is designed to encourage, compensate
and reward employees on the basis of individual and corporate performance, both in the short and the long term. Base salaries are aligned with
and judged against corporations of a comparable size and stage of development within the mining industry, thereby enabling the Group to
compete for and retain executives critical to the Group’s long term success. Incentive compensation is directly tied to corporate performance.
Share ownership opportunities are provided to align the interests of executive officers with the longer term interests of shareholders.
Elements of Executive Compensation
The elements of compensation earned by the executives of the Group for the financial year ended 31 December 2016 consists of a base salary,
along with annual discretionary incentive compensation in the form of a performance based bonus, and a longer term incentive in the form of
stock options.
This reflects a package consisting of a mix of compensation elements designed to provide executives with an “at risk” component of total
compensation that reflects their ability to influence business outcomes and performance, and fixed elements that provide security and enable
the Group to attract and retain key employees.
The following table outlines how each element of compensation aligns with the Group’s compensation philosophy. Details regarding the
operation of each of the compensation elements are set out below the table.
Element of
compensation package
Base salary
Purpose and link to strategy
Nature of review
To recognise the market value of the role, reflecting
the individual’s skills, experience, authority and
responsibilities, to ensure that the business can attract
and retain appropriate individuals for executive and non-
executive roles.
The element is reviewed annually. The Group compiles
comparator data from published accounts and industry
surveys of peer companies to determine the base salary
for each of the Executive Directors. The Group has not
used remuneration consultants.
Peer group data is also used to assess the level of fees
for the Non-Executive Directors.
Serabi Gold plc // Report and Accounts 2016
45
Elements of Executive Compensation (continued)
Element of
compensation package
Performance
related bonus
Purpose and link to strategy
Nature of review
To incentivise and reward, on an annual basis, the
performance of individuals, and of the Group, using
a range of financial and non-financial metrics.
Objectives and measurable targets (“KPIs”) are set,
prior to the year under review, to align near-term goals
with the longer term sustainable future of the Group.
The short term incentive component is structured
to reward not only increased value for shareholders
but also performance with respect to key operational
factors and non-financial goals important to long
term success. At the end of each year the Committee
considers if and to what extent the KPIs have been
achieved and in this way establish a transparent
and non-discretionary assessment of an individual’s
performance and contribution to the Group.
Non-Executive Directors do not participate in the
bonus scheme.
The Board seeks to award options on an annual
basis and the Group’s LTIP scheme is equity settled.
Options vest in three annual equal instalments with
the initial vesting on the date of the award. Any option
which is unexercised after a period of three years from
the date of grant expires. Options are also forfeited if
a holder leaves the Group before the options vest or
are exercised although the Committee may exercise
discretionary powers in certain circumstances. Options
issued to date have not been subject to attainment
of performance criteria prior to vesting or exercise.
The Committee has the right to impose such criteria
in respect of new awards. Whilst there is no maximum
value to which options that may be granted in one
year, nor any cap on the level than an individual may
hold, the Committee exercise discretion to ensure that
annual awards can be made and considers the level
and value of existing awards in determining the level
of new awards.
The Group does not operate any pension plans
for its Executive Directors except to the minimum
extent required under UK law. The level of pension
contribution made to an individuals defined
contribution scheme will generally be linked to an
employee’s base salary, though the Committee may
make single lump sum payments to provide an overall
completive retirement benefit for an individual.
The Group provides private medical and life assurance
benefits for employees and Executive Directors which
may be linked to base salary.
Share options
To reward delivery of sustained long term improvements
in shareholder returns by aligning performance directly
with an increase in the fundamental measure of the
generation of shareholder value.
Pension provision
The provision of pension benefits is a relatively normal
constituent of compensation offered by peer companies.
The Group will contribute to defined benefit schemes
on behalf of its executives as part of the overall
remuneration package provided to an employee.
Other benefits
To provide costs effective and competitive
remuneration benefits.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 46
CORPORATE GOVERNANCE
Directors’ Remuneration Report continued
Compensation Risk Management
The Group believes that its executive compensation program does not create risk outside the Group’s risk appetite. Some of the risk-management
initiatives currently employed by the Group are as follows:
the use of deferred equity compensation to encourage a focus on long term corporate performance as opposed to short term results;
• appointing a Remuneration Committee comprised of independent directors to oversee the executive compensation program;
•
• disclosure of executive compensation to stakeholders;
• use of discretion in adjusting bonus payments up or down as the Remuneration Committee deems appropriate and recommends to the Board;
and
• ultimately complete Board accountability.
Non-Executive Remuneration
The remuneration package for Non-Executive Directors is established by the Board as a whole but Non-Executive Directors do not vote on any
changes to their own fees.
Remuneration consists of a fixed fee which is set to reflect prescribed time commitments and the relative responsibilities of each Non-Executive
Director on the affairs of the Group, fees payable in respect of attendance at meetings and fees payable for service on any formal committees of the
Board. Additional consultancy fees are paid if the input required exceeds the anticipated levels. Some of the Non-Executive Directors currently hold
share options. Whilst the award of share options by the Group to Non-Executive Directors is contrary to the recommendations of the UK Corporate
Governance Code (“The Code”), the Board believes that, given the nature and size of the Group and the need to conserve cash resources, it is
appropriate that the remuneration of the Non-Executive directors be aligned with the success and growth of the Group. The Board notes also that it
is normal practice for natural resources companies listed on the Toronto Stock Exchange to award Non-Executive directors share options as part of
their remuneration. The Company has therefore concluded that, in order to attract Non-Executive Directors of an appropriate stature and experience,
it is obliged to continue to permit its Non-Executive Directors to be involved in its equity participation plans.
Remuneration
Director
Michael Hodgson
Clive Line
Aquiles Alegria
Nicolas Bañados
T Sean Harvey
Eduardo Rosselot
Felipe Swett
Melvyn Williams
Salary
US$
243,560
222,612
–
–
–
–
–
–
Fees as
Director
US$
–
–
27,824
30,840
42,650
27,397
32,377
38,080
Total
466,172
199,168
Other
Fees
US$
–
–
–
–
–
60,000
–
–
60,000
Bonus
US$
135,466
94,826
–
–
–
–
–
–
230,292
Pension
US$
11,298
–
–
–
–
–
–
–
11,298
IFRS 2
charge for
options
granted
US$
86,074
62,966
25,682
27,080
35,047
22,321
25,682
28,533
For the year to For the year to
31 December 31 December
2015
Total
US$
2016
Total
US$
Other
US$
3,519
2,815
–
–
–
–
–
–
479,917
383,219
53,506
57,920
77,697
109,718
58,059
66,613
708,507
519,384
42,102
46,781
79,284
119,897
46,164
66,635
313,385
6,334
1,286,649
1,628,754
Serabi Gold plc // Report and Accounts 2016
47
Directors and Their Interests
Ordinary Shares and Options
The Directors of the Company, who held office during the year and as of 31 December 2016, had the following interests in the ordinary shares of the
Company according to the register of Directors’ interests:
Shares
held at
31 December
2016
Shares
held at
31 December
2015
Share
options
held at
31 December
2016
Share
options
held at
31 December
2015
Option price
Exercise period
Michael Hodgson
441,320
441,320
Clive Line
766,653
766,653
T Sean Harvey
1,200,000
1,200,000
Melvyn Williams
295,000
295,000
Aquiles Alegria
100,000
100,000
Felipe Swett
Eduardo Rosselot
–
–
–
–
Nicolas Bañados(1)
22,443,947
22,443,947
500,000
600,000
–
4,000,000
3,900,000
4,000,000
500,000
600,000
–
2,800,000
2,800,000
3,000,000
–
1,700,000
1,600,000
1,600,000
–
1,400,000
1,300,000
1,300,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
1,000,000
–
1,200,000
1,000,000
1,000,000
1,200,000
1,000,000
1,000,000
500,000
600,000
4,200,000
4,000,000
3,900,000
–
500,000
600,000
3,700,000
2,800,000
2,800,000
–
1,900,000
1,700,000
1,600,000
–
950,000
1,400,000
1,300,000
–
1,000,000
1,000,000
–
1,000,000
1,000,000
–
1,900,000
1,200,000
1,000,000
–
1,200,000
1,000,000
–
UK£0.15
UK£0.41
UK£0.061
UK£0.050
UK£0.055
UK£0.050
UK£0.15
UK£0.41
UK£0.061
UK£0.050
UK£0.055
UK£0.050
UK£0.061
UK£0.050
UK£0.055
UK£0.050
UK£0.061
UK£0.050
UK£0.055
UK£0.050
UK£0.055
UK£0.055
UK£0.050
UK£0.055
UK£0.055
UK£0.050
UK£0.061
UK£0.050
UK£0.055
UK£0.050
UK£0.055
UK£0.055
UK£0.050
21 Dec 09 to 20 Dec 19
28 Jan 11 to 27 Jan 21
26 Jan 13 to 25 Jan 16
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
21 Dec 09 to 20 Dec 19
28 Jan 11 to 27 Jan 21
26 Jan 13 to 25 Jan 16
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
26 Jan 13 to 25 Jan 16
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
26 Jan 13 to 25 Jan 16
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
30 Sept 14 to 29 Sept 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
30 Sept 14 to 29 Sept 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
26 Jan 13 to 25 Jan 16
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
30 Sept 14 to 29 Sept 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
(1) Mr. Bañados has a direct interest in 144,282 Existing Ordinary Shares. Mr Bañados is the beneficial owner of 50 per cent. of the share capital of Asesorias e Inversiones Asturias Limitada which
beneficially owns: (1) directly 159,665 Existing Ordinary Shares; and (2) 25 per cent. of the units in Fondo de Inversiones Privado Santa Monica, a private financial investment fund, which is interested
in 22,140,000 Existing Ordinary Shares.
During the year ended 31 December 2016 the Company’s shares have traded between 2.500 pence and 6.875 pence.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
Serabi Gold 81.8%
Serabi Gold 81.8%
S&P 500/Metals & Mining 46.9%
S&P 500/Metals & Mining 46.9%
FTSE AIM All Share 24.1%
FTSE AIM All Share 24.1%
FTSE Gold Mines 76.7%
FTSE Gold Mines 76.7%
S&P/TSX Gold Mines 49.8%
S&P/TSX Gold Mines 49.8%
FTSE AIM All Share/Basic Resources 57.7%
FTSE AIM All Share/Basic Resources 57.7%
250
250
240
240
230
230
48
)
)
0
0
0
0
1
1
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o
t
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f
f
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e
e
p
p
e
e
c
c
220
220
210
210
200
200
190
190
180
180
170
170
160
160
150
150
140
140
130
130
120
120
110
110
100
100
90
90
80
80
70
70
CORPORATE GOVERNANCE
i
i
r
r
P
P
Directors’ Remuneration Report continued
Jan-16
Jan-16
Feb-16
Feb-16
M ar-16
M ar-16
Apr-16
Apr-16
M ay-16
M ay-16
Jun-16
Jun-16
Jul-16
Jul-16
Aug-16
Aug-16
Sep-16
Sep-16
Oct-16
Oct-16
N ov-16
N ov-16
D ec-16
D ec-16
Jan-17
Jan-17
Feb-17
Feb-17
M ar-17
M ar-17
Share Price Performance
Share performance against gold price – 2016 to date
Serabi Gold (LHS)
Serabi Gold (LHS)
Gold (RHS)
Gold (RHS)
High
High
Low
Low
Serabi Gold (LHS)
Serabi Gold (LHS)
Gold (RHS)
Gold (RHS)
High
High
Low
Low
6.875p
2.50p
8
7
6
5
4
3
2
1
0
)
)
p
p
(
(
e
e
c
c
i
i
r
r
P
P
$1,400
$1,350
$1,300
$1,250
$1,200
$1,150
$1,100
$1,050
$1,000
)
)
z
z
o
o
/
/
$
$
(
(
e
e
c
c
i
i
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r
p
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d
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G
G
l
l
)
)
p
p
(
(
e
e
c
c
i
i
r
r
P
P
Jan-16
Jan-16
Feb-16
Feb-16
M ar-16
M ar-16
Apr-16
Apr-16
M ay-16
M ay-16
Jun-16
Jun-16
Jul-16
Jul-16
Aug-16
Aug-16
Sep-16
Sep-16
Oct-16
Oct-16
N ov-16
N ov-16
D ec-16
D ec-16
Jan-17
Jan-17
Feb-17
Feb-17
M ar-17
M ar-17
Jan-16
Jan-16
Feb-16
Feb-16
M ar-16
M ar-16
Apr-16
Apr-16
M ay-16
M ay-16
Jun-16
Jun-16
Jul-16
Jul-16
Aug-16
Aug-16
Sep-16
Sep-16
Oct-16
Oct-16
N ov-16
N ov-16
D ec-16
D ec-16
Jan-17
Jan-17
Feb-17
Feb-17
M ar-17
M ar-17
Share performance against industry indices – 2016 to date
Serabi Gold 81.8%
Serabi Gold 81.8%
S&P 500/Metals & Mining 46.9%
S&P 500/Metals & Mining 46.9%
FTSE AIM All Share 24.1%
FTSE AIM All Share 24.1%
FTSE Gold Mines 76.7%
FTSE Gold Mines 76.7%
S&P/TSX Gold Mines 49.8%
S&P/TSX Gold Mines 49.8%
FTSE AIM All Share/Basic Resources 57.7%
FTSE AIM All Share/Basic Resources 57.7%
)
)
0
0
0
0
1
1
o
o
t
t
d
d
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e
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s
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a
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b
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p
p
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c
c
i
i
r
r
P
P
250
250
240
240
230
230
220
220
210
210
200
200
190
190
180
180
170
170
160
160
150
150
140
140
130
130
120
120
110
110
100
100
90
90
80
80
70
70
Jan-16
Jan-16
Feb-16
Feb-16
M ar-16
M ar-16
Apr-16
Apr-16
M ay-16
M ay-16
Jun-16
Jun-16
Jul-16
Jul-16
Aug-16
Aug-16
Sep-16
Sep-16
Oct-16
Oct-16
N ov-16
N ov-16
D ec-16
D ec-16
Jan-17
Jan-17
Feb-17
Feb-17
M ar-17
M ar-17
Serabi Gold (LHS)
Serabi Gold (LHS)
Gold (RHS)
Gold (RHS)
High
High
Low
Low
Serabi Gold (LHS)
Serabi Gold (LHS)
Gold (RHS)
Gold (RHS)
High
High
Low
Low
6.875p
2.50p
8
7
6
5
4
3
2
1
0
)
)
p
p
(
(
e
e
c
c
i
i
r
r
P
P
$1,400
$1,350
$1,300
$1,250
$1,200
$1,150
$1,100
$1,050
$1,000
)
)
z
z
o
o
/
/
$
$
(
(
e
e
c
c
i
i
r
r
p
p
d
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G
G
l
l
)
)
p
p
(
(
e
e
c
c
i
i
r
r
P
P
Jan-16
Jan-16
Feb-16
Feb-16
M ar-16
M ar-16
Apr-16
Apr-16
M ay-16
M ay-16
Jun-16
Jun-16
Jul-16
Jul-16
Aug-16
Aug-16
Sep-16
Sep-16
Oct-16
Oct-16
N ov-16
N ov-16
D ec-16
D ec-16
Jan-17
Jan-17
Feb-17
Feb-17
M ar-17
M ar-17
Jan-16
Jan-16
Feb-16
Feb-16
M ar-16
M ar-16
Apr-16
Apr-16
M ay-16
M ay-16
Jun-16
Jun-16
Jul-16
Jul-16
Aug-16
Aug-16
Sep-16
Sep-16
Oct-16
Oct-16
N ov-16
N ov-16
D ec-16
D ec-16
Jan-17
Jan-17
Feb-17
Feb-17
M ar-17
M ar-17
8
7
6
5
4
3
2
1
0
8
7
6
5
4
3
2
1
0
$1,400
$1,350
$1,300
$1,250
$1,200
$1,150
$1,100
$1,050
$1,000
)
)
z
z
o
o
/
/
$
$
(
(
e
e
c
c
i
i
r
r
p
p
d
d
l
l
o
o
G
G
$1,400
$1,350
$1,300
$1,250
$1,200
$1,150
$1,100
$1,050
$1,000
)
)
z
z
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$
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G
G
Serabi Gold plc // Report and Accounts 2016
CORPORATE GOVERNANCE
Directors’ Report
For the year ended 31 December 2016
49
The Directors present their report together with the audited financial statements for the year ended 31 December 2016.
