Annual Report 2017
Serabi Gold plc // Report and Accounts 2017
Welcome to Serabi Gold plc
We are engaged in the evaluation and development
of gold projects in Brazil, and are currently producing
approximately 40,000 ounces of gold per annum
from our high-grade (8–9 grammes per tonne of gold)
underground mining operations located in the Tapajos
region of Para state.
OUR MISSION
OUR FOCUS
OUR STRATEGY
Our 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.
see page 04 to read more
=
We strive to operate efficiently and effectively
with specific focus on quality, both in
our mining practices and maximising the
utilisation of our processing facility.
1. Evaluate and develop the near-mine
discoveries and exploration potential
of the Palito Mining Complex.
2. Permit and develop the newly acquired
see page 04 to read more
=
Coringa gold project.
3. Evaluate and develop the longer term
growth potential of the Jardim do Ouro
and Coringa project areas.
4. Identify and acquire accretive gold
opportunities in Brazil.
see page 06 to read more
=
Having recently acquired the Coringa gold
project our ambition is to grow production
to an annualised rate of 100,000 ounces of
gold by 2020 and growing the total mineral
resources to two million ounces in the same
time frame.
see page 04 to read more
=
Where We Operate
see pages 10 to 13 to read more
=
PARA
Manaus
Santarem
Belém
Itaituba
Palito Complex
Coringa
Contents
Welcome to Serabi Gold plc
IFC
Strategic Report
Chairman's Statement
Business Model
Our Business at a Glance
Our Current Operations
The Coringa Gold Project
The Gold Market
Performance Review and KPIs
Principal Risks and Uncertainties
Management Discussion and Analysis
Operational Review
Group Mineral Reserves and Resources
Financial Review
Community and Social Responsibility
Social and Environmental Activities
2
4
8
10
12
14
18
20
22
30
34
42
Corporate Governance
Board of Directors and Senior Management 46
48
Report on Corporate Governance
52
Directors’ Remuneration Report
57
Directors’ Report
Financial Statements
Independent Auditor’s Report
Statement of Comprehensive Income
Group Balance Sheet
Company Balance Sheet
Statements of Changes in
Shareholders’ Equity
Cash Flow Statements
Notes to the Financial Statements
Glossary
Shareholder Information
60
69
70
71
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Pathway to 100,000 ounces by 2020
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40,000 ounces
Gold production guidance for 2018
30,000 ounces
Target production increase from organic growth
30,000 – 40,000 ounces
Target gold production from Coringa
2
STRATEGIC REPORT
Chairman’s Statement
Serabi’s core business is high-grade
gold production, and I am pleased to say
that 2017 was another solid year from an
operational perspective.
OVERVIEW
Whilst production was marginally lower than 2016, a total of over
37,000 ounces in 2017 was more than satisfying. With both the Palito
and São Chico orebodies in production at planned levels, and some
gold production upside as we step up the treatment of gold bearing
flotation tails generated during the first year of production in 2014,
we expect 2018 to be slightly better and return approximately 40,000
ounces of gold production.
Another highlight of the year was, of course, our acquisition of the
neighbouring Coringa gold project. Coringa has always been an
obvious acquisition for us. It is very much a Palito look-a-like requiring
the same approach, project development, mining and processing we
employ at Palito, so Serabi’s management and team are well placed to
bring this project into production in the next 24 months. We have also
commenced a surface drill programme that is focusing on evaluation
of the existing discoveries in and around both the Palito and São Chico
orebodies. Therefore, through the combination of organic growth and
the development of Coringa, we very much hope we will be increasing
our current gold production levels of 40,000 ounces per annum and
see a significant step change in the Group’s evolution.
With the announcement at the end of March of a subscription for new
shares by Greenstone Resources II LP, raising US$15 million, Serabi is
also now well-funded and able to progress its plans. Greenstone is a
well respected, specialist private equity mining fund and I am delighted
to welcome them as a long term strategic investor in the Company and
look forward to working closely with them to unlock the full potential of
Serabi’s gold projects and pursue other growth opportunities.
Serabi Gold plc // Report and Accounts 2017 3
REVIEW
Over the past three years there has been very stable production from
the Palito Complex, and whilst we feel the potential from both orebodies
far exceeds current production levels, the Group has remained focused
on maximising cash generation and building up the working capital
of the business. This allowed us to act quickly, when the opportunity
unexpectedly arose, to acquire the Coringa deposit in December 2017
and the Group was able to meet the first instalment payment without
needing to secure additional funding at that time. Nevertheless, it is not
lost on the Board that fortunes of small producers like Serabi are very
closely linked to the gold price and also, in our case, the Brazilian Real/US
Dollar exchange rate. Ultimately, more production with stronger margins
brings the improved economies associated with scale, and this is the
logic behind the acquisition of Coringa. It reinforces the Group as very
much a Brazilian focused producer and developer, and the synergies are
clear, with an established experienced management and operational team
in Brazil, we believe the Group is well placed to repeat the successful
2013/14 development and commissioning of Palito, at Coringa.
2017 saw some improvements in metal prices and general confidence
in the sector, and in Brazil, we enjoyed exchange rates working in our
favour a little more, particularly towards the end of the year. Brazil
remains something of an enigma for investors, with juniors struggling
to deliver, and for a country with such resource wealth, the country
has been strangely light on attracting exploration investment from
both junior and major mining companies. This, we feel, gives us great
competitive advantage. With many years of operational experience,
we are well placed to take advantage of others that find the going
more challenging. We have built sound relationships with the various
governing agencies and stakeholders, giving us further advantage.