Results and dividends
The Group profit for the year after taxation amounts to US$4,430,292 (2015: loss of US$48,738). The Directors do not recommend the payment
of a dividend.
The results for the year are set out on page 55 in the Statement of Comprehensive Income.
Principal activities and business review
The principal activity of the Company is that of a holding and gold sales company and a provider of support and management services to its
operating subsidiaries. Together with its subsidiaries (see note 10), it is involved in the development of gold and other metals mining projects
in Brazil and the operation of the Palito gold mine in the Tapajos region of Brazil.
A detailed review of activities, future developments and the Group’s projects is included in the Chairman’s Statement, the Management Discussion
and Analysis – Operational Review and Financial Review and the Strategic Review.
Substantial shareholdings
As at 29 March 2017 the Company was aware of the following holdings of 3 per cent or more in the Company’s issued share capital:
Name
Fratelli Investments Limited
Anker Holding AG
Drake PIPE Fund
Eldorado Gold Corporation
FIP Santa Monica
Number of
shares held
386,375,734
49,485,000
45,979,686
34,090,000
22,443,947
Percentage
55.30%
7.08%
6.58%
4.88%
3.21%
Share capital
Details of the share capital and movements in share capital during the period are disclosed in note 18 to the financial statements.
During the period the following issues of share options under the Serabi Mining 2011 Share Option Plan were made to Directors and other employees.
Date of issue
16 May 2016
Number issued
Price
Expiry
15,650,000
5.00 pence
15 May 2019
Company’s listings
The Company’s ordinary shares have been traded on AIM since 10 May 2005 and on the TSX since 30 March 2011.
Going concern and availability of finance
On 1 February 2016, the Group announced that, with effect from 1 January 2016, the Sao Chico Mine had achieved Commercial Production.
The Palito Mine has been in Commercial Production since 1 July 2014.
The Directors anticipate the Group now has access to sufficient funding for its immediate projected needs. The Group expects to have
sufficient cash flow from its forecast production to finance its on-going operational requirements, to repay its secured loan facilities and to,
at least in part, fund exploration and development activity on its other gold properties. The secured loan facility is repayable by 31 August
2017 and at 31 December 2016, the amount outstanding under this facility was US$1.37 million (2015: US$4.0 million). The Group is currently
in negotiations to increase and extend the terms of its loan facilities.
The Directors consider that the Group’s operations are performing at the levels that they anticipate but the Group remains a small scale gold
producer with limited cash resources to support any unplanned interruption or reduction in gold production, unforeseen reductions in the
gold price or appreciation of the Brazilian currency, all of which could adversely affect the level of free cash flow that the Group can generate
on a monthly basis. In the event that the Group is unable to generate sufficient free cash flow to meet its financial obligations as they fall due or
to allow it to finance exploration and development activity on its other gold properties, additional sources of finance may be required. Should
additional working capital be required the Directors consider that further sources of finance could be secured within the required timescale.
On this basis, the Directors have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis. However,
there is no certainty that such additional funds either for working capital or for future development will be forthcoming and these conditions
indicate the existence of a material uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern and,
therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not
include the adjustments that would result if the Group was unable to continue as a going concern.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
50
CORPORATE GOVERNANCE
Directors’ Report continued
Directors’ responsibilities
The Directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare
the Group and Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. The Directors are also required to prepare
financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment
Market and in accordance with the rules of the Toronto Stock Exchange.
In preparing these financial statements, the Directors are required to:
select suitable accounting policies and then apply them consistently;
•
• make judgements and accounting estimates that are reasonable and prudent;
•
state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures
disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and
disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply
with the requirements of the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the annual report and the financial statements are made available on a website. Financial statements
are published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination
of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the
responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.
Principal risks and uncertainties
The principal risks and uncertainties are outlined in the Strategic Report on pages 18 to 19.
Management of financial risks
Capital management and financial risk disclosures are provided within notes 20 and 23 of the financial statements.
Corporate governance
The Directors give due regard to the principles set out in The UK Corporate Governance Code, published in September 2014, by the Financial
Reporting Council and comply with those principles that are appropriate given the size and nature of activities of the Group.
Board composition
The Directors who served during the year are shown on page 47.
The Directors have responsibility for the overall corporate governance of the Group and recognise the need for the highest standards of behaviour
and accountability. The Directors are committed to the principles underlying best practice in corporate governance and intend to comply
with the principles of The UK Corporate Governance Code published in September 2014 by the Financial Reporting Council and the Quoted
Companies Alliance (QCA) published Corporate Governance Guidelines in such respects as they consider appropriate for a company of its size and
nature. The Board has a wide range of experience directly relevant to the Group and its activities and its structure ensures that no one individual
or group dominates the decision making process.
Further details relating to the Board, independence and meetings undertaken during the year are set out in the Report on Corporate Governance
on pages 40 to 43.
Committees
The Company has established an Audit Committee, a Remuneration Committee and an Executive Committee. Details of these committees are set
out in the Report on Corporate Governance on pages 40 to 43.
Employees
The Group has a policy of equal opportunities throughout the organisation, and is proud of its culture of diversity and tolerance. Employees
benefit from regular communication both informally and formally with regard to Company issues (external and internal developments, updates,
etc.), including regular news updates distributed at the mine site and in the corporate offices. Employees are made aware of the Company’s share
ownership policy, both to ensure compliance with listing rules but also to make them aware of the opportunity to participate in the Company’s
share performance.
Serabi Gold plc // Report and Accounts 2016 51
Share dealing
The Company has adopted a share dealing code for Directors and relevant employees in accordance with the AIM Rules and Market Abuse
Regulations and takes proper steps to ensure compliance by the Directors and these employees.
Internal controls
The Directors acknowledge their responsibility for the Group’s system of internal controls and procedures and for reviewing the effectiveness of
these and ensuring that management of its subsidiaries review the internal controls and procedures operating in the subsidiaries. Such controls
and procedures are designed to safeguard the Company’s and the Group’s assets and ensure reliability of reporting information, financial and
otherwise, for both internal use and external publication. The Group’s management has designed internal controls over financial reporting, in
order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
Throughout the year the design and operating effectiveness of the Group’s internal controls over financial reporting are reviewed. Based on these
evaluations the Board has concluded that the internal controls over financial reporting were effective as at 31 December 2016, using the criteria,
having taken account of the size and nature of the Group, put forward by the Financial Reporting Council in their revised guidance for directors
on internal controls for UK listed companies (issued 2005).
The Group’s management, including the Chief Executive Officer and the Chief Financial Officer, does not expect that its disclosure controls and
internal controls over financial reporting will prevent or detect all errors and fraud. A cost effective system of internal controls, no matter how well
conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the internal controls over financial reporting
are achieved.
Key contracts
The Group has contractual arrangements with key suppliers for its operations notably for fuel, power, reagents and equipment spare parts. It also
has an existing commitment to sell its production of copper/gold concentrate to a single customer which will be subject to renewal during 2017.
However, management considers that alternative suppliers and purchasers could be arranged if necessary and do not therefore consider that the
Group is unduly reliant on any single contract or supplier.
The Group is reliant on retaining its exploration and mining licences and its operating licences which are subject to compliance with various
federal and state regulations and obligations. The Group considers such compliance a high priority in view of this reliance.
Post balance sheet events
On 23 February, the Group extended the term for repayment of its secured loan facility with Sprott to 31 August 2017. With this exception 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.
Indemnification of Directors and officers
During the financial year, the Group paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary and
all executive officers of the Group against liability incurred as such a Director, Company Secretary or executive officer to the extent permitted
under legislation.
Auditor
The auditor, BDO LLP has confirmed its willingness to remain as auditor to the Company. A resolution to appoint BDO LLP will be put to the
Annual General Meeting.
Disclosure of audit information
As far as each of the Directors is aware, at the time this report was approved:
(a) There is no relevant available information of which the auditor is unaware; and
(b) They have taken all steps that ought to have been taken to make themselves aware of any relevant audit information and to establish that
the auditor is aware of that information.
By order of the Board
Clive Line
Company Secretary
30 March 2017
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 52
INDEPENDENT AUDITOR'S REPORT
To the members of Serabi Gold plc
We have audited the financial statements of Serabi Gold plc for the year ended 31 December 2016 which comprise the consolidated statement
of comprehensive income, the consolidated and the Company balance sheets, the consolidated and Company statements of changes in equity,
the consolidated and Company statements of cash flows and the related notes. The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent
company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in
accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial
Reporting Council’s (FRC’s) Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on the FRC’s website at www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the Group’s and the parent company’s affairs as at 31 December 2016 and
of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Emphasis of matter – going concern
In forming our opinion, which is not modified, we have considered the adequacy of the disclosures made in Note 1(a) to the financial statements
concerning the group’s ability to continue as a going concern.
Whilst the Group expects to have sufficient cash flow from its forecast production to finance its on-going operational requirements, to repay
its secured loan facilities and to, at least in part, fund exploration and development activity on its other gold properties, the Group remains a
small scale gold producer with limited cash resources. It is therefore susceptible to any unplanned interruption or reduction in gold production,
unforeseen reductions in the gold price or appreciation of the Brazilian currency all of which could adversely affect the level of free cash flow
that the Group can generate on a monthly basis. In the event that the Group is unable to generate sufficient free cash flow to meet its financial
obligations as they fall due or to allow it to finance exploration and development activity on its other gold properties additional sources of finance
may be required. The Group is currently in negotiations to increase and extend its loan facilities, but they have not been finalised.
These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue
as a going concern. The financial statements do not include the adjustments that would result if the Company and the Group were unable
to continue as a going concern.
Serabi Gold plc // Report and Accounts 2016 53
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
•
•
the information given in the Strategic Report and Directors’ Report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
the Strategic Report and Directors’ Report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent company and its environment obtained in the course of the audit,
we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
the parent company financial statements are not in agreement with the accounting records and returns; or
•
• certain disclosures of Directors’ remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.
Stuart Barnsdall (senior statutory auditor)
For and on behalf of BDO LLP, statutory auditor
London, United Kingdom
30 March 2017
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 54
INDEPENDENT AUDITOR'S REPORT
In Respect of Canadian National Instrument 52-107
(Acceptable Accounting Principles and Auditing Standards)
In accordance with the requirements contained in Canadian National Instrument 52-107 we also report below on whether our audit has been
conducted in accordance with International Standards on Auditing (as issued by the International Auditing and Assurance Standards Board)
and whether the financial statements have been prepared in accordance with International Financial Reporting Standards (as issued by the
International Accounting Standards Board).
To the Shareholders of Serabi Gold plc
We have audited the accompanying financial statements of Serabi Gold plc for the years ended 31 December 2016 and 31 December 2015
which comprise the consolidated statement of comprehensive income, the consolidated and Company balance sheets, the consolidated and
Company statements of changes in equity, the consolidated and Company statements of cash flows for the year then ended, and a summary
of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation
of the consolidated financial statements is applicable law and International Financial Reporting Standards (IFRSs).
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with the applicable financial
reporting framework, and for such internal control as management determines is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian
Generally Accepted Auditing Standards (Canadian GAAS). Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's
preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness
of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation
of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Serabi Gold plc as at
31 December 2016 and 31 December 2015 and its financial performance and its cash flows for the years then ended in accordance with IFRSs.
Emphasis of matter – going concern
In forming our opinion, which is not modified, we have considered the adequacy of the disclosures made in Note 1(a) to the financial statements
concerning the group’s ability to continue as a going concern.
Whilst the Group expects to have sufficient cash flow from its forecast production to finance its on-going operational requirements, to repay
its secured loan facilities and to, at least in part, fund exploration and development activity on its other gold properties, the Group remains a
small scale gold producer with limited cash resources. It is therefore susceptible to any unplanned interruption or reduction in gold production,
unforeseen reductions in the gold price or appreciation of the Brazilian currency all of which could adversely affect the level of free cash flow
that the Group can generate on a monthly basis. In the event that the Group is unable to generate sufficient free cash flow to meet its financial
obligations as they fall due or to allow it to finance exploration and development activity on its other gold properties additional sources of finance
may be required. The Group is currently in negotiations to increase and extend its loan facilities, but they have not been finalised.
These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue
as a going concern. The financial statements do not include the adjustments that would result if the Company and the Group were unable
to continue as a going concern.
BDO LLP
London, United Kingdom
30 March 2017
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Serabi Gold plc // Report and Accounts 2016 FINANCIAL STATEMENTS
Statement of Comprehensive Income
For the year ended 31 December 2016
Continuing operations
Revenue
Cost of sales
Depreciation and amortisation charges
Gross profit
Administration expenses
Share-based payments
Gain on disposal of fixed asset
Operating profit
Foreign exchange loss
Finance expense
Income on financial instruments
Finance income
Profit before taxation
Income tax benefit/(expense)
Profit/(loss) for the period from continuing operations(1)
Other comprehensive income (net of tax)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations
Total comprehensive profit/(loss) for the period(1)
Profit/(loss) per ordinary share (basic)
Profit/(loss) per ordinary share (diluted)
(1) The Group has no non-controlling interests and all profits are attributable to the equity holders of the parent company.
55
Group
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
Notes
52,593,751
(32,906,426)
(8,384,738)
35,086,113
(23,585,063)
(5,840,769)
11,302,587
(4,962,524)
(350,899)
34,742
6,023,906
(236,619)
(3,917,681)
–
573
1,870,179
2,560,113
4,430,292
5,660,281
(4,379,770)
(404,075)
–
876,436
(71,280)
(1,533,008)
1,203,023
1,123
476,294
(525,032)
(48,738)
8,618,687
(20,490,243)
13,048,979
0.66c
0.61c
(20,538,981)
(0.01c)
(0.01c)
3
4
4
4
5
7
7
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
56
FINANCIAL STATEMENTS
Group Balance Sheet
As at 31 December 2016
Non-current assets
Development and deferred exploration costs
Property, plant and equipment
Deferred taxation
Total non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
Accruals
Total current liabilities
Net current assets
Total assets less current liabilities
Non-current liabilities
Trade and other payables
Provisions
Interest-bearing liabilities
Total non-current liabilities
Net assets
Equity
Share capital
Share premium reserve
Option reserve
Other reserves
Translation reserve
Retained surplus
Equity shareholders’ funds attributable to owners of the parent
Group
2016
US$
2015
US$
Notes
8
9
5
11
12
13
14
15
17
15
16
17
18
9,990,789
45,396,140
3,253,630
8,679,246
40,150,484
–
58,640,559
48,829,730
8,110,373
1,233,049
3,696,550
4,160,923
6,908,790
6,133,284
2,429,506
2,191,759
17,200,895
17,663,339
4,722,139
2,964,057
635,446
4,212,803
11,385,155
226,197
8,321,642
15,824,155
8,879,253
1,839,184
67,519,812
50,668,914
2,211,078
1,851,963
77,798
1,857,914
1,898,714
128,641
4,140,839
3,885,269
63,378,973
46,783,645
5,540,960
1,722,222
1,338,652
3,051,862
(30,607,848)
82,333,125
5,263,182
–
2,747,415
450,262
(39,226,535)
77,549,321
63,378,973
46,783,645
The financial statements were approved and authorised for issue by the Board of Directors on 29 March 2017 and signed on its behalf by:
Clive Line
Finance Director
30 March 2017
Company Number 5131528
Serabi Gold plc // Report and Accounts 2016
FINANCIAL STATEMENTS
Company Balance Sheet
As at 31 December 2016
Non-current assets
Development and deferred exploration costs
Property, plant and equipment
Investments in subsidiaries
Other receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
Accruals
Total current liabilities
Net current liabilities
Total assets less current liabilities
Total non-current liabilities
Net assets
Equity
Share capital
Share premium reserve
Option reserve
Other reserves
Distributable surplus
Equity shareholders’ funds attributable to owners of the parent
57
Company
2016
US$
2015
US$
Notes
8
9
10
12
11
12
13
14
15
17
18
1,568,365
6,770,252
66,600,872
7,606,894
2,040,437
6,174,311
69,770,204
13,753,874
82,546,383
91,738,826
–
1,075,532
104,666
3,612,495
1,148,634
6,030,125
101,712
1,781,433
4,792,693
9,061,904
6,222,345
1,787,096
635,446
6,775,354
10,998,513
499,057
8,644,887
18,272,924
(3,852,194)
(9,211,020)
78,694,189
82,527,806
–
–
78,694,189
82,527,806
5,540,960
1,722,222
1,338,652
–
70,092,355
5,263,182
–
2,747,415
88,801
74,428,408
78,694,189
82,527,806
A separate statement of comprehensive income for Serabi Gold plc has not been prepared as permitted by Section 408 of the Companies Act
2006. The loss of the Company during 2016 was US$7,379,966 (2015: US$9,136,678).
The financial statements were approved and authorised for issue by the Board of Directors on 29 March 2017 and signed on its behalf by:
Clive Line
Finance Director
30 March 2017
Company Number 5131528
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
58
FINANCIAL STATEMENTS
Statements of Changes in Shareholders’ Equity
For the year ended 31 December 2016
Group
Share
capital
US$
Share
premium
US$
Share option
reserve
US$
Other
reserves
US$
Translation
reserve
US$
(Accumulated
losses)/
retained
surplus
US$
Total equity
US$
Equity shareholders’ funds at 31 December 2014
61,668,212
67,656,848
2,400,080
450,262
(18,736,292)
(46,520,559)
66,918,551
Foreign currency adjustments
Loss for year
Total comprehensive loss for the year
Cancellation of share premium
Cancellation of deferred shares
Share options lapsed in period
Share option expense
–
–
–
(56,405,030)
–
–
Equity shareholders’ funds at 31 December 2015
5,263,182
Foreign currency adjustments
Profit for year
Total comprehensive income for the year
Transfer to taxation reserve
Shares issued in period
Release of fair value provision on convertible loan
Warrants lapsed
Share options lapsed in period
Share option expense
–
–
–
277,778
–
–
–
–
–
–
(67,656,848)
–
–
–
–
–
–
–
1,722,222
–
–
–
–
–
–
–
–
(56,740)
404,075
–
–
–
–
–
–
–
(20,490,243)
–
(20,490,243)
–
–
–
–
–
(48,738)
(20,490,243)
(48,738)
(48,738)
67,656,848
56,405,030
56,740
–
(20,538,981)
–
–
–
404,075
2,747,415
450,262
(39,226,535)
77,549,321
46,783,645
–
–
8,618,687
–
–
–
–
–
(1,759,662)
350,899
–
2,690,401
–
–
(88,801)
–
8,618,687
–
–
–
–
–
–
4,430,292
4,430,292
(2,690,401)
–
1,195,450
88,801
1,759,662
8,618,687
4,430,292
13,048,979
–
2,000,000
1,195,450
–
–
350,899
Equity shareholders’ funds at 31 December 2016
5,540,960
1,722,222
1,338,652
3,051,862
(30,607,848)
82,333,125
63,378,973
Other reserves comprises a merger reserve of US$361,461 and a taxation reserve of US$2,690,401 (2015: merger reserve of US$361,461 and warrant
reserve of US$88,801).
The following is a description of each of the reserve accounts that comprise equity shareholders’ funds
Share capital
Share premium
Share option reserve
Other reserves
Translation reserve
Retained surplus
The share capital comprises the issued ordinary shares of the company at par.
The share premium comprises the excess value recognised from the issue of ordinary shares at par.
Cumulative fair value of options charged to the statement of comprehensive income net of transfers to the profit
and loss reserve on exercised and cancelled/lapsed options.
Other reserves comprises of a merger reserve arising on the acquisition of Kenai Resources Limited, representing
the difference between the nominal value of the shares issued and their fair value, and a warrant reserve being
the cumulative fair value of warrants issued associated with equity shares issued. The Group has also established
a taxation reserve. The reserve is used to accumulate taxation savings received by the Group as a result of a lower
taxation rate being applied in Brazil through its eligibility for a tax incentive programme (“SUDAM”) SUDAM reduces
the Group’s effective tax rate from approximately 34 per cent to approximately 15.25 per cent. The regulations of the
incentive programme require the Group to accumulate incentives received through tax savings in a taxation reserve.
Cumulative gains and losses on translating the net assets of overseas operations to the presentation currency.
Retained surplus/(accumulated losses) comprise the Group’s cumulative accounting profits and losses since inception.
Serabi Gold plc // Report and Accounts 2016
59
Company
Share
capital
US$
Share
premium
US$
Share option
reserve
US$
Other
reserves
US$
(Accumulated
losses)/
retained
surplus
US$
Total equity
US$
Equity shareholders’ funds at 31 December 2014
61,668,212
67,656,848
2,400,080
88,801
(40,553,532)
91,260,409
Loss for the year
Comprehensive loss for year
Cancellation of share premium
Cancellation of deferred shares
Share options lapsed in period
Share option expense
Equity shareholders’ funds at 31 December 2015
Loss for the year
Comprehensive loss for year
Shares issued in period
Release of fair value provision on convertible loan
Warrants lapsed
Share options lapsed in period
Share option expense
–
–
–
–
–
(56,405,030)
–
–
5,263,182
–
–
277,778
–
–
–
–
–
(67,656,848)
–
–
–
–
–
–
1,722,222
–
–
–
–
–
–
–
(56,740)
404,075
–
–
–
–
–
–
(9,136,678)
(9,136,678)
(9,136,678)
67,656,848
56,405,030
56,740
–
(9,136,678)
–
–
–
404,075
2,747,415
88,801
74,428,408
82,527,806
–
–
(7,379,966)
(7,379,966)
–
–
–
–
(1,759,662)
350,899
–
–
–
(88,801)
–
–
(7,379,966)
–
1,195,450
88,801
1,759,662
–
(7,379,966)
2,000,000
1,195,450
–
–
350,899
Equity shareholders’ funds at 31 December 2016
5,540,960
1,722,222
1,338,652
–
70,092,355
78,694,189
Other reserves comprise a warrant reserve of US$nil (2015: US$88,801).
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
60
FINANCIAL STATEMENTS
Cash Flow Statements
For the year ended 31 December 2016
Cash outflows from operating activities
Loss for the year
Prior year adjustment
Operating profit/(loss)
Net financial expense
Depreciation – plant, equipment and mining properties
Taxation (benefit)/expense
Share-based payments
Interest paid
Foreign exchange
Finance charges
Changes in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables, prepayments and accrued income
Increase/(decrease) in payables, accruals and provisions
(Decrease)/increase in short term intercompany payables
Group
Company
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
–
–
4,430,292
4,153,727
8,384,738
(2,560,113)
350,899
(2,049,900)
(1,045,460)
(37,500)
153,314
4,177,110
195,845
–
–
–
(48,738)
400,142
5,840,769
525,032
404,075
(1,006,508)
(1,482,239)
(171,500)
(1,617,365)
(272,978)
1,831,710
–
–
–
(7,379,963)
4,105,778
573,166
–
350,899
(2,018,161)
(85,241)
(37,500)
1,148,634
4,951,640
(346,428)
(415,775)
(9,136,678)
1,460,311
(7,676,367)
338,152
597,353
–
404,075
(1,006,508)
63,208
(171,500)
1,025,252
983,196
77,463
5,776,622
Net cash flow from operations
16,152,952
4,402,400
847,048
410,945
Investing activities
Sales revenues – capitalised
Capitalised pre-operating costs
Purchase of property, plant, equipment and projects in construction
Mine development expenditure
Geological exploration expenditure
Capital and loan investments in subsidiaries
Proceeds from sale of assets
Interest received and other finance income
–
–
(3,042,043)
(2,366,486)
(525,444)
–
34,742
573
3,337,071
(5,422,606)
(2,985,139)
(1,539,729)
–
–
–
675,643
–
–
–
(697,036)
–
–
–
573
–
–
–
(229,411)
–
(2,708,980)
–
674,871
Net cash outflow on investing activities
(5,898,658)
(5,934,760)
(696,462)
(2,263,520)
Financing activities
Convertible loan received and subsequent conversion to ordinary shares
Repayment of short term secured loan
Receipt from repayment of intercompany loan
Payment of finance lease liabilities
Receipts for short term trade finance
Repayment of short term trade finance
2,000,000
(3,111,111)
–
(755,858)
15,146,817
(21,384,139)
–
(4,000,000)
–
(757,596)
21,787,907
(22,899,024)
2,000,000
(3,111,108)
9,318,311
(200,402)
15,146,817
(21,384,139)
–
(4,000,000)
–
(445,380)
21,787,907
(22,899,024)
Net cash (outflow)/inflow from financing activities
(8,104,291)
(5,868,713)
1,769,476
(5,556,497)
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Exchange difference on cash
2,150,003
2,191,759
(180,839)
(7,401,073)
9,813,602
(220,770)
1,920,062
1,781,433
(89,900)
(7,409,072)
9,234,070
(43,565)
Cash and cash equivalents at end of period
4,160,923
2,191,759
3,612,495
1,781,433
Serabi Gold plc // Report and Accounts 2016
FINANCIAL STATEMENTS
Notes to the Financial Statements
For the year ended 31 December 2016
61
1 Significant accounting policies
(a) Basis of preparation
Serabi Gold plc (the “Company”) is a public limited company incorporated and domiciled in England, the shares of which are listed on AIM,
part of the London Stock Exchange, and the Toronto Stock Exchange. The public registered office and principal place of business are disclosed
in the shareholder information section of the Annual Report.
The principal activities of the Group are described in the Directors’ Report on page 49.
The consolidated 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 (“IFRS”) in force at the reporting date
and their interpretations issued by the International Accounting Standards Board (“IASB”) as adopted for use within the European Union and with
IFRS and their interpretations issued by the IASB. The parent company financial statements have also been prepared in accordance with those
parts of the Companies Act 2006 applicable to companies reporting under IFRS.
Accounting standards issued but not adopted
At the date of authorisation of these financial statements, the following standards and relevant interpretations, which have not been applied
in these financial statements, were in issue but not yet effective (and some of which were pending endorsement by the EU):
IAS 12 (amended) Recognition of Deferred Tax Asset for Unrealised Losses
IFRS 16 Leases
IAS 7 Disclosure Initiative
lFRIC 22 Foreign Currency Transactions and Advance Consideration
lFRS 9 Financial Instruments
lFRS 15 Revenue from Contracts
lFRS 2 (amended) Classification and Measurement of Share-based Payment Transactions
lFRS 15 Clarification to IFRS 15 Revenue from Contracts with Customers
Annual improvements to IFRSs: 2014-2016 Cycle
The Group considers that the only standard that may have any impact is IFRS 9. The new standard will replace existing accounting standards.
It is applicable to financial assets and liabilities and will introduce changes to existing accounting concerning classification, measurement and
impairment (introducing an expected loss method). The Group considers that whilst IFRS 15 and IFRS 16 may impact on the Group the effect will
not be significant. The operating leases held by the Company are of low value and revenue contracts usually contain a single performance criteria
that is satisfied at a point in time. The Group will adopt the above standards at the time stipulated by that standard. The Group does not at this
time anticipate voluntary early adoption of any of the standards.
Going concern and availability of finance
On 1 February 2016, the Group announced that, with effect from 1 January 2016, the Sao Chico Mine had achieved Commercial Production.
The Palito Mine has been in Commercial Production since 1 July 2014.
The Directors anticipate the Group now has access to sufficient funding for its immediate projected needs. The Group expects to have
sufficient cash flow from its forecast production to finance its on-going operational requirements, to repay its secured loan facilities and to,
at least in part, fund exploration and development activity on its other gold properties. The secured loan facility is repayable by 31 August
2017 and at 31 December 2016, the amount outstanding under this facility was US$1.37 million (2015: US$4.0 million). The Group is currently
in negotiations to increase and extend the terms of its loan facilities.
The Directors consider that the Group’s operations are performing at the levels that they anticipate but the Group remains a small scale gold
producer with limited cash resources to support any unplanned interruption or reduction in gold production, unforeseen reductions in the
gold price or appreciation of the Brazilian currency, all of which could adversely affect the level of free cash flow that the Group can generate
on a monthly basis. In the event that the Group is unable to generate sufficient free cash flow to meet its financial obligations as they fall due or
to allow it to finance exploration and development activity on its other gold properties, additional sources of finance may be required. Should
additional working capital be required the Directors consider that further sources of finance could be secured within the required timescale.
On this basis, the Directors have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis. However,
there is no certainty that such additional funds either for working capital or for future development will be forthcoming and these conditions
indicate the existence of a material uncertainty which may cast significant doubt over the Group’s ability to continue as a going concern and,
therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business. The financial statements do not
include the adjustments that would result if the Group was unable to continue as a going concern.
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62
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
1 Significant accounting policies (continued)
(b) Basis of consolidation
(i) Subsidiaries and acquisitions
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries)
made up to 31 December each year. Control is recognised where an investor is expected, or has rights, to variable returns from its investment with
the investee, and has the ability to affect these returns through its power over the investee. On acquisition, the assets, liabilities and contingent
liabilities of a subsidiary are measured at their fair value at the date of acquisition. Any excess of the cost of the acquisition over the fair values of the
identifiable net assets acquired is recognised as a “fair value” adjustment. If the cost of the acquisition is less than the fair value of net assets of the
subsidiary acquired, the difference is recognised directly in profit or loss.
The results of subsidiaries acquired or disposed of during the year are included in the statement of comprehensive income from the effective date
of acquisition or up to the effective date of disposal, as appropriate.
In the Company’s balance sheet, investments in subsidiaries includes the investment in Kenai Resources Limited (“Kenai”) for the nominal value of
the shares issued as consideration for the acquisition of that company. As permitted by the Companies Act 2006, no premium was recorded on
the issue of such shares. On consolidation, the difference between the nominal value of the shares issued and their fair value was credited directly
to the merger reserve, which is included within other reserves.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies into line with those used
by the Group.
(ii) Transactions eliminated on consolidation
Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions, are eliminated in
preparing the consolidated financial statements.
(c) Foreign currencies
The Group’s presentational currency is US Dollars and has been selected based on the currency of the primary economic environment in which
the Group as a whole operates on the basis that the Group’s primary product is generally traded by reference to its pricing in US Dollars.
The functional currency of the Company is also considered to be the US Dollar.
Transactions in currencies other than the functional currency of a company are recorded at a rate of exchange approximating to that prevailing
at the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in currencies other than the
functional currency are translated at the amounts prevailing at the balance sheet date and any gains or losses arising are recognised in the
income statement.
On consolidation, the assets and liabilities of the Group’s overseas operations that do not have a US Dollar functional currency, are translated
at exchange rates prevailing at the balance sheet date. Income and expense items are translated at the average exchange rate for the period.
Exchange differences arising on the net investment in subsidiaries are recognised in other comprehensive income.
The US Dollar/Sterling exchange rate at 31 December 2016 was 1.2275 (2015: 1.4741). The Brazilian Real/US Dollar exchange rate at
31 December 2016 was 3.2585 (2015: 3.9042).
(d) Property, plant and equipment
(i) Owned assets
Items of property, plant and equipment are stated at cost less accumulated depreciation (note 1(d) (iv)) and impairment losses (note 1(h)).