However, things seem to be changing for the better, as we have seen
a number of companies increasing their involvement in the country
over the past 12 months, some with considerable rumoured success.
This renewed appetite is resulting in larger mining groups, looking to
the junior sector for joint venture opportunities on projects to support
their own growth. This cycle has always been the engine that drives the
mining sector. It brings renewed investor interest and support for the
sector to boost growth and new developments. We are seeing renewed
interest from larger mining groups in the land holdings of the smaller
companies in the country and keen to look at ways to work together
that could accelerate evaluation of some of our tenements. This can
only bode well for the region and country as a whole.
GROWTH
Nevertheless, the Serabi Board will continue to be prudent in its own
strategy for growth as we seek to maximise the value that we can
achieve from each dollar invested. We remain a small producer for
now and will insist that management continues to follow its proven
formula and systematic approach to exploration activity. We feel we
have excellent potential in our tenements, at Palito, São Chico and
Coringa, so anything outside these areas has to be substantially better
to be included in our growth strategy. Growth will always need 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.
As well as the acquisition of the Coringa gold project, we commenced
a surface drill programme at Palito in late 2017. Our exploration
programme and organic growth, has effectively been on-hold since
2011 as we focused on the start-ups at both Palito and São Chico,
and this has consumed our free cash flow as well as human resources.
We are delighted these mine site discoveries, made in 2011/2012,
are finally being tested. Just as with the initial acquisition payment for
Coringa, the Group has been able to finance the initial drill from internal
cash flow. The Palito resource comprises over 26 veins clustered
together covering a strike length of up to one kilometre. However, we
have now traced some of the veins over four kilometres so the potential
to grow the resource is compelling.
It is a similar story at São Chico, a far more immature deposit than
Palito in terms of geological understanding, but the orebody being
mined lies within a strong regional shear zone that hosts numerous
historical artisanal mines over a five kilometre strike length. In addition,
recent geophysics work, undertaken in 2016, suggests the presence of
additional sub-parallel structures.
Management continue to actively assess other opportunities in Brazil
and the Group’s track record of moving exploration projects into
production makes Serabi an attractive partner for companies with less
operational experience. We acquired Coringa during the year, as an
asset level deal that we feel represents great value. The Group has tried
to acquire this asset on other occasions in the past recognising both
the potential of the project and its synergies. The previous operators
put a huge amount of effort and investment into the project and we
feel our patience has been rewarded by acquiring it at a very attractive
price. Furthermore, we believe we have acquired an asset which has
high potential and which can be a more significant gold producer than
currently forecast. The acquisition of Coringa along with our existing
growth opportunities starts us on the path of expansion and we will
continue to pursue opportunities that will bring strong, long term returns
to our existing shareholders.
LOOKING FORWARD
The next 12 months will bring different, new challenges to the Company.
Whilst we need to maintain production levels, we need to expand the
team to absorb and advance Coringa through permitting and into
construction. The exploration team also need to meet the expectations
we have for our internal growth. Overall, I feel the Company has enjoyed
a very successful 2017, which will form a strong platform for further
success in 2018.
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 2018 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.
Mel Williams
Chairman
29 March 2018
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report
4
STRATEGIC REPORT
Business Model
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.
Our Strengths
STRONG GOLD PRODUCTION
Our Operations
EFFICIENCY
As a junior mining company seeking to grow
and develop in Brazil, Serabi has established
a track record of stable and consistent
production over the last two years and the
current operations are well positioned to
continue to achieve similar results in the future.
EXPERIENCED EMPLOYEES
Serabi has assembled an experienced and
loyal workforce, well versed in the challenges
that the Group’s operations might bring.
STRONG LEADERSHIP
Serabi’s board combines experience
across a range of disciplines, with a
record of successful development of
mining projects and growing and realising
value for shareholders.
see our Operational Review on pages 22 to 29
=
Serabi’s ethos is on quality rather than
quantity. Management constantly strives
to make each area work better to improve
margins and maximise the use of existing
mining, plant and infrastructure capabilities.
SUSTAINABILITY
The focus is to build a long term sustainable
business that returns value to shareholders
but considers the obligations to employees,
communities and other stakeholders and
provide secure long term benefit to all
those associated with, or affected by,
the Group’s operations.
QUALITY
Serabi has established itself as one of the
premier underground mining operators in Brazil.
see our Operations on pages 10 to 13
=
Our Management Process
RISK MANAGEMENT
There are many risks inherent in mining
operations which, to a greater or lesser degree,
can be anticipated. Serabi has an active risk
management programme seeking to assess
and instigate actions to minimise risk in all
areas of the business.
WORKING WITH GOVERNING AGENCIES
Serabi works closely and transparently with
all key government agencies and other
stakeholders to ensure that, with regards to
social, environmental and safety aspects, its
operations are run in compliance with and
above prevailing legislation.
COMMITMENT TO REGULATION AND
RESPONSIBLE PRACTICE
Serabi is committed to ensuring that
its operations have minimal impact on
communities and the environment. It seeks
to bring positive benefit to the neighbouring
communities, through providing assistance
with education, healthcare and general
improvements in living conditions.