Upon demonstration of the feasibility of commercial production, any past deferred exploration, evaluation and development costs related
to that operation are reclassified as Assets in Construction. When commercial production commences these expenditures are then subsequently
transferred at cost to Mining Properties. They are stated at cost less amortisation charges and any provision for impairment. Amortisation is
calculated over the estimated life of the mineable inventory on a unit of production basis. Future forecast capital expenditure is included in the
unit of production depreciation calculation.
(ii) Leased assets
Assets held under leases, which result in the Group bearing risk and receiving benefit of ownership (finance leases), are capitalised as property,
plant and equipment at the estimated present value of underlying lease payments.
The corresponding finance lease obligation is included within borrowings. The interest element is allocated to accounting periods during the
lease term to reflect a constant rate of interest on the remaining balance of the obligation for each accounting period.
Serabi Gold plc // Report and Accounts 2016 63
1 Significant accounting policies (continued)
(d) Property, plant and equipment (continued)
(iii) Subsequent costs
Costs relating to maintenance and upkeep of the Group’s assets once such assets have been commissioned and entered into commercial
operations, will generally be expensed as incurred. In the event, however, that the costs demonstrably result in extending the original estimated
life of such asset or enhances its value, then such expenditure is added to the carrying value of that asset and amortised over its remaining
estimated useful life.
(iv) Depreciation
Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant
and equipment. Land is not depreciated. The estimated useful lives are as follows:
Mining assets
Processing plant
Other plant and assay equipment
Heavy vehicles
Light vehicles
Land and buildings
Mining properties
Other assets
Furniture and fittings
Office equipment
Communication installations
Computers
three – seven years
two – ten years
eight years
three years
ten – twenty years
unit of production
five years
four years
five years
three years
The Group reviews the economic lives at the end of each annual reporting period.
The residual value, if not insignificant, is reassessed annually. Gains and losses on disposal are determined by comparing proceeds with carrying
values and are included in profit or loss.
(e) Deferred exploration costs
All costs incurred prior to obtaining the legal right to undertake exploration and evaluation activities on a project are written off as incurred.
Subsequent to the legal rights being obtained, all costs related to the exploration of mineral properties are capitalised on a project-by-project
basis and deferred until either the properties are demonstrated to be commercially viable (see note 1(d)(i)) or until the properties are sold, allowed
to lapse or abandoned, at which time any capitalised costs are written off to the income statement. Costs incurred include appropriate technical
and administrative overheads but not general overheads. Deferred exploration costs are carried at cost, less any impairment losses recognised.
At such time as commercial feasibility is established and a development decision is reached, the costs associated with that property will be
transferred to and re-categorised as Projects in Construction and upon commercial production being achieved, re-categorised as Mining Property.
Property, plant and equipment used in the Group’s exploration activities are separately reported.
(f ) Trade and other receivables
Trade receivables are not interest-bearing and are stated at nominal value at the balance sheet date.
Other receivables are not interest-bearing and are stated at amortised cost at the balance sheet date.
Receivables in respect of sale of gold/copper concentrate are re-valued using the best estimate of the forecast metal prices for the expected date
of settlement (see Revenue policy – note 1(p)).
Trade and other receivables are reviewed for impairment on a regular basis.
(g) Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held at call with banks, other short term highly liquid investments with original
maturities of three months or less and bank overdrafts. Bank overdrafts are shown within interest-bearing liabilities in current liabilities
on the balance sheet.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 64
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
1 Significant accounting policies (continued)
(h) Impairment
At each balance sheet date, the Group reviews the carrying amounts of its property, plant and equipment and intangible assets to determine
whether there is any indication that those assets have suffered impairment. Prior to carrying out impairment reviews, the significant cash
generating units are assessed to determine whether they should be reviewed under the requirements of IFRS 6 – Exploration for and Evaluation
of Mineral Resources or IAS 36 – Impairment of Assets. Such determination is by reference to the stage of development of the project and the
level of reliability and surety of information used in calculating value in use or fair value less costs to sell. Impairment reviews performed under
IFRS 6 are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review
is undertaken when indicators of impairment arise; typically when one of the following circumstances applies:
(i) sufficient data exists that render the resource uneconomic and unlikely to be developed
(ii) title to the asset is compromised
(iii) budgeted or planned expenditure is not expected in the foreseeable future
(iv) insufficient discovery of commercially viable resources leading to the discontinuation of activities
Impairment reviews performed under IAS 36 are carried out when there is an indication that the carrying value may be impaired. Such key
indicators (though not exhaustive) to the industry include:
(i) a significant deterioration in the spot price of gold
(ii) a significant increase in production costs
(iii) a significant revision to, and reduction in, the life of mine plan
If any indication of impairment exists, the recoverable amount of the asset is estimated, being the higher of fair value less costs to sell and value
in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not
been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset
(or cash generating unit) is reduced to its recoverable amount. Such impairment losses are recognised in profit or loss for the year.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate
of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined
had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised in
profit or loss for the year.
(i) Share capital and share premium
The Company’s ordinary shares are classified as equity.
Called up share capital is recorded at par value of 0.5 pence per ordinary share.
Monies raised from the issue of shares in excess of par value are recorded as share premium. Costs associated with the raising of capital are netted
off this amount.
(j) Borrowings
Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with
any difference between the proceeds (net of transaction costs) and the redemption value recognised in profit or loss over the period of the
borrowings using the effective interest rate method.
Where the Group secures borrowings which include any rights of conversion into equity, the fair value of such conversion rights is estimated and
reported as a financing cost. In the event that the conversion rights are not exercised this financing costs will reversed as a movement in reserves.
Interest on borrowings used specifically to fund the acquisition of non-current assets is capitalised as part of the acquisition cost of the asset
otherwise borrowing costs are expensed as incurred. Borrowing costs comprise interest and other costs that the Group incurs in connection
with the borrowing of finance.
Serabi Gold plc // Report and Accounts 2016 65
1 Significant accounting policies (continued)
(k) Employee benefits
(i) Share-based payment transactions and share options
The Group issues share-based payments including share options to certain employees, which are measured at fair value at date of grant. The fair
value determined at the grant date is expensed on a graded vesting basis over the vesting period, based on the Group’s estimate of shares that
will eventually vest. The Black-Scholes method is used to calculate fair value. The expected life of the instrument used in the model is adjusted,
based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
The entity measures the fair value of the services received by reference to the fair value of the equity instruments granted, because typically
it is not possible to estimate reliably the fair value of the services received. The fair value is measured at the date of grant. Where the equity
instruments granted do not vest immediately but after a specified number of years, the fair value is accounted for over the vesting period.
(ii) Pension costs
The Group does not operate any pension plan for its employees although it does make contributions to employee pension plans in accordance
with instructions from those employees. The Company has no contractual commitment as to the ability of those funds to provide any minimum
level of future benefit to the individual and is contracted only to make the contributions. Company contributions to such schemes are charged
against profit as they fall due.
(l) Provisions, contingent liabilities and contingent assets
Provisions are recognised when:
(i) the Group has a present legal or constructive obligation as a result of past events;
(ii) it is more likely than not that an outflow of resources will be required to settle the obligation; and
(iii) the amount can be reliably estimated.
(m) Restoration, rehabilitation and environmental costs
Provision for environmental remediation and decommissioning of the Group’s mining and exploration facilities has been estimated using current
prices which are inflated and then discounted for the time value of money. While the provision has been based on the best estimates of future
costs and economic life, there is uncertainty regarding the amount and timing of these costs.
(n) Trade and other payables
Trade and other payables that are not interest-bearing are stated at amortised cost. Any interest charges or late payment penalties are recognised
only when agreed with the supplying party or it considered probable that they will be levied.
(o) Inventories
Inventories are stated at the lower of cost and net realisable value. Materials that are no longer considered as likely to be used by the Group,
or their value is unlikely to be readily realised through a sale to a third party, are provided for.
Materials held for consumption within operations are valued based on purchase price or, when manufactured internally, at cost. Costs are
allocated on an average basis and include direct material, labour, related transportation costs and an appropriate allocation of overhead costs.
Gold bullion, copper/gold concentrate, run of mine ore and any other production inventories are valued at the lower of cost and net realisable
value. Dependent on the current stage of any product inventory in the process cycle, cost will reflect, as appropriate, mining, processing, transport
and labour costs, as well as an allocation of mine services overheads required to bring the product to its current state.
Net realisable value is the estimated selling price in the ordinary course of business, after deducting any costs to completion and any applicable
marketing, selling, shipping and other distribution expenses.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 66
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
1 Significant accounting policies (continued)
(p) Revenue
Revenue represents amounts receivable in respect of sales of gold and by-products. Revenue represents only sales for which contracts have
been agreed and for which the product has been delivered to the purchaser in the manner set out in the contract. Revenue is stated net of any
applicable sales taxes. All revenue is derived from the sales of copper/gold concentrates produced by the Palito Mine and gold bullion produced
from both the Palito Mine and the Sao Chico Mine.
Revenue from the sale of goods is recognised when the risks and rewards of ownership have been transferred to the buyer. Revenues are
recognised in full using prices ruling at the date of sale with adjustments in respect of final sales prices being recognised in the month that such
adjustment is agreed. Fair value adjustments for gold prices in respect of any sale for which final pricing has not been agreed at any balance sheet
date is accounted for using the best estimates of forecast prices for the expected date of settlement. Any unsold production and in particular
concentrate, is held as inventory and valued at the lower of production cost and net realisable value until sold.
In the case of the sales of copper/gold concentrates, revenue is recognised when in accordance with the terms of the contract the product arrives
at the port of delivery. In the case of gold bullion revenue is recognised at the time that gold is delivered to the end purchaser.
No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due.
All sales revenue from incidental production arising during the exploration, evaluation, development and commissioning of a mineral resource
prior to commercial production, are taken as a contribution towards previously incurred costs and offset against the related asset accordingly.
Interest income is recognised on a time-proportion basis using the effective interest rate method.
(q) Expenses
(i) Operating lease payments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.
(ii) Finance lease payments
Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated
to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
(iii) Financing expenses
Financing expenses comprise interest payable on borrowings calculated using the effective interest rate method and interest receivable on funds
invested. It also includes charges arising on the unwinding of discount factors relating to the provisions for future charges.
(r) Taxation
Income tax on the profit or loss for the year comprises current and deferred tax. Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at the year end and any adjustments in respect of prior years.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet method.
Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a
business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent
that it is probable that they will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that are expected to be applied to
the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.
Deferred tax assets are only recognised to the extent that it is probable that future taxable profit will be available against which the asset can be
utilised. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to
income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities
and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
(s) Segmental reporting
An operating segment is a component of the Group engaged in exploration or production activity that is regularly reviewed by the Chief
Operating Decision Maker (“CODM”) for the purposes of allocating resources and assessing financial performance. The CODM is considered to
be the Board of Directors. The Group has only one primary business activity namely the conduct of gold mining and exploration in Brazil. For
management purposes, however, the Group recognises two separate segments, Brazil and UK. Copper/gold concentrate is produced in Brazil
and sales routed through the UK, whilst sales of gold bullion are conducted directly from Brazil. The operating segments are reported in a manner
consistent with the internal reporting provided to the CODM.
The Group does not report geographic segments by location of customer as its business is the production of gold which is traded as a
commodity on a worldwide basis. Sales are ultimately made into the bullion market, where the location of the ultimate customer is unknown.
Serabi Gold plc // Report and Accounts 2016 67
1 Significant accounting policies (continued)
(t) Investments in subsidiaries
Investments in subsidiaries are recognised at cost, less any provision for impairment.
(u) Financial instruments
Financial instruments
Financial assets and financial liabilities are recognised on the Company’s and Group’s balance sheet when the Company and Group has become
a party to the contractual provisions of the instrument and are initially measured at fair value, except for financial assets at fair value through profit
or loss, which are initially measured at fair value, excluding transaction costs.
Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Financial liabilities include
bank loans and overdrafts which are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of
comprehensive income over the period of the borrowings on an effective interest basis.
Financial assets and liabilities at fair value through profit and loss
Financial assets and liabilities at fair value through profit and loss comprise derivative financial instruments. Subsequent to initial recognition
financial assets at fair value through profit and loss are stated at fair value. Movements in fair values are recognised in profit or loss, unless they
relate to derivatives designated and effective as hedging instruments, in which event, the timing of the recognition in profit or loss depends
on the nature of the hedging relationship.
De-recognition of financial assets
De-recognition of financial assets occurs when the rights to receive cash flows from the investments expire or are transferred and substantially
all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least annually at each balance
sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.
(v) Leases
Finance leases are recognised as those leases that transfer substantially all the risks and rewards of ownership. Assets held under finance leases
are capitalised and the outstanding future lease obligations are shown in liabilities at the fair value of the lease, or if lower at the present value
of the lease payments. They are depreciated over the term of the lease or their useful economic lives, whichever is the shorter. The interest
element (finance charge) of lease payments is charged to the income statement on a constant basis over the period of the lease.
All other leases are regarded as operating leases and the payments made under them are charged to the income statement in the period
on a straight-line basis. The Company does not act as a lessor.
(w) Derivatives
Derivatives are valued by reference to available market data. Any change in the value of the derivative is recognised in the statement
of comprehensive income in the period in which it occurs.
(x) Critical accounting estimates and judgements
The preparation of financial statements requires management to make judgements and assumptions about the future in the use of accounting
estimates. These are based on management’s best knowledge of the relevant facts and circumstances. However, these judgements and estimates
regarding the future are a source of uncertainty and actual results may differ from the amounts included in the financial statements and adjustment
will consequently be necessary. Estimates are continually evaluated, based on experience and reasonable expectations of future events.
Accounting estimates are applied in assessing and determining the carrying values of significant assets and liabilities.
The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects
both current and future periods.
The following are the critical judgements that management has made in the process of applying the entity’s accounting policies and that have
the most significant effect on the amounts recognised in financial statements.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 68
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
1 Significant accounting policies (continued)
(x) Critical accounting estimates and judgements (continued)
Impairment of mining assets and other property, plant and equipment
Determining whether mining assets are impaired requires an estimation of the value in use of the cash-generating units (“CGU’s”). The value in use
calculation requires the entity to estimate the future cash flows expected to arise from a CGU and a suitable discount rate in order to calculate
present value. A CGU is a group of assets that generates cash inflows from continuing use. Given their interdependences and physical proximity,
the Palito and Sao Chico Mines are considered to be a single CGU.
As described in note 1(d) (iv), the Group reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting
period. Further disclosure is provided in note 19 regarding the key assumptions made in assessing the value in use.
Provisions and contingent liabilities
The Group reviews estimates of provisions for potential liabilities at the end of each reporting period where applicable taking into account the
circumstances of the potential liability, the availability and confidence of information used to calculate the potential liability and where applicable,
past history regarding the actual liability incurred in similar situations.
Mineral resources
Quantification of mineral resources requires a judgement on the reasonable prospects for eventual economic extraction. These judgements are
based on assessments made in accordance with the provisions of Canadian National instrument 43-101. These factors are a source of uncertainty
and changes could result in an increase or decrease in mineral resources and changes to the categorisation or mineral resources between Ore
Reserves, Measured and Indicated Resources and Inferred Resources. This would, in turn, affect certain amounts in the financial statements such
as depreciation and closure provisions, which are calculated on projected life of mine figures, and carrying values of mining property and plant
which are tested for impairment by reference to future cash flows based on projected life of mine figures.
Recoverability of deferred exploration expenditure
The recoverability of exploration expenditure capitalised within intangible assets is assessed based on a judgement about the feasibility of the
project and estimates of its future cash flows. Future gold prices, operating costs, capital expenditure and production are sources of estimation
uncertainty. The Group periodically makes judgements as to whether its deferred exploration expenditure may have been impaired, based on
internal and external indicators. Any impairment is based on a variety of estimates and opinions and may include estimates of future cash flows.
In particular, the Group recognises that, if it decides, or is compelled due to insufficient funding, to withdraw from exploration activity at a project,
then the Company would need to assess whether an impairment is necessary based on the likely sale value of the property.
Inventory valuation
Valuations of gold in stockpiles and in circuit, require estimations of the amount of gold contained in, and recovery rates from, the various work
in progress. These estimations are based on analysis of samples and prior experience. A judgement is also required about when stockpiles will be
used and what gold price should be applied in calculating net realisable value; these are both sources of uncertainty.
Utilisation of historic tax losses and recognition of deferred tax assets
The recognition of deferred tax assets is based upon whether sufficient and suitable taxable profits will be available in the future against which the
reversal of temporary differences can be deducted. Recognition of deferred tax assets therefore involves judgement regarding the future financial
performance of the particular legal entity or tax group in which the deferred tax asset has been recognised. Where the temporary differences are
related to losses, relevant tax law is considered to determine the availability of the losses to offset against the future taxable profits.
The amounts recognised in the consolidated financial statements in are derived from the Group’s best estimation and judgement as set out
in note 5.
Restoration, rehabilitation and environmental provisions
Such provisions require a judgement on likely future obligations, based on assessment of technical, legal and economic factors. The ultimate
cost of environmental remediation is uncertain and cost estimates can vary in response to many factors including the timing of expenditure,
the discount rate, inflation rate and foreign exchange rate used in calculating the current value of future expenditures and the projected scale
of disturbance that is anticipated at the end of the project life.
Serabi Gold plc // Report and Accounts 2016 69
2 Segmental analysis
The following information is given about the Group’s reportable segments further details of which are set out in note 1(s).
The Chief Operating Decision Maker is the Board of Directors. The Board reviews the Group’s internal reporting in order to assess performance
of the business. Management has determined the operating segments based on the reports reviewed by the Board.
An analysis of the results for the year by management segment is as follows:
Revenue
Intragroup sales
Operating expenses
Depreciation and amortisation
Gross profit/(loss)
Administration expenses
Share-based payments
Proceeds from sale of assets
Operating profit/(loss)
Foreign exchange gain/(loss)
Finance expense
Finance income
Brazil
US$
26,225,075
20,552,303
(26,900,469)
(7,632,981)
10,956,534
(2,864,336)
–
34,742
8,126,940
906,425
(31,739)
–
2016
UK
US$
Total
US$
26,368,676
(20,552,303)
(6,005,957)
(751,757)
346,053
(2,098,188)
(350,899)
–
(2,103,034)
(1,143,044)
(3,885,942)
573
52,593,751
–
(32,906,426)
(8,384,738)
11,302,587
(4,962,524)
(350,899)
34,742
6,023,906
(236,619)
(3,917,681)
573
Brazil
US$
9,632,695
20,692,896
(17,830,533)
(5,070,681)
7,424,377
(1,411,865)
–
–
6,012,512
1,299,181
–
772
2015
UK
US$
25,453,418
(20,692,896)
(5,754,530)
(770,088)
(1,764,096)
(2,967,905)
(404,075)
–
(5,136,076)
(1,370,461)
(1,533,008)
1,203,374
Total
US$
35,086,113
–
(23,585,063)
(5,840,769)
5,660,281
(4,379,770)
(404,075)
–
876,436
(71,280)
(1,533,008)
1,204,146
Profit /(loss) before taxation
9,001,626
(7,131,447)
1,870,179
7,312,465
(6,836,171)
476,294
An analysis of non-current assets by location is as follows:
Brazil – operations
Brazil – exploration
Brazil – deferred tax
Brazil – total
UK
An analysis of total assets by location is as follows:
Brazil
UK
Total non-current assets
31 December
2016
US$
31 December
2015
US$
45,396,140
9,990,789
3,253,630
58,640,559
–
40,150,484
8,679,246
–
48,829,730
–
58,640,559
48,829,730
Total assets
31 December
2016
US$
31 December
2015
US$
69,489,023
6,352,431
57,378,205
9,114,864
75,841,454
66,493,069
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70
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
2 Segmental analysis (continued)
During the year, the following amounts incurred by project location were capitalised as deferred exploration costs:
Brazil
Group
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
525,444
–
During the year, the following amounts were capitalised as land and buildings, mine assets, property, plant, equipment and projects in
construction (see Note 9):
Brazil
UK
Group
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
6,282,145
–
7,322,577
–
6,282,145
7,322,577
Revenue
All of the Group’s revenue arises from its activities in Brazil.
An analysis of the revenue by reference to the domicile of the entity within the Group that concludes the sale is as follows:
Brazil
UK
Total
An analysis of major customers (accounting for more than 10 per cent of the Group’s revenues) is as follows:
31 December
2016
US$
31 December
2015
US$
26,225,075
26,368,676
9,632,695
25,453,418
52,593,751
35,086,113
Customer 1 – Brazil
Customer 2 – UK
Customer 3 – UK
Total
31 December
2016
US$
31 December
2015
%
31 December
2016
US$
31 December
2015
%
26,225,075
19,618,674
6,750,002
49.9%
37.3%
12.8%
25,453,418
6,197,836
3,434,859
72.6%
17.6%
9.8%
52,593,751
100.0%
35,086,113
100.0%
Serabi Gold plc // Report and Accounts 2016
3 Operating profit
a. Group operating profit/(loss) for the year is stated after charging the following:
Staff costs
Depreciation (property, plant and equipment)
Amortisation of the mine asset
Operating lease charges
b. Auditor’s remuneration
Fees payable to the Group’s auditor for the audit of the Group’s annual financial statements
Fees payable to the Group’s auditor and its associates for other services:
audit of the Group’s subsidiaries pursuant to legislation
tax compliance services
audit-related assurance services
4 Finance expense and income
Interest on trade financing loan
Finance cost on secured loan facility
Interest payable on secured loan facility
Interest payable on finance leases
Interest payable on convertible loan
Fair value provision on convertible loan(1)
Expense from gold hedging activities
Other finance-related expenses
71
Group
For the
year ended
31 December
2016
US$
11,995,399
2,075,898
6,308,840
172,497
For the
year ended
31 December
2015
US$
8,719,740
298,716
4,540,432
147,755
Group
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
108,020
124,445
32,926
10,358
3,312
28,858
2,743
9,994
Group
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
(256,898)
(672,331)
(281,333)
(36,194)
(137,049)
(1,195,450)
(1,338,426)
–
(364,656)
(526,500)
(586,667)
(32,388)
–
–
–
(22,797)
Interest payable and expense on financial instruments
(3,917,681)
(1,533,008)
Release of fair value for call options granted
Release of fair value for warrants issued(2)
Income from gold hedging activities
Gains on financial instruments
Finance income on short term deposits
Net finance expense
–
–
–
–
196,330
332,173
674,520
1,203,023
573
1,123
(3,917,108)
(328,862)
(1) The fair value provision relates to the implied value of the equity conversion right included as part of the loan terms. The value was estimated at the date of drawdown and updated until the date
of exercise to reflect the price of the Group’s ordinary shares and the remaining period during which the conversion rights may be exercised.
(2) The release of fair value for warrants issued in 2015 relates to 100,000,000 warrants to subscribe for new ordinary shares issued by the Company on 3 March 2014. The Company accounted
for the issue of these warrants in accordance with IAS32 and recorded a liability of US$1.68 million at the date of issue. As at 31 December 2015 the fair value of these warrants was assessed
to be US$nil and the reduction in fair value was recognised through the income statement. The warrants expired on 2 March 2016 with none having been exercised.
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72
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
5 Taxation
Current tax
UK tax
Foreign tax
Total current tax
Deferred tax
Initial recognition of deferred tax asset
Total deferred tax
Income tax (benefit)/expense
Group
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
–
484,960
484,960
(3,045,073)
(3,045,073)
–
525,032
525,032
–
–
(2,560,113)
525,032
The tax provision for the current period varies from the standard rate of corporation tax in the UK of 20.00% (2015: 20.25%). The differences are
explained as follows:
Profit/(loss) on ordinary activities before tax
Tax thereon at UK corporate tax rate of 20.00% (2015: 20.25%)
Factors affecting the tax charge:
expenses not deductible for tax purposes
timing differences (not recognised)
income not taxable
lower rate tax overseas
unrecognised tax losses carried forward
recognised tax losses carried forward
Tax (benefit)/charge
Gross deferred tax position
Tax losses brought forward
Timing differences brought forward
Tax losses recognised in the period
Tax losses not recognised in the period
Prior year tax losses used in the period
Movement in timing differences
Exchange
Tax losses carried forward
Timing differences carried forward
Group
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
1,870,179
374,036
738,888
(474,206)
(341,248)
(389,908)
577,398
(3,045,073)
476,294
96,449
159,617
(233,161)
(52,420)
(370,305)
924,852
–
(2,560,113)
525,032
US$
US$
53,413,057
(348,248)
(19,967,689)
6,400,226
(1,983,222)
863,981
2,085,696
39,948,068
515,733
53,527,355
(1,738,086)
–
9,089,550
–
1,389,838
(9,203,848)
53,413,057
(348,248)
40,463,801
53,064,809
Serabi Gold plc // Report and Accounts 2016
5 Taxation (continued)
Unrecognised deferred tax asset
Tax losses
Timing differences
Total unrecognised deferred tax asset
Recognised deferred tax asset
Tax losses
Exchange
Net recognised deferred tax asset
73
Group
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
8,443,659
78,649
10,059,038
(53,108)
8,522,308
10,005,930
US$
US$
3,045,073
208,287
3,253,630
–
–
–
The deferred tax asset has been recognised in the financial statements only to the extent that the Group has reasonable certainty as the level
and timing of future profits that might be generated and against which this asset may be recovered.
6 Employee information
The average number of persons, including Executive Directors, employed by the Group during the year was:
Management and corporate administration
Exploration
Mine operations and maintenance
Mine management and administration
Plant and processing
Total
Staff costs
Wages and salaries
Cost of incentive scheme shares and Director shares vested
Social security costs
Termination costs
Pension contributions
Total
Group
Company
For the
year ended
31 December
2016
Number
For the
year ended
31 December
2015
Number
For the
year ended
31 December
2016
Number
For the
year ended
31 December
2015
Number
19
10
259
14
62
364
17
–
139
14
57
227
3
–
–
–
–
3
3
–
–
–
–
3
Group
Company
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
8,984,427
350,899
2,509,463
25,212
125,398
6,525,020
359,652
1,621,644
58,646
154,779
2,434,263
350,899
101,350
–
125,398
2,309,425
359,652
105,855
–
154,779
11,995,399
8,719,740
3,011,910
2,929,711
No company within the Group operates a pension plan for the Directors or the employees. For those Executive Directors and employees
who have an entitlement to pension provision, the premiums are paid directly to the personal pension plans selected by the individuals.
The Company’s obligation is limited to making fixed payments to these individual plans.
Serabi Mineração SA and Gold Aura do Brasil Mineração Ltda contribute via social security payments to the state pension scheme which operates
in Brazil and to which all its employees are entitled.
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74
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
6 Employee information (continued)
Directors’ remuneration
The compensation of the Directors is:
Salary and other benefits
Post-employment benefits
Total
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2015
US$
961,966
11,298
1,114,323
154,779
973,264
1,269,102
The remuneration of the highest paid Director during the year was US$479,917 (2015: US$608,423). The Company made cash contributions to his
money purchase pension scheme of US$11,298 (2015: US$93,643).
During the year ended 31 December 2016, two of the Directors (2015: two) were entitled to accrue retirement benefits under money
purchase schemes.
7 Earnings per share
Profit/(loss) attributable to ordinary shareholders (US$)
Weighted average ordinary shares in issue
Basic profit/(loss) per share (US cents)
Diluted ordinary shares in issue
Diluted profit /(loss) per share (US cents)
For the
year ended
31 December
2016
For the
year ended
31 December
2015
4,430,292
(48,738)
672,502,757
0.659
656,389,204
(0.01)
722,412,757(1)
656,389,204
0.613
(0.01)(2)
(1) Assumes exercise of all options and warrants outstanding as of that date.
(2) As the effect of dilution is to reduce the loss per share, the diluted loss per share is considered to be the same as the basic loss per share.
Details of share options that could potentially dilute earnings per share in future periods are set out in note 18.
8
Intangible assets
Deferred exploration costs
Cost
Opening balance
Exploration and evaluation expenditure
Transfer to mining property and projects in construction
Foreign exchange movements
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
8,679,246
525,444
(558,895)
1,344,994
11,799,271
–
–
(3,120,035)
2,040,437
–
(472,072)
–
2,040,437
–
–
–
Total as at end of period
9,990,789
8,679,236
1,568,365
2,040,437
The value of these assets is dependent on the development of mineral deposits.
Past exploration and evaluation expenditures for a project are transferred to mining property and projects in construction at the commencement
of the mine and process plant construction activities for that project.
Serabi Gold plc // Report and Accounts 2016
75
9 Tangible assets
Property, plant and equipment – Group
2016
Cost
Balance at 31 December 2015
Additions
Transfers
Transferred from deferred exploration costs
Write-offs
Foreign exchange movements
At 31 December 2016
Depreciation
Balance at 31 December 2015
Charge for period
Foreign exchange movements
At 31 December 2016
Land and
buildings
– at cost
US$
2,484,679
–
–
–
–
492,361
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
Plant and
equipment
– at cost
US$
28,574,370
2,366,486
9,366,554
558,895
–
5,660,878
11,230,262
(117,402)
(9,366,554)
–
–
1,082,027
12,650,974
4,033,061
–
–
(23,490)
2,244,267
Total
US$
54,940,285
6,282,145
–
558,895
(23,490)
9,479,533
2,977,040
46,527,183
2,828,333
18,904,812
71,237,368
(1,239,727)
(37,751)
(372,257)
(7,099,764)
(6,107,837)
(1,529,724)
(1,649,735)
(14,737,325)
–
–
–
–
(6,450,310)
(2,037,080)
(966,778)
(14,789,801)
(8,182,668)
(2,868,759)
(9,454,168)
(25,841,228)
Net book value at 31 December 2016
1,327,305
31,789,858
2,828,333
9,450,644
45,396,140
Net book value at 31 December 2015
1,244,952
21,474,606
11,230,262
6,200,664
40,150,484
Additions during the period include US$1,127,688 in respect of plant and equipment purchased by finance lease (2015: US$574,789). The net book
value of assets acquired under finance leases at 31 December 2016 was US$2,694,735 (2015: US$1,970,312). Depreciation charged on leased assets
for the period was US$650,667 (2015:US$487,519).
In 2009 the Company established an impairment provision against the carrying value of the Palito Mine. The Company has undertaken an
impairment review at the end of each of 2016 and 2015 and has also determined that Palito and Sao Chico form a single cash generating unit
(“the Palito/Sao Chico CGU”) given their close proximity and sharing of common services and processing facilities.
The 2016 impairment review has also indicated that the carrying value ascribed to the Palito/Sao Chico CGU remains below the value in use
calculation and therefore the Board has determined that no impairment provision is required. Further details regarding the impairment review
undertaken by the Group, are set out in note 19.