Serabi Gold plc // Report and Accounts 2017 5
Plant throughput
Annual gold production
172,565 tonnes
2017
37,004 ounces
172,565
2017
37,004
2016
2015
158,966
130,299
2016
2015
39,390
32,629
Mine development
completed
9,864 metres
2017
2016
2015
9,864
11,209
9,600
see our Performance Review on page 18 to read about our KPIs
=
Serabi Achievements
• Total gold production for 2017 of 37,004 ounces.
• Mine production in 2017 totalling 168,876 tonnes at
8.92 grammes per tonne (g/t) of gold.
• 172,565 tonnes processed through the plant for the combined
mining operations, with an average grade of 7.11 g/t of gold.
• 9,864 metres of horizontal mine development completed
in the year.
• Completion of new estimation of Mineral Reserves and
Resources for the Palito Mining Complex. Total Mineral
Reserves estimated at 181,000 ounces within a total
mineral resource of 538,000 ounces.
• The acquisition of Chapleau Resources Ltd and its wholly
owned Coringa gold deposit with a mineral resource of
376,000 ounce.
• Concluding a new US$8 million loan with Sprott Resource
Lending Partnership (“Sprott”).
Key Objectives for 2018
• Building an increase in mineral resources and setting the
platform for future production growth in 2020.
• Continue the permitting process for Coringa to allow
construction to commence during the first half of 2019.
• Continue, and accelerate, the current drilling programme at
Palito to test the strike extension of orebodies beyond the
current resource limits.
• Commence a similar drill and surface geophysics campaign
at São Chico to test the five kilometre trend that hosts the
São Chico deposit as well as multiple historic artisanal mines
along its length.
• Optimise mine planning and development plans for the
Coringa project to improve the economics and the
projected life.
• Continue to evaluate M&A opportunities in the region
and across Brazil.
=
• Commencement of an initial 8,000 metre surface drill
see our Pipeline for Organic Growth on page 07 to read more
programme at Palito in December 2017.
• Successful test work to evaluate the benefits of ore-sorting
to improve process plant efficiency.
• Announcement in March 2018 of a share subscription by
Greenstone Resources LP raising US$15 million.
• Palito development and production continues to focus on the
four main sectors of Senna, Pipocas, G3 and Mogno, whilst in
the São Chico orebody, the main ramp has now reached level
10mRL, approximately 245 vertical metres below surface.
see our Operational Review on pages 22 to 29 to read more
=
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report 6
STRATEGIC REPORT
Business Model continued
A blend of organic growth through the continued
development of the Group's existing assets and
targeting opportunities that have potential for
long term value improvement will be at the centre
of the Company's plans.
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
DEVELOP
Seek continuous operational
improvement to maximise value.
Plan, finance and build
new mines in a timely and cost
effective manner.
Value Creation
SHAREHOLDERS
Generation of short term
capital appreciation through
investment of cash in accretive
growth to grow longer term cash
generation to sustain distributions
to shareholders.
HOST GOVERNMENT AND
GOVERNMENT AGENCIES
Generation of tax and royalty
receipts to sustain a high-quality
oversight and regulatory regime.
LOCAL COMMUNITIES
EMPLOYEES
Provide improvements to
infrastructure, education and
healthcare to improve the living
standards and opportunities for
local populations.
Generate a stable and secure
work environment in which
employees learn, are mentored
and can progress and develop
their careers.
Serabi Gold plc // Report and Accounts 2017
7
Pipeline for Organic Growth
Current 40,00oz p.a.
production
DRILL
8,000m drilling at Palito
PERMIT
Complete permitting at Coringa
EXPAND
Expanded drill programme at Palito
and São Chico
DEVELOP
Develop and expand Palito
Complex operations
(target 30koz p.a.)
DEVELOP
Develop and construct Coringa
(c.30koz p.a.)
Target 100,00koz
by 2020
Future Growth Opportunities
NEW DISCOVERIES
FOLLOW UP DEVELOPMENT
NEW M&A
New discoveries within the
wider JDO region. Fly new
VTEM surveys.
Follow up on existing geophysical
anomalies close to Palito Complex.
FURTHER RESOURCE
EXPANSION
Further resource expansion
at Coringa.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report
8
STRATEGIC REPORT
Our Business at a Glance
Our Strategy
Where we Operate
see our Management Discussion and Analysis on pages 22 to 41 to read more
=
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.
Management have assessed and pursued several opportunities over the past
two years culminating in the acquisition of the Coringa project in December 2017.
Other opportunities continue to be evaluated and considered. An 8,000 metre drilling
programme commenced in the fourth quarter of 2017 to evaluate existing discoveries
and expand mineral resources and ultimately production at the Palito Complex.
Management ranks acquisition opportunities against each other and also its
ability to build value from investment in its own exploration tenements.
Several acquisition opportunities are continuing to be assessed and evaluated
and compared with potential returns that 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 São 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 key staff
took ownership.
During 2017, the Group made various improvements and increased plant capacity
including:
• Switching the São Chico orebody to a mechanised mining method better suited
to the orebody and improving mining productivity.
• Undertaking test work on the introduction of ore-sorting into the process flow sheet
to liberate plant capacity and increase feed-grade of ore to the mills.
• Completing an updated independent estimation of Mineral Reserves and Mineral
Resources which will assist long term mine planning.
•
Installing a carbon regeneration kiln to recycle carbon and reduce costs.
• Updating operational procedures to improve reliability and allow increased
use of grid generated power and thereby reduce costs.
•
Installing a new industry standard de-toxification plant for tailings.
• Building and commissioning a new mine-site laboratory.