2015
Cost
Balance at 31 December 2014
Additions
Foreign exchange movements
At 31 December 2015
Depreciation
Balance at 31 December 2014
Charge for period
Foreign exchange movements
At 31 December 2015
Land and
buildings
– at cost
US$
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
Plant and
equipment
– at cost
US$
Total
US$
3,579,379
58,597
(1,153,297)
38,106,946
1,769,141
(11,301,717)
13,166,324
2,025,613
(3,961,675)
12,970,637
3,469,226
(3,788,889)
67,823,286
7,322,577
(20,205,578)
2,484,679
28,574,370
11,230,262
12,650,974
54,940,285
(2,074,684)
(33,604)
868,561
(4,525,753)
(4,405,385)
1,831,374
(1,239,727)
(7,099,764)
–
–
–
–
(7,118,951)
(1,159,504)
1,828,145
(13,719,388)
(5,598,493)
4,528,080
(6,450,310)
(14,789,801)
Net book value at 31 December 2015
1,244,952
21,474,606
11,230,262
6,200,664
40,150,484
Net book value at 31 December 2014
1,504,695
33,581,193
13,166,324
5,851,686
54,103,898
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76
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
9 Tangible assets (continued)
Property, plant and equipment – Company
2016
Cost
Balance at 31 December 2015
Additions
Transferred from Deferred exploration costs
At 31 December 2016
Depreciation
Balance at 31 December 2015
Charge for period
At 31 December 2016
Net book value at 31 December 2016
Net book value at 31 December 2015
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
6,225,022
697,210
472,072
43,610
–
–
Plant and
equipment
– at cost
US$
2,919,482
–
–
Total
US$
9,188,114
697,210
472,072
7,394,304
43,610
2,919,482
10,357,396
(1,331,631)
(206,602)
(1,538,232)
5,856,072
4,893,391
–
–
–
(1,682,172)
(366,740)
(3,013,803)
(573,341)
(2,048,912)
(3,587,144)
43,610
43,610
870,570
6,770,252
1,237,310
6,174,311
The net book value of assets acquired under finance leases as at 31 December 2016 was US$868,456 (2015: US$1,235,021). Depreciation charged
on leased assets for the period was US$366,565 (2015: US$397,526).
2015
Cost
Balance at 31 December 2014
Additions
At 31 December 2015
Depreciation
Balance at 31 December 2014
Charge for period
At 31 December 2015
Net book value at 31 December 2015
Net book value at 31 December 2014
Mining
property
– at cost
US$
5,995,611
229,411
6,225,022
(1,131,805)
(199,826)
(1,331,631)
4,893,391
4,863,806
Projects in
construction
– at cost
US$
Plant and
equipment
– at cost
US$
Total
US$
43,610
–
43,610
2,919,482
–
8,958,703
229,411
2,919,482
9,188,114
–
–
–
(1,284,646)
(397,526)
(2,416,451)
(597,352)
(1,682,172)
(3,013,803)
43,610
43,610
1,237,310
6,174,311
1,634,836
6,542,252
Serabi Gold plc // Report and Accounts 2016
77
10 Investments held as fixed assets
The Group consists of the following subsidiary undertakings:
Name
Serabi Mineraçăo SA
Brazil
Incorporated
Registered Office Address
Activity
% holding
Kenai Resources Ltd
British Columbia, Canada
Gold Origin Limited
British Virgin Islands
Gold Aura do Brasil Mineraçăo Ltda
Brazil
Gold Origin Mexico SA de CV
Mexico
Serabi Mining Ltd
British Virgin Islands
(1)
Indirectly held.
Cost at start of period and end of period
Impairment provision at start of period
Reallocation in period
Impairment provision at end of period
Net book value at end of period
Rodovia Transgarimpeira, km 22,
Bairro Jardim do Ouro –
Itaituba/PA CEP 68181-000
Brazil
Royal Centre, P.O Box 11125,
Suite 1750-1055
W Georgia Street,
Vancouver, Canada
Craigmuir Chambers,
Road Town, Tortola,
British Virgin Islands
Rodovia Transgarimpeira, km 54,
Comunidade São Chico –
Itaituba/PA CEP 68181-000
Brazil
Paseo de la Reforma, 450
Col. Lomas de Chapultepec
C.P. 11000 Mexico
Craigmuir Chambers,
Road Town, Tortola,
British Virgin Islands
Gold mining and exploration
100%(1)
Investment
100%
Dormant
96.1%(1)
Gold mining and exploration
99.9%(1)
Dormant
100%(1)
Investment
100%
Company
31 December
2016
US$
31 December
2015
US$
76,196,138
76,196,138
(6,425,934)
(3,169,332)
(6,425,934)
–
(9,595,266)
(6,425,934)
66,600,872
69,770,204
The value of these investments is dependent on the development of the Group’s mineral deposits in Brazil. The Company has undertaken
an impairment review at the end of 2016 to assess the future recoverability of the value of the investments that it holds in subsidiary entities.
The Board has determined that based on its assessment of the future cash flows that the current operating mines may generate and the
potential of the undeveloped assets no additional impairment provision is required at this time.
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78
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
11 Inventories
Consumables
Stockpile of mined ore
Stockpile of flotation tails
Other material in process
Finished goods awaiting sale
12 Trade and other receivables
Current
Trade receivables
Other receivables
Trade and other receivables
Non-current
Amounts owed by subsidiaries
Impairment provision
Other receivables
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
2,380,873
2,829,601
708,775
335,280
1,855,844
1,360,954
1,433,161
1,067,243
547,876
2,499,556
8,110,373
6,908,790
–
–
–
–
–
–
–
–
–
–
1,148,634
1,148,634
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
1,054,014
179,035
5,996,591
136,693
1,054,014
21,518
5,996,591
33,534
1,233,049
6,133,284
1,075,532
6,030,125
–
–
–
–
–
–
16,188,272
(8,581,378)
25,504,584
(11,750,710)
7,606,894
13,753,874
The Company has undertaken an impairment review at the end of 2016 to assess the future recoverability of the value of the amounts owed
by its subsidiary entities. The Board has determined that based on its assessment of the future cash flows that the current operating mines may
generate and the potential of the undeveloped assets no additional impairment provision is required at this time.
13 Prepayments
Recoverable state and federal taxes
Supplier downpayments
Other prepayments and employee advances
Prepayments
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
3,018,773
464,450
213,327
1,833,877
473,606
122,024
3,696,550
2,429,506
–
–
104,666
104,666
–
–
101,712
101,712
Serabi Gold plc // Report and Accounts 2016
79
14 Cash and cash equivalents
Cash and cash equivalents
4,160,923
2,191,759
3,612,495
1,781,433
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
15 Trade and other payables
Current
Trade payables
Other payables
Employee benefits
Other taxes and social security
Amounts due to subsidiaries
Trade and other payables
Non-current
(Between one and five years)
Property acquisition(1)
Other taxes and social security
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
2,058,388
896,621
673,815
1,093,315
–
1,996,670
555,966
566,001
1,094,166
–
396,159
–
45,803
–
5,780,383
542,628
–
36,568
–
6,196,158
4,722,139
4,212,803
6,222,345
6,775,354
2,126,873
84,205
1,753,351
104,563
2,211,078
1,857,914
–
–
–
–
–
–
(1) Under the terms of an agreement entered into by Gold Aura do Brasil Mineração Ltda (“GOAB”) in October 2012, GOAB undertook to acquire from Mr Waldimiro Morais Martins a 30 per cent net
profits interest of GOAB (the “NPI”) arising from production of gold and base metals extracted from the Sao Chico mining concession for a consideration of BrR$7.7 million upon GOAB successfully
securing the resources and finance for the Sao Chico project. GOAB will pay to Mr Martins, the sum of BrR$4 million during 2018, waive a debt due to GOAB by Mr Martins of BrR$700,000 and pay
the remainder in 36 monthly instalments of BrR$111,111 with the first instalment due within 10 months from the date of the execution of the transfer of the NPI.
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80
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
16 Non-current provisions
Employment and claims provision
Opening balance
As a result of exchange variations
Closing balance
Environmental rehabilitation provision
Opening balance
Provided for in year
as a result of changes in estimates
as a result of exchange variations
Closing balance
Total non-current provisions
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
24,160
4,786
28,946
35,518
(11,358)
24,160
–
–
–
–
–
–
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
1,898,714
2,793,950
170,157
(245,854)
(30,300)
(889,096)
(75,697)
(919,396)
1,823,017
1,874,554
1,851,963
1,898,714
–
–
–
–
–
–
–
–
–
–
–
–
The employment and claims provision covers claims that may be brought by:
(i) Former employees of Serabi Mineraçăo SA and Gold Aura do Brasil Mineraçăo Ltda against these companies. Brazilian labour law entitles
a former employee to lodge within two years of leaving the company claims for alleged unpaid remuneration and compensation in the event
of dismissal. The Group whilst contesting each claim has made provision in respect of all known claims.
(ii) Third parties against Serabi Mineraçăo SA and Gold Aura do Brasil Mineraçăo Ltda where sums are claimed over and above contracted
amounts. Whilst the Group will contest these claims it has made an additional provision as a best estimate of the potential value of any
settlement that could arise based on legal opinion.
The environmental rehabilitation provision has been established to cover any asset decommissioning and rehabilitation obligations for the Palito
and Sao Chico Mines. Such obligations include the dismantling of infrastructure, removal of residual materials and remediation of disturbed areas.
The provision does not allow for any additional obligations expected from future developments. The timing and scope of the rehabilitation is
uncertain and is dependent on mine life and quantities extracted from the mine.
Cost estimates are formally reviewed at regular intervals and the provisions are adjusted accordingly.
Serabi Gold plc // Report and Accounts 2016
81
17 Interest-bearing liabilities
Secured loan facility
On 26 September 2014, Serabi Gold plc and the Sprott Resource Lending Partnership (“Sprott”) entered into a US$8 million credit facility
(the “Sprott Facility”). On 23 February 2017 the Sprott agreement was extended for a term expiring on 31 August 2017. It carries interest
at a rate of 10 per cent per annum. The Sprott Facility was taken out to provide additional funding for the continued development of the
Palito Mine and the Sao Chico gold project, to finance an additional drilling programme at Sao Chico and for general corporate purposes.
The Sprott Facility was subject to a number of conditions precedent, including execution of security documentation in favour of Sprott over the
assets of the Group. The first Tranche of US$3 million was released on 26 September 2014, concurrent with the closing of the transaction and the
remaining funds were released on 29 December 2014, following completion of the registration of all the security arrangements.
Serabi has provided to Sprott certain covenants and undertakings, consistent with normal bank lending arrangements, including an undertaking
to maintain at all times working capital in excess of US$2.5 million (excluding any amount due under the Sprott Facility and any amount due
to Fratelli Investment Limited under a Convertible Loan Facility (see note 22. Related party transactions)) and a minimum of US$1 million in
unrestricted cash and cash equivalents. The Facility is subject to standard events of default. Serabi has been and remains in compliance with
all the terms of the Facility.
As consideration for an extension of the repayment terms agreed with Sprott on 20 January 2016, the Group granted to Sprott, call options
to acquire 2,500 ounces of gold from the Company at a price of US$1,125 per ounce, exercisable at any time up to 30 June 2017. The grant
of the call options and its settlement has occurred within the financial period and the Group has recorded for the value of the cash settlement
due as a finance expense in the Income Statement.
During the year ended 31 December 2016 Serabi repaid US$3,111,111 in capital repayments as well as US$150,000 of a total amount of
US$432,600 relating a cash settlement liability for call options over 2,500 ounces of gold which were granted to and exercised by Sprott
during the year.
Current
Secured loan facility
Obligations under trade finance facility
Obligations under finance leases
Due in less than one year
Non-current
(Between one and five years)
Obligations under finance leases
Due in more than one year
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
1,371,489
415,607
1,176,961
4,000,000
6,652,930
732,225
1,371,489
415,607
–
4,000,000
6,652,930
345,583
2,964,057
11,385,155
1,787,096
10,998,513
77,798
77,798
128,641
128,641
–
–
–
–
Each finance lease is secured against the underlying assets that are the subject of that lease.
Secured loan facility
Amount outstanding at beginning of period
Amounts repaid during the year
Amount due on settlement of call options
Extension fee payable
Amortisation of call options in period
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
4,000,000
(3,261,111)
432,600
200,000
–
7,744,000
(4,000,000)
–
–
256,000
4,000,000
(3,261,111)
432,600
200,000
–
7,744,000
(4,000,000)
–
–
256,000
Value of secured loan facility at end of period
1,371,489
4,000,000
1,371,489
4,000,000
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82
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
18 Share capital
The Companies Act 2006 (as amended) abolishes the requirement for a company to have an authorised share capital and on 3 March 2014,
the Company adopted new articles of association to reflect this.
Allotted, called up and fully paid
Ordinary shares of 0.5 pence each
Movements in issued share capital
Ordinary shares
Opening balance
Issue of shares for cash
Closing balance
Deferred shares – 9.5 pence par value
Opening balance and closing balance
Cancelled in year
Closing balance
Deferred shares – 4.5 pence par value
Opening balance
Cancelled in year
Closing balance
Total Share Capital
2016
2015
Number
US$
Number
US$
698,701,772
5,540,960
656,389,204
5,263,182
31 December
2016
Number
31 December
2016
US$
31 December
2015
Number
31 December
2015
US$
656,389,204
42,312,568
5,263,182
277,778
656,389,204
–
5,263,182
–
698,701,772
5,540,960
656,389,204
5,263,182
31 December
2016
Number
31 December
2016
US$
31 December
2015
Number
31 December
2015
US$
–
–
–
–
–
–
140,139,065
(140,139,065)
24,021,395
(24,021,395)
–
–
31 December
2016
Number
31 December
2016
US$
31 December
2015
Number
31 December
2015
US$
–
–
–
–
–
–
456,389,204
(456,389,204)
32,383,635
(32,383,635)
–
–
5,540,960
5,263,182
In August 2016, the Group issued 42,312,568 Ordinary Shares following the decision of Fratelli Investments Limited to convert its US$2 million
convertible loan (“the Loan”) into ordinary shares of 0.5 pence each in the Company. Under the terms of the Loan (as announced on 31 December
2015) Fratelli had the right to convert the Loan into new Ordinary Shares of Serabi at a price of 3.6 pence per new Ordinary Share.
Warrants to subscribe for ordinary shares
As part of an issue of shares that took place on 3 March 2014, the Company issued 100,000,000 warrants. Each warrant entitled the holder to
subscribe for one new ordinary share for each whole warrant held at a subscription price of UK£0.06 per ordinary share at any time up to and
including 2 March 2016. The warrants expired on 2 March 2016 with none having been exercised.
Serabi Gold plc // Report and Accounts 2016
83
18 Share capital (continued)
Options to subscribe for ordinary shares
In 2011 the Company established a share option scheme (the “Serabi 2011 Share Option Plan”) the terms of which were re-approved by
shareholders at the Annual General Meeting of the Company held on 24 June 2014. With the exception of replacement options issued by the
Company pursuant to the acquisition of Kenai Resources Ltd in July 2013, all options granted by the Company since that time have been issued
under the Serabi 2011 Share Option Plan. Certain options granted pursuant to other plans operated by the Company prior to the establishment
of the Serabi 2011 Share Option Plan remain in issue as at 31 December 2016.
Details of the number of share options and the weighted average exercise price (“WAEP”) outstanding under the Serabi 2011 Share Option Plan
are as follows:
Outstanding at the beginning of the period
Granted during the period
Expired during the period
Forfeited during the period
Outstanding at the end of the period
Exercisable at end of the period
31 December
2016
Number
31 December
2016
WAEP UK£
31 December
2015
Number
31 December
2015
WAEP UK£
46,335,000
15,650,000
(13,800,000)
–
0.0683
0.5000
0.0610
–
34,035,000
15,000,000
(1,700,000)
(1,000,000)
48,185,000
0.0645
46,335,000
32,751,675
0.0705
31,068,341
0.0745
0.0550
0.0846
0.0500
0.0683
0.0827
Details of the number of share options and the weighted average exercise price (“WAEP”) outstanding issued as replacement options pursuant to
the acquisition of Kenai Resources Ltd are as follows:
Outstanding at the beginning of the period
Expired during the period
Outstanding at the end of the period
Exercisable at end of the period
31 December
2016
Number
31 December
2016
WAEP C$
31 December
2015
Number
31 December
2015
WAEP C$
1,572,500
(1,572,500)
0.2941
0.2941
–
–
–
–
2,533,000
(960,500)
1,572,500
1,572,500
0.3008
0.3118
0.2941
0.2941
Details of the number of share options and the weighted average exercise price (“WAEP”) outstanding issued under other option arrangements
prior to 2011 are as follows:
Outstanding at the beginning of the period
Expired during the period
Outstanding at the end of the period
Exercisable at end of the period
31 December
2016
Number
31 December
2016
WAEP UK£
31 December
2015
Number
31 December
2015
WAEP UK£
2,278,285
553,285
1,725,000
1,725,000
0.6862
2.6400
0.1861
0.1861
2,278,285
–
2,278,285
2,278,285
0.6862
–
0.6862
0.6862
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84
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
18 Share capital (continued)
Options to subscribe for ordinary shares (continued)
Options granted have no market performance criteria and have been valued using the Black-Scholes model. The fair value of options is charged
to the profit and loss account or capitalised as an intangible asset as appropriate over the vesting period. The assumptions inherent in the use of
these models are as follows:
Grant date
16/05/16
22/01/15
30/09/14
07/04/14
28/01/11
28/01/11
21/12/09
15/11/07
Vesting
period
(years)
First
vesting
date
Expected
life
(years)
2
2
2
2
2
2
2
1
16/05/16
22/01/15
30/09/14
07/04/14
28/01/11
28/01/11
21/12/09
15/11/08
3
3
3
3
3-5
3-5
3-5
4-6
Risk
free
rate
0.75%
0.75%
0.75%
0.75%
1%
1%
1%
5.75%
Exercise
price
UK£0.050
UK£0.055
UK£0.055
UK£0.050
UK£0.41
UK£0.37
UK£0.15
UK£2.64
Volatility
of share
price
Fair
value
Options
vested
Options
granted
3,200,000
66% UK£0.0197
5,216,672 15,650,000
55% UK£0.0178 10,000,003 15,000,000
50% UK£0.0187
3,200,000
50% UK£0.0132 12,600,000 12,600,000
UK£0.085
1,285,000
50%
450,000
UK£0.094
50%
1,700,000
50%
UK£0.080
25,000
45% UK£0.0931
1,285,000
450,000
1,700,000
25,000
Expiry
15/05/19
21/01/18
29/09/17
06/04/17
27/01/21
27/01/21
20/12/19
14/11/17
34,476,675 49,910,000
During the year a charge of US$350,899 (2015 : US$404,075) has been recorded in these financial statements in respect of these options of which
US$Nil (2015: US$Nil) has been capitalised as deferred exploration expenditures.
19 Impairment
As detailed in the accounting policies the Directors are required to undertake a review for impairment at least annually where events or changes
in circumstances indicate that the carrying value of an asset may not be recoverable. In such a situation the asset’s carrying value is written down
to its estimated recoverable amount (being the higher of the fair value less cost to sell and value in use).
In January 2012 the Board commissioned a preliminary economic assessment of the viability of re-commencing mining operations at the Palito
Mine and the independent preliminary economic assessment report (“PEA”) was published in June 2012. The Company completed a share
placement in January 2013, raising gross proceeds of UK£16.2 million which was used to finance the start-up of gold production operations
at the Palito Mine. Mining operations commenced during 2013, and the gold recovery process plant was completed and initial testing started
in December 2013. Commissioning and the ramp-up of production continued during the first two quarters of 2014 and on 23 July 2014, the
Company declared commercial production for the Palito Mine effective as of 1 July 2014.
In July 2013 the Company acquired the entire share capital of Kenai Resources Ltd, a group which held the exploration licence for the Sao Chico
gold project. On 3 March 2014, the Group completed a share placement raising gross proceeds of UK£10.0 million which was used to finance
mine development at Sao Chico and working capital during the start-up of Palito and Sao Chico. The Company declared commercial production
for the Sao Chico Mine effective as of 1 January 2016.
The Directors have considered each of the Group’s deferred exploration assets and production and development assets on a project-by-project
basis. It has considered two potential cash generating units for the purpose of this assessment.
Palito and Sao Chico are considered to be a single cash-generating unit. Whilst the deposits are separately located, they share significant common
processing and support infrastructure and will be treated by the Company as a single operating business unit. This single cash-generating unit
therefore comprises all of the Palito Mine pre-operating costs, exploration expenditures on establishing the current declared resource base, land
and buildings and plant and machinery associated with the mining and gold processing operations, together with the acquisition cost of Sao
Chico and the exploration, pre-development and development expenditures incurred by Serabi since acquisition.
The second cash generating unit represents the exploration expenditures on areas within the Palito environs and the wider Jardim do Ouro
tenement holdings, but which have not yet been exploited and do not form part of the current declared reserves and resources. The above cash
generating units were assessed for impairment indicators in accordance with the accounting policy set out in note 1(h) and the directors are
satisfied that there is no indication of impairment across these projects.
Serabi Gold plc // Report and Accounts 2016
85
19 Impairment (continued)
The Palito and Sao Chico Mines
The carrying value of the assets relating to the Palito and Sao Chico Mines is US$48.93 million.
The Company’s management have provided to the Directors an assessment of the expected future cash flows that the Palito and Sao Chico
operations can be expected to generate using management’s current estimates of mining, processing and capital expenditure plans for a period
starting in January 2017 and ending in December 2023. The resulting pre-tax Net Present Value of the project was in excess of the carrying value
of US$48.93 million and therefore the Directors have decided that no impairment provision is required against the carrying value of the Palito
and Sao Chico Mines.
The carrying value for the Group of the Palito and Sao Chico cash generating unit at 31 December 2016 comprises:
Mining Property
Projects in Construction
Plant and Equipment
Land and Buildings
Ore Stockpiles
Carrying value at
31 December
2016
US$ million
31.79
2.83
9.45
1.32
3.54
48.93
The plan presented by management to support the impairment assessment, anticipates remaining Life of Mine (“LOM”) production from the
Palito Mine of 247,000 gold ounces compared with the Group’s declared inventory of Measured and Indicated mineral resources of 206,000
gold ounces and Inferred resources of 393,000 gold ounces as estimated at the end of March 2008. Since mine development operations at
Palito were re-commenced in 2013 and up to 31 December 2016, the Group has declared total production recovered from the Palito Mine
operations of approximately 74,500 ounces and has mined approximately 330,000 tonnes at an average grade of 9.72 g/t. The plan also anticipates
remaining LOM production from the Sao Chico Mine of 82,600 gold ounces compared with the Group’s declared inventory of Measured and
Indicated mineral resources of 25,275 gold ounces and Inferred resources of 85,577 gold ounces as estimated at the end of May 2012. Since
mine development operations at Sao Chico were commenced in 2015 and up to 31 December 2015, the Group has declared total production
recovered from the Sao Chico Mine operations of approximately 15,700 ounces.
The Net Present Value calculation used the following key assumptions:
Period of operations
Gold price
Exchange rate BrR$ to US$
Discount factor
Cost estimates
Mine plan
Average annual plant throughput rate (2018 onwards)
Average annual LOM gold production (2018 onwards)
Production period
1 January 2017 to 31 December 2024
US$1,200 for each year of the plan
3.25 for each year of the plan. This was the prevailing exchange rate
at 31 December 2016.
15 per cent
Based on current estimates being used by management for budgetary purposes
Maintaining current anticipated levels of production for both operations
155,000 tonnes per annum
43,000 ounces
8 years for Palito and 7 years for Sao Chico
As required by IAS 36 no benefit has been recognised for any additional value that could be generated from the assets through improving the
performance of the assets through additional cash outflows. However, where programmes commenced in 2016 that will be completed in 2017,
the forecasts do incorporate the benefits that are expected to be derived from these improvements. In addition the forecasts include appropriate
provision for sustaining capital that the Group anticipates will be required to allow the operations to maintain the projected performance. No
recognition has been taken of other mineral resources at Palito.
It is estimated that the effect of changes in key assumptions would result in the following changes in value in use:
Change in gold price by $100
Variation of BrR$:US$ exchange rate by 10%
Variation in discount factor by 5% point
Variation in operating cost estimates by 10%
Improvement
US$m
Decline
US$m
21.0
12.4
12.5
13.9
21.0
15.1
9.5
13.9
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
86
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
20 Capital management
The Group has historically sourced equity capital through share issues on the London Stock Exchange and the Toronto Stock Exchange and the
Board had managed the capital structure of the Group and aligned this with the risk profiles of its underlying assets.
On 26 September 2014, the Group entered into the Sprott Facility further details of which are set out in note 17 (Interest-bearing liabilities) and
note 25 (Post balance sheet events). As at 31 December 2016, the amount of US$1.37 million (2015: US$4 million) was outstanding in respect
of the Sprott Facility.
On 30 December 2015, the Group agreed an unsecured short term working capital convertible loan facility of US$5 million with its major
shareholder, Fratelli Investments Limited. The facility was available to be drawn down at any time up to 30 June 2016 and was to provide
additional working capital facilities. On 6 January 2016, the Group announced that it had made an initial drawdown of US$2 million against this
convertible loan facility. The group made no further drawdowns prior to 30 June 2016 and in August 2016 Fratelli exercised its right to convert
the outstanding loan of US$2 million into shares of the Company at a subscription price of UK£0.036. On 15 August 2016, the Company issued
42,312,568 shares of the Company to Fratelli.
The Group’s objectives, when managing its capital are to maintain financial flexibility to achieve its development plans, safeguard its ability to
continue to operate as a going concern through management of its costs whilst optimising its access to capital markets by endeavouring to
deliver increases in value of the Group for the benefit of shareholders. In establishing its capital requirements the Group will take account of
the risks inherent in its plans and proposed activities and prevailing market conditions.
The Group anticipates that, whilst it may seek to raise further finance in the future, it now has access to sufficient funding for its immediate needs.
The Palito Mine has been in Commercial Production since 1 July 2014 and the Sao Chico Mine achieved Commercial Production with effect from
1 January 2016. With current market conditions and prices, the Group expects to have sufficient cash flow to finance its on-going operational
requirements, repay its secured loan facility and to, at least in part, fund exploration and development activity on its other gold properties.
It will seek to raise debt finance where possible to finance further capital development of its projects taking due consideration of the ability
of the Group to satisfy the obligations and undertakings that would be imposed in connection with such borrowings.
The Company’s shares are listed on both AIM and the TSX which management consider increases the potential of the Group to raise finance
through further issues of shares in the future. Management consider that with cash flow being generated from its operations in the near-term
this also enhances the ability of the Group to raise debt finance in the future.
21 Commitments and contingencies
Capital commitments
The Group holds certain exploration prospects which require the Group to make certain payments under rental or purchase arrangements
allowing the Group to retain the right to access and undertake exploration on these properties. Failure to meet these obligations could result
in forfeiture of any affected prospects.
Management estimates that the cost over the next 12 months of fulfilling the current contracted commitments on these exploration properties
in which the Group has an interest is US$50,355 (2015: US$45,000).
Operating lease commitments
The Group has commitments under non-cancellable operating leases as follows:
Commitments falling due:
Within one year
Between one year and five years
Total
Group
Company
31 December
2016
US$
31 December
2015
US$
31 December
2016
US$
31 December
2015
US$
162,903
161,411
324,314
166,633
78,278
244,911
93,029
11,215
104,244
64,955
72,785
137,740
Serabi Gold plc // Report and Accounts 2016
87
21 Commitments and contingencies (continued)
Contingencies
Employment legislation in Brazil allows former employees to bring claims against an employer at any time for a period of two years from the
date of cessation of employment and regardless of whether the employee left the company voluntarily or had their contract terminated by the
company. The Group considers that it operates in compliance with the law at all times but is aware that claims are made against all companies
in Brazil on a regular basis. Whilst not accepting legal liability the Group makes provision or accrues for all known claims further claims may arise
at any time.
During 2013, Serabi Mineração SA (“SMSA”) was requested by the Tax Authorities for the State of Para, to provide supporting documentation in
respect of certain tax reclaims made by SMSA dating back for six years. SMSA has provided all the requested information and the Group considers
all claims made were in accordance with prevailing legislation. The total sum of the tax claims that are subject to this review is BrR$78,000, which
at the year-end is equivalent to US$24,000.
22 Related party transactions
During the period the Company has made no loans to subsidiaries (2015: US$2,708,980). There were no loans converted into new shares issued
by subsidiaries during 2016 (2015: US$Nil).
The Company has loans receivable from subsidiaries totalling US$16,188,272 (2014: US$25,504,584) before any provision for the impairment
of these loans (see note 12). The Company received loan repayments from its subsidiary Serabi Mineração SA (“SMSA”) during the year totalling
US$9,316,312.
The Company has purchased, during the year from its subsidiary SMSA, 2,080 tonnes of copper/gold concentrate for a consideration of
US$20,552,303 (2015: 2,220 tonnes; US$24,569,649).
On 30 December 2015, the Group agreed an unsecured short term working capital convertible loan facility of US$5 million with its major
shareholder, Fratelli Investments Limited (“Fratelli”). The facility was available to be drawn down at any time up to 30 June 2016 and was to provide
additional working capital facilities. On 6 January 2016, the Group announced that it had made an initial drawdown of US$2 million against this
convertible loan facility. The Group made no further drawdowns prior to 30 June 2016 and in August 2016 Fratelli exercised its right to convert
the outstanding loan of US$2 million into shares of the Company at a subscription price of UK£0.036. On 15 August 2016, the Company issued
42,312,568 shares of the Company to Fratelli.
Key management remuneration
Key management comprises the Executive, Non-Executive Directors and country manager only. Their compensation is:
Short term employee benefits
Post-employment benefits
Share-based payments
Total
For the
year ended
31 December
2016
US$
1,189,595
11,298
313,384
For the
year ended
31 December
2015
US$
1,421,117
154,779
383,980
1,514,277
1,959,876
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016
88
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
23 Financial instruments
The Group’s and the Company’s financial assets at 31 December 2016 which comprise other receivables and cash, and in the case of the Company
include amounts due from subsidiaries, are classified as loans and receivables. All of the Group’s and Company’s financial liabilities which comprise
trade and other payables and interest-bearing liabilities are classified as liabilities measured at amortised cost.
The main financial risks arising from the Group’s activities remain unchanged from the previous financial year, namely, commodity prices, currency,
liquidity, credit and interest rates. The Board reviews and agrees policies for managing each of these risks and these are summarised below:
Commodity price risk
By the nature of its activities the Group and the Company are exposed to fluctuations in commodity prices and, in particular, the price of gold
and copper as these could affect its ability to raise further finance in the future, its future revenue levels and the viability of its projects. It is not
currently the Group’s intention to enter into any arrangements to protect itself from changes in the prices of these commodities. The Group does,
however, closely monitor the prices of these commodities and will consider the use of hedging contracts, where appropriate, in future.
Whilst not representing a financial instrument at 31 December 2016, the Group carried inventory of finished goods and work-in-progress valued
at US$5.73 million (31 December 2015: US$5.55 million) including US$1.24 million of copper/gold concentrate representing 162 tonnes of material
awaiting sale (31 December 2015: US$1.95 million; 363 tonnes) and US$4.50 million of other material in process (31 December 2015: US$3.60
million). All inventory as at 31 December 2016, which is unsold, is subject to future variation in commodity prices and accordingly the results
for the period and the equity position of the Group may be affected by any change in commodity prices subsequent to the end of the period.
Interest rate risk
During 2016 and 2015 the Group and the Company have taken out fixed rate finance leases for the acquisition of some equipment and have
utilised floating rate short term trade finance in respect of sales of copper/gold concentrate production.
The Group has entered into the Sprott Facility further details of which are set out in note 17 (Interest-bearing liabilities) and note 25 (Post balance
sheet events). As at 31 December 2016, the amount of US$1.37 million (2015: US$4.00 million) was outstanding in respect of the Sprott Facility.