Continued to reduce unit cost of production on a per tonne
basis to protect margins.
Serabi Gold plc // Report and Accounts 2017 9
How we Measure our Performance
see our Key Performance Indicators on page 18 to read more
=
What we Plan to do
see our Management Discussion and Analysis on pages 22 to 41 to read more
=
Management continues to maintain its focus on Brazil where it can leverage
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 brings to its attention
and only authorises the pursuit of opportunities including organic
growth opportunities, that the Board considers to have synergies, strong
growth prospects and good investment return potential or will in other
ways have strong potential to add value for shareholders.
A significant focus of management during 2018 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 deposit and significant geophysical anomalies near to the São Chico
deposit where there is also significant potential for further discoveries along strike. In
addition, within the wider tenement holding, there are numerous gold occurrences and
other exploration opportunities that the Group considers should be pursued as a priority.
The recently acquired Coringa project hosts a continuous seven kilometre strike of
historic artisanal activity which the Group would like to commence work on evaluating
further at the earliest opportunity.
Development of new opportunities or expansion of existing operations
are measured against development plans and costs. 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 São Chico or Palito
deposits 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.
It will progress as quickly as possible the permitting process for the Coringa project,
with the objective to commence development and construction during 2019 with first
gold being produced in 2020.
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 has and will use existing cash flow to finance its exploration and
development programmes and supplement its working capital with appropriate levels
of debt and other financing instruments that are non-dilutive for shareholders.
New equity will be used to accelerate investment plans where the Group considers
that those investments will be accretive to existing shareholders and the nature of
the investment does not readily lend itself to alternative financing structures.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report 10
STRATEGIC REPORT
Our Current Operations – The Palito Mining Complex
The Palito Mining Complex comprises two orebodies, providing
mined ore to a common plant. Extensions of the orebodies and
additional satellite deposits are expected to provide future
production growth and extended mine life.
APA Tapajos
N
Moraes de Almeida
Jardim do Ouro
163
MINA DO PALITO
MINA SÃO CHICO
Rio Jamanxim
Riozinho
163
Rod Transgarimpeira
Km
0
2.5
5
7.5
Rio Novo
FN Jamanxim
Mining Lease
Trial Mining Lease
Tenement Area
37,004 ounces
Gold production for 2017
460 tonnes
Average daily mining rate for 2017
8.92 g/t
Average mined grade for 2017
Serabi Gold plc // Report and Accounts 2017 11
Palito
The Palito orebody 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. It is a small-scale, high-grade operation using selective
mining techniques with a production target of around 25,000
ounces per annum.
São Chico
The São Chico orebody is a satellite deposit providing
supplementary 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
• 26 veins comprising the current resource of which eight
of 150 tpd at 9.0 g/t of gold.
are in the current mine plans.
• Fully permitted.
• A trial licence for mining 50,000 tonnes per year is in place.
• 90,000 ounces of NI 43-101 compliant mineral
• Currently operating at 350 tonnes per day at 8.0-9.0 g/t gold.
resources (2017).
• With the greater ore widths at São Chico mining is more
mechanised than at Palito with open stope retreat mining
methods generally being deployed with levels spaced at
approximately 15 metres.
• 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.
• 448,000 ounces of NI 43-101 compliant mineral
resources (2017).
• 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 year-round road access.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report 12
STRATEGIC REPORT
The Coringa Gold Project
Located 200km south of the Palito Complex,
containing a gold resource of 376,000 ounces.
N
Filão Valdette
Filão da Galena
Filão Eloy-Juara
Filão Mae-de-leite
Filão da Serra
Filão Demetrio
Filão Sr. Domingo
Filão do Meio
Km
1
2
0
Filão do Come-Quieto
Camp
Tenement Outline
Artisanal Workings
Veins
Roads
376,000 ounces
Estimated gold resource
30-40,000 ounces
Target production per annum
8.4 g/t
Average grade of indicated resources at Coringa
A major stepping stone in
our 2020 goal of achieving
an annualised production
target of 100,000 ounces.
Coringa hosts a mineral resource
estimate of 376,000 ounces of gold,
including an Indicated Resource of
195,000 ounces of gold with an average
grade of 8.4 g/t. Estimated mineral reserves
included within the mineral resource, are
160,000 ounces of gold. Coringa is located
some 70 kilometres to the south-east
of the town of Novo Progresso which is
approximately 130 kilometres by road to
the south of Serabi’s current mining
operations at Palito.
Completion of the acquisition occurred on
21 December 2017 (“Closing”). Serabi
has made an initial payment to the vendor
on Closing of US$5 million in cash (“Initial
Consideration”). Subject to any working capital
adjustment, a further US$5 million, in cash, is
payable within three months of Closing and
a final payment of US$12 million, in cash, will
be due upon the earlier of either the first gold
being produced or 24 months from the date
of Closing (both payments together being the
“Deferred Consideration”). The total proposed
consideration for the acquisition amounts to
US$22 million in aggregate.
Serabi Gold plc // Report and Accounts 2017 13
Key Facts
• Located only 200 kilometres from
Serabi’s Palito operation and linked by
paved highway, providing opportunities
of synergies for management and
infrastructure and potential reduction
of unit operating costs.
• Past gold discoveries at Coringa including
the Mae de Leite, Come Quieto, Demetrio
and Valdette veins.
• Coringa hosts an Indicated Mineral
Resource of 195,000 ounces of gold at
8.36 g/t and an Inferred Mineral Resource
of 181,000 ounces gold at 4.32 g/t.
Project Objectives for 2018
• Secure approval of Environmental
Impact Assessment (EIA/RIMA)
submitted in November 2017.
• Complete land access negotiations
with land owners.
• Complete public hearing and
consultation process.
• Obtain initial Licenca Previa (“LP”)
confirming the selection of the best
place for developing and conducting
extractive activities, based on the
detailed EIA/RIMA.
• Progress obtaining the Licença de
Instalação (“LI”). This permit allows the
construction of the mine, assuming
compliance with any conditions
imposed by the LP.
• Progress the issue of an initial Trial Mining
Licence from the DNPM.
• Maintain dialogue and support of various
other government agencies including
INCRA (National Institute for Colonisation
and Agrarian reform), ITERPA (Pará
Land Institute), FUNAI (National Indian
Foundation), ICMBio (Chico Mendes
Institute for the Conservation of
Biodiversity), ANA (National Water Agency),
and IPHAN (National Institute of Historic
and Artistic Patrimony), among others.
A bankable feasibility study
commissioned by the previous
owners and released in September
2017 reported:
• Probable mineral reserves of
161,000 ounces of gold at 6.5g/t.
• 5 year mine life with annual
production of 32,000 ounces
per annum.
• Capex ~ U$28 million.
• Average estimated cash cost
of US$588 per ounce and All-In
Sustaining Cost (“AISC”) of US$786
per ounce.
An earlier 43-101 compliant study
issued in 2015 reported a total
mineral resource of over 900,000
ounces, a significant portion of which
was excluded from the latest study.
Serabi’s management considers
that a modest drill programme could
quickly allow the “lost” resources from
the 2015 estimation to be reinstated
increasing the mine life, the overall
project economics and potentially
the projected annual production rates.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report
14
STRATEGIC REPORT
The Gold Market
Gold’s role in managing risk is strengthened by
concerns over the valuations attributed to other asset
classes. Interest rates are at historically low levels and
governments generally experiencing high levels of debt
might be expected to pursue policies that keep interest
rates low. This would bode well for gold as an asset class.
Gold Price in US$ and BrR$ January 2016 to Date
US$ Gold Price
US Dollar per ounce
BrR$ per ounce
Real Gold Price
1400
1375
1350
1325
1300
1275
1250
1225
1200
1175
1150
1125
1100
1075
1050
1025
1000
5100
5000
4900
4800
4700
4600
4500
4400
4300
4200
4100
4000
3900
3800
3700
3600
01/01/2016
01/03/2016
01/05/2016
01/07/2016
01/09/2016
01/11/2016
01/01/2017
01/03/2017
01/05/2017
01/07/2017
01/09/2017
01/11/2017
01/01/2018
01/03/2018
THE GOLD MARKET AND OUTLOOK
Having experienced the concerns at the
end of 2015 when gold was predicted to
fall below the US$1,000 per ounce level
for the first time since late 2009, the last
quarter of 2016 also saw a steep decline
from a price of US$1,300 to around
$1,140 towards the end of December 2016.
The bears were once again predicting the
decline of gold. It is therefore pleasing that
2017 has seen steady improvement and
having started the year at around US$1,150
the price closed almost US$150 per ounce up
(a 13 per cent improvement) to close the
year at US$1,300 per ounce. The momentum
has been maintained into the first quarter of
2018 although having reached a high over
of US$1,350 at the height of the rhetoric
between the USA and North Korea earlier
this year the price has since declined
though remains comfortably over US$1,300
per ounce.
Whilst 10 years have now elapsed since the
global financial crisis, economic normality is
now returning and 2018 is expected to see
the trend in global growth continuing. With the
key US and European economies expanding
and unemployment levels beginning to fall
whilst inflation remains low, there is cautious
optimism about the future. With increasing
consumer confidence, improved consumer
demand for gold is expected to increase, both
in the jewellery sector and in technological
applications. Interest rates are expected
to remain at historically low levels and with
governments, both in the developed and
emerging markets, experiencing high levels of
debt one might expect them to pursue policies
that seek to keep interest rates low. This would
bode well for gold as an asset class.
Gold’s role in managing risk is also
strengthened by concerns over the valuations
being attributed to other asset classes some
of which have hit multi year highs around
the world in 2017. The search for yield has
resulted in significant growth in property
prices around the world with the Chinese
market experience almost 100 per cent
growth in the two years to the end of 2017,
Serabi Gold plc // Report and Accounts 2017 15
BrR$ Exchange Rate and Gold Price in BrR$ January 2016 to Date
BrR$ to US$ Exchange
BrR$ exchange rate
BrR$ per ounce
Real Gold Price
4.2
4.1
4.0
3.9
3.8
3.7
3.6
3.5
3.4
3.3
3.2
3.1
3.0
5100
5000
4900
4800
4700
4600
4500
4400
4300
4200
4100
4000
3900
3800
3700
3600
01/01/2016
01/03/2016
01/05/2016
01/07/2016
01/09/2016
01/11/2016
01/01/2017
01/03/2017
01/05/2017
01/07/2017
01/09/2017
01/11/2017
01/01/2018
01/03/2018
and some indicators are at levels not seen
since the dot-com bubble of 2000. Whilst
there is no immediate sign of an end to a
bull market in 2018, there should be caution
about valuations and should markets correct
investors should benefit from exposure to gold
to mitigate potential losses.