Group
2016
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Interest-bearing liabilities
Total
2015
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Interest-bearing liabilities
Total
Weighted
average effective
interest rate
%
Non-interest
bearing
US$
Floating
US$
Fixed interest maturity
One year
or less
US$
Over one to
five years
US$
Total
US$
0.1%
–
–
1,233,049
4,160,923
–
1,233,049
4,160,923
–
–
–
–
–
–
4,160,923
1,233,049
5,393,972
–
8.63%
7,568,663
–
7,568,663
–
–
–
–
2,964,057
–
77,798
7,568,663
3,041,855
2,964,057
77,798
10,610,518
Weighted
average effective
interest rate
%
Non-interest
bearing
US$
Floating
US$
Fixed interest maturity
One year
or less
US$
Over one to
five years
US$
0.1%
–
–
6,165,192
2,191,759
–
6,165,192
2,191,759
–
–
–
–
–
–
Total
US$
2,191,759
6,165,192
8,356,951
–
7.24%
6,296,914
–
6,296,914
–
–
–
–
11,385,155
–
128,641
6,296,914
11,513,796
11,385,155
128,641
17,810,710
Serabi Gold plc // Report and Accounts 2016
23 Financial instruments (continued)
Interest rate risk (continued)
Company
2016
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Interest-bearing liabilities
Total
2015
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Interest-bearing liabilities
Total
Weighted
average effective
interest rate
%
Non-interest
bearing
US$
Floating
US$
Fixed interest maturity
One year
or less
US$
Over one to
five years
US$
0.1%
–
–
5,617,760
3,612,495
–
5,617,760
3,612,495
–
–
–
–
8.91%
6,818,308
–
6,818,308
–
–
–
–
1,787,096
1,787,096
–
–
–
–
–
–
Weighted
average effective
interest rate
%
Non-interest
bearing
US$
Floating
US$
Fixed interest maturity
One year
or less
US$
Over one to
five years
US$
0.1%
–
–
19,852,074
1,781,429
–
19,852,074
1,781,429
–
–
–
–
7.28%
6,818,308
–
6,818,308
–
–
–
–
10,652,920
10,652,920
–
–
–
–
–
–
89
Total
US$
3,612,495
5,617,760
9,230,255
6,818,308
1,787,096
8,605,404
Total
US$
1,781,429
19,852,074
21,633,503
6,222,345
10,652,920
17,471,238
Liquidity risk
Historically the Group has relied primarily on funding raised from the issue of new shares to shareholders but has also received short term loans
from its shareholders. It also uses floating rate short term trade finance and fixed rate finance leases to finance its activities.
The Group has entered into the Sprott Facility, further details of which are set out in note 17 (Interest-bearing liabilities). As at 31 December 2016,
the amount of US$1.37 million (2015: US$4 million) was outstanding in respect of the Sprott Facility.
The Group has, during the year, used a trade financing facility for up to US$7.5 million with Auramet Trading LLC for the sale of its copper/gold
concentrate. Following a change in final customer for the purchase of this copper/gold concentrate during the second half of 2016, the Group
no longer requires to draw down on this facility and, at 31 December 2016, the balance outstanding under this finance facility was US$415,607.
As at 31 December 2016, in addition to the Sprott Facility and the Auramet facility, the Company had obligations under fixed rate finance lease
amounting to US$1.25 million (2015: US$0.86 million).
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90
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
23 Financial instruments (continued)
Liquidity risk (continued)
The following table sets out the maturity profile of the financial liabilities as at 31 December 2016:
Due in less than one month
Due between one month and three months
Due between three months and one year
Total due within one year
Due more than one year
Total
2016
2015
Group
US$
1,774,068
2,462,350
4,179,387
8,415,805
2,288,876
Company
US$
1,815,635
2,449,117
3,812,701
8,077,453
–
Group
US$
3,598,089
9,001,404
3,081,343
15,680,836
2,689,985
Company
US$
3,157,480
10,946,305
3,752,959
17,856,744
–
10,704,681
8,077,453
18,370,821
17,856,744
Currency risk
Although the Company is incorporated in the United Kingdom, its financial statements and those of the Group are presented in US Dollars which
is also considered to be the functional currency of the Company as funding of activities of its subsidiaries is generally made in US Dollars, all sales
for the Group are denominated in US Dollars and future remittances of dividends, loans or repayment of capital from the subsidiaries are expected
to be received in US Dollars.
Share issues have historically been priced solely in Sterling but the issue of Special Warrants undertaken in December 2010 and the issue of new
Ordinary Shares and Warrants on 30 March 2011, were priced in Canadian Dollars. The Company expects that future issues of Ordinary Shares may
be priced in Sterling or Canadian Dollars. Expenditure is primarily in Brazilian Real and also in US Dollars, Sterling, Euros and Australian Dollars.
The functional currency of the Company’s operations is US Dollars, which is also the reporting currency for the Group. The Group’s cash holdings
at the balance sheet date were held in the following currencies:
US Dollar
Canadian Dollar
Sterling
Australian Dollar
Euro
Brazilian Real
Total
Group
31 December
2016
US$
31 December
2015
US$
3,425,809
(5,183)
136,159
6,350
53,261
544,087
1,449,663
11,762
278,136
12,630
32,611
406,957
4,160,923
2,191,759
The Group is exposed to foreign currency risk on monetary assets and liabilities, including cash held in currencies other than the functional
currency of operations.
Serabi Gold plc // Report and Accounts 2016
91
23 Financial instruments (continued)
Currency risk (continued)
The Group seeks to manage its exposure to this risk by ensuring that the majority of expenditure and cash holdings of individual subsidiaries
within the Group are denominated in the same currency as the functional currency of that subsidiary. Income is generated in US Dollars. However
this exposure to currency risk is managed where the income is generated by subsidiary entities whose functional currency is not US Dollars, by
either being settled within the Group or by ensuring settlement in the same month that the sale is transacted where settlement is with a third
party. The following table shows a currency analysis of net monetary assets and liabilities by functional currency of the underlying companies:
Currency of net monetary asset/liability
US Dollar
Canadian Dollar
Sterling
Australian Dollar
Euro
Brazilian Real
Total
Functional Currency
Brazilian Real
31 December
2016
US$
Canadian $
31 December
2016
US$
United States $
31 December
2016
US$
Total
31 December
2016
US$
–
–
–
–
(1,254,759)
7,329,005
1,829
2,512
–
–
–
–
2,702,322
(7,695)
(951,806)
6,350
53,261
–
2,704,151
(5,183)
(951,806)
6,350
(1,201,498)
7,329,005
6,074,246
4,341
1,802,432
7,881,019
The above indicates that the Group’s and the Company’s primary exposure is to exchange rate movements between UK Pounds sterling and
the US Dollar and the Euro and the Brazilian Real.
The table below shows the impact of changes in exchange rates on the result and financial position of the Group and the Company.
10% weakening of US Dollar
10% strengthening of US Dollar
10% weakening of Brazilian Real
10% strengthening of Brazilian Real
Against Sterling
US$
58,411
(68,772)
Against Euro
US$
(125,476)
125,476
The Group’s main subsidiary operates in Brazil with its expenditure being principally in Brazilian Real and its financial statements are maintained
in that currency. The Group’s policy for dealing with exchange differences is outlined in the statement of Significant Accounting Policies under
the heading “Foreign currencies”.
The Group does not presently utilise swaps or forward contracts to manage its currency exposures, although such facilities are considered
and may be used where appropriate in the future.
The Group seeks to minimise its exposure to currency risk by closely monitoring exchange rates and holding surplus funds in currencies
considered most appropriate to their expected future utilisation.
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92
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
23 Financial instruments (continued)
Credit risk
The Group’s exposure to credit risk is limited to its cash and cash equivalents and trade and other receivables amounting to US$8,647,602
(2015: US$8,325,045). It is the Group’s policy to only deposit surplus cash with financial institutions that hold acceptable credit ratings.
The Group currently sells most of its gold bullion to a single customer. The Group seeks to receive full settlement by bank transfer on delivery
of its product to the purchaser to minimise its exposure to any credit risk on that customer.
The Group currently sells most of its copper/gold concentrate production to a single customer, a publicly quoted trading group located in
Japan having changed customer in the second half of 2016. Settlement terms are in accordance with industry norms. The customer has a strong
reputation within the industry and has a good credit risk history. As at the balance sheet date there were no amounts owed to the Group that
were overdue. Whilst the Group has made sales to other parties during the year all amounts due have been settled and therefore there is no credit
risk associated with these sales.
The Company’s exposure to credit risk amounted to US$9,125,589 (2015: US$21,565,432). Of this amount US$4,437,562 (2015: US$13,753,874)
is due from subsidiary companies, US$3,612,495 represents cash holdings (2015: US$1,781,433) and a significant portion of the remainder
represented by trade debtors for the sale of copper/gold concentrate.
24 Ultimate controlling party
Fratelli Investments Ltd owns 386,375,734 ordinary shares representing 55.30 per cent of the voting shares in issue and is considered to be the
controlling party.
25 Post balance sheet events
On 23 February, the Group extended the term for repayment of its secured loan facility with Sprott to 31 August 2017. With this exception 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.
Serabi Gold plc // Report and Accounts 2016 93
Glossary
“Ag”
“AISC”
“Au”
“assay”
“CIM”
means silver.
means All-In Sustaining Cost – a non IFRS performance measurement established by the World Gold Council.
means gold.
in economic geology, means to analyse the proportions of metal in a rock or overburden sample; to test an ore
or mineral for composition, purity, weight or other properties of commercial interest.
means the Canadian Institute of Mining, Metallurgy and Petroleum.
“CIP” or “Carbon in Pulp”
means a process used in gold extraction by addition of cyanide.
“chalcopyrite”
is a sulphide of copper and iron.
“Cu”
“cut-off grade”
“deposit”
means copper.
the lowest grade of mineralised material that qualifies as ore in a given deposit; rock of the lowest assay
included in an ore estimate.
is a mineralised body which has been physically delineated by sufficient drilling, trenching, and/or
underground work, and found to contain a sufficient average grade of metal or metals to warrant further
exploration and/or development expenditures; such a deposit does not qualify as a commercially mineable
ore body or as containing ore reserves, until final legal, technical, and economic factors have been resolved.
“DNPM”
means the Departamento Nacional de Producao Mineral.
“electromagnetics”
is a geophysical technique tool measuring the magnetic field generated by subjecting the sub-surface
to electrical currents.
“garimpeiro”
“geochemical”
“geophysical”
“geophysical techniques”
is a local artisanal miner.
refers to geological information using measurements derived from chemical analysis.
refers to geological information using measurements derived from the use of magnetic and electrical readings.
include the exploration of an area by exploiting differences in physical properties of different rock types.
Geophysical methods include seismic, magnetic, gravity, induced polarisation and other techniques;
geophysical surveys can be undertaken from the ground or from the air.
“gold equivalent”
refers to quantities of materials other than gold stated in units of gold by reference to relative product values
at prevailing market prices.
“gossan”
“grade”
“g/t”
is an iron-bearing weathered product that overlies a sulphide deposit.
is the concentration of mineral within the host rock typically quoted as grams per tonne (g/t), parts per million
(ppm) or parts per billion (ppb).
means grams per tonne.
“hectare” or a “ha”
is a unit of measurement equal to 10,000 square metres.
“indicated mineral resource”
“inferred mineral resource”
is that part of a mineral resource for which quantity, grade or quality, densities, shape and physical
characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of
technical and economic parameters, to support mine planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable exploration and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced
closely enough for geological and grade continuity to be reasonably assumed.
is that part of a mineral resource for which quantity and grade or quality can be estimated on the basis
of geological evidence and limited sampling and reasonably assumed, but not verified, geological and
grade continuity. The estimate is based on limited information and sampling gathered through appropriate
techniques from locations such as outcrops, trenches, pits, workings and drill holes.
“IP”
refers to induced polarisation, a geophysical technique whereby an electric current is induced into the
sub-surface and the conductivity of the sub-surface is recorded.
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2016 94
Glossary continued
“measured mineral resource”
is that part of a mineral resource for which quantity, grade or quality, densities, shape, and physical
characteristics are so well established that they can be estimated with confidence sufficient to allow
the appropriate application of technical and economic parameters, to support production planning
and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable
exploration, sampling and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both
geological and grade continuity.
“mineralisation”
the concentration of metals and their chemical compounds within a body of rock.
“mineralised”
refers to rock which contains minerals e.g. iron, copper, gold.
“mineral reserve”
“mineral resource”
“mt”
“NI 43-101”
“ore”
“oxides”
“ppm”
“saprolite”
“sulphide”
“tailings”
“tpd”
“vein”
“VTEM”
is the economically mineable part of a measured or indicated mineral resource demonstrated by at least
a preliminary feasibility study. This study must include adequate information on mining, processing,
metallurgical, economic and other relevant factors that demonstrate, at the time of reporting, that economic
extraction can be justified. A mineral reserve includes diluting materials and allowances for losses that may
occur when the material is mined.
is a concentration or occurrence of diamonds, natural solid inorganic material or natural fossilised organic
material including base and precious metals, coal, and industrial minerals in or on the Earth’s crust in such
form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction.
The location, quantity, grade, geological characteristics and continuity of a mineral resource are known,
estimated or interpreted from specific geological evidence and knowledge.
means million tonnes.
means Canadian Securities Administrators’ National Instrument 43-101 – Standards of Disclosure for Mineral
Projects.
means a metal or mineral or a combination of these of sufficient value as to quality and quantity to enable
it to be mined at a profit.
are near surface bed-rock which has been weathered and oxidised by long term exposure to the effects
of water and air.
means parts per million.
is a weathered or decomposed clay-rich rock.
refers to minerals consisting of a chemical combination of sulphur with a metal.
are the residual waste material that it is produced by the processing of mineralised rock.
means tonnes per day.
is a generic term to describe an occurrence of mineralised rock within an area of non-mineralised rock.
refers to versa time domain electromagnetic, a particular variant of time-domain electromagnetic geophysical
survey to prospect for conductive bodies below surface.
Serabi Gold plc // Report and Accounts 2016 Shareholder Information
Serabi Gold plc
UK Office
2nd Floor
30-32 Ludgate Hill,
London EC4M 7DR
Tel:
Fax:
+44 (0)20 7246 6830
+44 (0)20 7246 6831
Serabi Mineração S.A.
Av Antonio de Pádua Gomes, no. 737
Jardim das Araras, Cidade Itaituba
CEP 8180-120 Pará
Brazil
Registered Office
66 Lincoln’s Inn Fields
London WC2A 3LH
Email: contact@serabigold.com
Web: www.serabigold.com
Company Number
5131528
Serabi Gold plc // Report and Accounts 2016
Board of Directors
Sean Harvey – Non-Executive Chairman
Mike Hodgson – Chief Executive
Clive Line – Finance Director
Aquiles Alegria – Non-Executive Director
Nicolas Bañados – Non-Executive Director
Eduardo Rosselot – Non-Executive Director
Felipe Swett – Non-Executive Director
Mel Williams – Non-Executive Director
Company Secretary
Clive Line
Nominated Adviser
Beaumont Cornish Limited
Bowman House
29 Wilson Street
London EC2M 2SJ
Auditor
BDO LLP
55 Baker Street
London W1U 7EU
Solicitors – UK
Farrer & Co
66 Lincoln’s Inn Fields
London WC2A 3LH
Legal Counsel – Canada
Peterson McVicar LLP
390 Bay Street, Suite 806
Toronto,
Ontario M5H 2Y2
Brokers – UK
Peel Hunt LLP
Moor House,
120 London Wall
London EC2Y 5ET
Registrars – UK
Computershare Investor Services PLC
PO Box 82, The Pavilions
Bridgwater Road
Bristol BS99 7NH
Registrar & Transfer Agent – Canada
Computershare Investor Services Inc
100 University Avenue, 8th Floor
Toronto
Ontario M5J 2Y1
OverviewStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements Serabi Gold plc
2nd Floor
30-32 Ludgate Hill
London EC4M 7DR
t +44 (0)20 7246 6830
f +44 (0)20 7246 6831
e contact@serabigold.com
www.serabigold.com