On the geo-political front, continuing concerns
about Brexit, on-going Middle-East tensions
and any resurgence of a fractious US – North
Korea relationship all provide a positive
environment for gold investment.
For Serabi however with its exposure to the
Brazilian real, the Gold price in Real is a key
indicator for the Company. Whilst there are
many factors influencing the Brazilian Real
to US Dollar exchange rate, a key factor in
the past has been the relative currency inflows
into the country attracted by the high interest
rates. The current government has made a
priority of driving down inflation and reducing
interest rates, and to this end inflation is
currently down at approximately 2.84 per cent
whilst interest rates during 2017 have fallen
from 13.75 per cent at the start of the year to
7.0 per cent by the end of 2017. This has kept
the exchange rate in a much narrower band
that we have seen in the last couple of years
providing some respite from the uncertainties
that this creates for managing cash flow and
longer-term planning. With elections due in
October 2018 and the continuing fall-out
of the corruption scandals of the Lula and
Rousseff administrations, it seems likely that
there will be uncertainty as to where power
will lie and therefore the future direction of
economic and general policy post the October
elections. At this time, it remains very difficult
to judge which way the population will vote,
with the likelihood that the outcome will be
much closer than it has been for many years.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report 16
STRATEGIC REPORT
The Gold Market continued
Gold Supply 2014-2017
Tonnes
5000
4000
3000
2000
1000
0
Mine Production
Net producer hedging
Recycled gold
1,170
3,141
1,117
3,293
1,295
3,263
1,160
3,269
2014
2015
2016
2017
Source: World Gold Council
5.7 tonnes
Increase in mine production
135 tonnes
Decrease in use of re-cycled gold
6.7 %
Net decrease in demand for 2017
SUPPLY
DEMAND
On the demand side of the equation only
jewellery demand showed any significant
improvement compared with 2016. Overall
demand fell by seven per cent notwithstanding
a relatively strong fourth quarter buoyed by a
continued improvement in prices.
Whilst investment in gold by ETF’s continued
to be positive in 2017 the net increase in
demand was 63 per cent below that of 2016,
albeit that there had been strong sell off’s in
previous years, which meant that 2016 had
been a year of re-balancing.
Central banks were net purchasers of
gold a situation which has prevailed now
for eight consecutive years, with Russia
and Turkey being among the major buyers
whilst many other central banks left their
gold reserves untouched.
World gold supply in 2017 declined by
around 4 per cent year on year (193 tonnes)
notwithstanding that mine production
marginally improved compared to 2016.
However, an increase of only 5.7 tonnes
means that mine output essentially plateaued
with new starts simply filling the reductions
caused by closures and declines at older
operations. Significant reductions were seen
in China and Tanzania. In China improved
environmental legislation is forcing marginal
operations to close, whilst the on-going ban
on gold concentrate exports in Tanzania has
had a significant impact on gold production
in the country.
The levels of re-cycled gold which had been
unusually high in 2016, fell by 135 tonnes
(10 per cent). This perhaps reflects that
following an almost two year period of
declining gold price leading into the start of
2016, the rapid improvement during the first
six months of 2016 resulted in a unusual
levels of recycled supply, which was always
likely to result in a rebalancing during 2017
back to more normal levels.
For the first time since 2013, there has been a
net de-hedging by producers which reduced
supply by approximately 63 tonnes year on
year. Levels of producer hedging continue to
be low compared with the past.
Serabi Gold plc // Report and Accounts 2017 17
Change in Annual Gold Demand, 2017 v 2016
Tonnes
4700
4600
4500
4400
4200
4100
4000
3900
3800
4,362
82
9
(20)
(18)
(344)
(291)
4,072
2016
Jewellery
Technology
Bar and coin
Central banks
ETF’s
and similar
2017
Net change
(2017 v 2016)
Source: World Gold Council
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report 18
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.
OPERATIONAL PERFORMANCE REVIEW
The Board established three key strategic
objectives for 2017. The first of these was
to maintain and seek to improve operational
performance compared with the preceding
year, which itself had been a very successful
year, where guidance had been exceeded. This
therefore set a high benchmark. Second, was
to try and progress organic growth through
re-investment of cash flow from the operations.
This organic growth centres on defining and
developing strike extensions of existing veins
as well as follow up drilling on discoveries
made previously that can increase mineral
resources, supporting additional production
and a longer mine life. Thirdly, the Board agreed
that the Company should actively consider
opportunities around Brazil and seek to make a
project acquisition that provides growth and will
add value for shareholders.
Whilst overall gold production was lower
than the preceding year, the operations
performed extremely well throughout the
year. Tonnage mined and tonnage processed
both increased and had it not been for an
equipment commissioning issue in the second
quarter which resulted in a need to rely on
lower grade development ore, gold production
would have been very comparable to the
level attained in 2016.
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 ahead of production.
Average mined grades were slightly lower
than the preceding year, but this was generally
expected and arises from the development of
new veins within the Palito deposit. Each vein
is unique in its grade and width characteristics
and to maximise future flexibility, the Company
took a conscious decision to start developing
and producing from the Senna and Chico
da Santa areas to the west and east of the
Palito Main Zone and Palito West areas that
formed the core of production for 2016.
With development now quite well advanced
in these additional zones, the Company now
has significantly more options for where ore
is produced allowing the opportunity for
smoothing out grade fluctuations between the
different ore zones of the deposit.
A surface exploration drilling programme
commenced in November 2017, initially
targeting step-out drilling on the known veins
around the Palito orebody. Whilst a modest
programme initially, it is targeted at building
additional resources and identifying additional
orebodies that can in time be proved to be
commercial, grow production and increase
the longevity of the operation. It is hoped
this programme can be extended and the
discoveries will be fully evaluated and drilled.
In December 2017, the Company completed
the acquisition of the high-grade Coringa gold
project located 200 kilometres to the south of
the Palito Mine Complex. With many similarities
to the Palito and São Chico deposits and with
its relative proximity it will, once in production,
allow the Company to benefit from synergies
across the operations. In addition, the Company
is of the view that the project has significant
potential for resource growth making the
Mined Ore
168,876 tonnes
2017
168,876
2016
2015
158,864
135,827
Mined Grade (g/t)
8.92 g/t
2017
2016
2015
8.92
9.74
9.80
Mine Development Completed
9,864 metres
2017
2016
2015
9,864
11,209
9,600
Plant Throughput
172,565 tonnes
2017
172,565
2016
2015
158,966
130,299
Annual Gold Production
37,004 ounces
2017
37,004
2016
2015
39,390
32,629
Cash Balances
US$4.09m
2017
US$4.09m
2016
2015
US$2.19m
US$4.16m
Serabi Gold plc // Report and Accounts 2017 19
Notwithstanding the increased mine and
process tonnages achieved during 2017, costs
in Brazilian real terms have reduced and when
considered on a unit cost of production basis
(cost per tonne) have shown good improvement.
The Company continues to look for both cost
and operational efficiencies, and through a focus
on quality, hopes that it can continue to improve
margins by making each part of its operations
operate in a manner that maximises utilisation
and productivity rates.
Having settled, during 2016, much of its
debt the Company’s focus during 2017 was
to be one of consolidating its position and
establishing the financial foundations for
growth. During June 2017, the Company
negotiated a loan with Sprott Resource
Lending to provide it with additional working
capital allowing the Company the opportunity
to start committing to capital and development
programmes as well as providing financial
flexibility to look at other opportunities.
The strong cash position that was established
allowed the Company to pursue and complete
the purchase of the Coringa project and make
the initial US$5 million acquisition payment
from existing funds.
Further details regarding the financial
performance during 2017 are set out in the
Financial Review on pages 34 to 41.
project an attractive longer term opportunity.
More details of the Coringa project are set out
on pages 12 to 13.
Further details regarding the operational
performance during 2017 are set out in the
Operational Review on pages 22 to 29.
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 Reals 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.
During 2016 the Brazilian Real strengthened by
20 per cent but during 2017 has remained fairly
static by comparison with the volatility that had
been seen in the preceding two years having
traded within a range of about 3.05 to US$1.00
and $3.30 to US$1.00 through the year.
Annual Cost Breakdown –
unit costs BrR$/tonne
Mining Cost / tonne
2017
2016
2015
Plant Cost / tonne
2017
2016
2015
Site Costs / tonne
2017
2016
2015
359
381
472
154
124
138
102
113
121
Annual Cost
Breakdown BrB$m
Mining
2017
2016
2015
Plant
2017
2016
2015
Site
2017
2016
2015
60.12
61.23
52.70
21.44
22.26
17.61
18.16
17.63
13.78
Borrowings
Secured Loans
2017
2016
2015
US$5.00m
US$1.37m
US$4.00m
Trade Finance
2017 US$0.00m
2016 US$0.42m
2015
Finance Leases
2017
2016
2015
US$6.65m
US$1.12m
US$1.25m
US$0.86
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report 20
STRATEGIC REPORT
Principal Risks and Uncertainties
The Board considers that the following risks are those which present the most significant uncertainty for the Company at the current time.
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.
RISK
COMMENT
MITIGATION
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.
Currency fluctuations
may affect the costs of
doing business and the
results of operations.
Availability of working
capital.
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.
The Company is reliant on generating regular revenue and cash flow from
its operations on a monthly basis to meet its monthly operating costs,
meet debt repayment requirements 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 in the short term.
No guarantee that the
Group’s applications
for exploration licences
and mining licences will
be granted.
There is no guarantee that any application for mining licences, the renewal of
existing exploration licences or the granting of new exploration licences will
be approved 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 São 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 São 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.
The Group is in the process of applying for a mining licence in respect of the
Coringa gold project. There can be no certainty that a mining licence will be
issued or as to the time frame in which it will be issued.
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 deals with
customers for its products who
have 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 or defer debt repayment
obligations 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 2017 21
RISK
COMMENT
MITIGATION
Other permits and
licences required to
conduct operations
may not be renewed
or may be revoked
or suspended.
The Group requires a number of permits and licences to be able to
undertake its operations and these are issued by a variety of agencies
and departments.
The Group is required to provide regular reports and may be subject to
inspections to ensure that it is in compliance with its obligations in respect
of any licence or permit. Failure to comply with the obligations can result in
fines, obligations to undertake remedial action and, in cases where a breach
is deemed significant, in suspension until remedied.
Permits and licences are issued for fixed periods and therefore subject to
regular renewal. The renewal process may impose additional obligations on
the Group that had not been imposed under previous licences and permits.
The Coringa gold
project is an advanced
stage development
project requiring
permitting and
construction before
production can
commence.
The Group acquired the Coringa gold project in December 2017.
The Group is at the early stages of obtaining all the necessary permits and
licences (including a mining licence and operational licence) required to
allow mine development and plant construction to commence and there
can be no certainty that it will be granted all the necessary licences and
permits or as to the time frame in which these will be issued.
Management maintains on-going
dialogue with the all government bodies
involved with the granting and control of
mining operations s to ensure that such
bodies are well informed of the Group’s
activities and plans 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 personnel and
consultants experienced in the various
aspects of the licencing and permitting
process to ensure that it maintains
compliance with its obligations.
The Group has been operating in the
region for a number of years in general
is dealing with the same government
agencies and bodies that have
oversight of the operations in the
Palito Mining Complex.
The Group considers that it has
developed good relations and
understanding with the government
bodies and agencies who will grant
these licences and these same bodies
have been supportive of Serabi’s
acquisition of the project.
By order of the Board
Clive Line
Company Secretary
29 March 2018
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017Strategic Report 22
MANAGEMENT DISCUSSION AND ANALYSIS
Operational Review
Management continues to evaluate the Group’s
options for expanding its gold production in
the Palito Complex. An initial surface drilling
programme commenced in November 2017
as the start of a larger programme which, it is
hoped, will provide sufficient confidence to
justify commencement of new mine portals and
underground exploration development drives.
Highlights
37,004 ounces
Total production for 2017
40,000 ounces
Forecast production for 2018
Operational Highlights
• Total gold production for 2017
of 37,004 ounces.
• Mine production in 2017 totalling
168,876 tonnes at 8.92 g/t of gold.
• 172,565 tonnes processed through
the plant for the combined mining
operations, with an average grade
of 7.11 g/t of gold.
• 9,864 metres of horizontal mine
development completed in the year.
• Completion of new estimation of
Mineral Reserves and Resources
for the Palito Mining Complex.
• Total Mineral Reserves estimated
at 181,000 ounces within a total
mineral resource of 538,000 ounces.
OUTLOOK AND STRATEGY
Operations
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 26 veins that comprise the
Measured, Indicated and Inferred resources
of the Palito Mine. Underground drilling of
the Palito orebody 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 Palito orebody, the G3 vein is the
most developed of the 26 veins, developed
to a depth of approaching 300 metres and
over a strike length of over one kilometre.
Management consider that there is strong
potential for the Palito veins to continue both
at depth and along strike to the southeast
and the northwest, as far as the Currutela
and Copper Hill discoveries respectively,
opening up a potential four kilometre strike
length of mineralisation.
At São Chico the mine development has, to
date, focused on the central ore shoot of the
Main Vein. The São Chico orebody, whilst
contributing to the Group’s gold production,
was primarily in development during 2015
and much 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 levels of stoping activity began to
increase. 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 mineable
ore at São Chico. Underground drilling is
being undertaken at São Chico for short
term operational and mine planning purposes
focusing on the deeper part of the mine, and
the depth of the central ore zone.
The Group has been conducting extensive
test work to assess the benefits of ore-sorting
to further enhance ore feed grade and reduce
waste entering the process plant. This will
also free plant capacity for future organic
growth. Tests on the Palito ore have been
extremely encouraging and the final design
and acquisition process is being completed.
With the time for manufacture, shipping and
commissioning it is not expected that this
process change will have any significant
impact during 2018.
Near-Term Production Growth for
the Palito Complex
Management continues to evaluate the
Group’s options for expanding its gold
production in the Palito Complex and also
the wider JDO Project area. Mine-site
geophysical studies undertaken during the
third quarter of 2016 over the Currutela and
Piaui discoveries and other areas close to
the current Palito orebody are now being
followed up with an initial 8,000 metre surface
drilling programme which commenced in
November 2017. This is the first phase
of a larger exploration and evaluation drill
programme that management would like
to undertake and which it feels could, on
or before completion, provide sufficient
confidence to justify commencement of new
mine portals and underground exploration
development drives. These would be used to
access and fully evaluate any new discoveries
that are considered to have potential to be
commercially viable. In time, these discoveries
could become new near-mine satellite
deposits adding incremental production.
Serabi Gold plc // Report and Accounts 2017 23
Palito Complex Exploration
The Group has also commenced mine-site
surface geophysics programmes around
the São Chico deposit. Management
considers that the mineralisation at
São Chico is hosted in a regional shear
zone and have used geophysics to help
identify additional deposits that may lie
along a five kilometre strike zone around
the current São Chico deposit. Again, in
time, this exploration work may lead to
the identification of additional near-mine
satellite mining opportunities.
All exploration activity had 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 14,650 hectares
of airborne electro-magnetic (“VTEM”)
geophysical surveys and these initial aerial
surveys have highlighted many areas of
interest and exploration opportunities to
pursue in due course as and when adequate
funding is available. The Group is cognisant
that the exploration tenements it holds
are only granted for limited terms and is
therefore keen to implement a regional
exploration programme to highlight the
tenement areas that should be prioritised
as having the highest potential as soon as it
can make available adequate funds. 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 could have the potential to be
additional satellite operations lying within 15
kilometres of its current Palito or São Chico
operations and contribute 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
a low capital cost, leverage off existing
infrastructure and resources to minimise
development and operational costs and,
with high-grades and low volumes, have a
low environmental impact.
Except for the 8,000 metre programme
that commenced in November 2017 at
Palito, at this current time, no other surface
drilling or other surface exploration activities
are currently committed on any other
exploration properties of the Group.
Coringa
Serabi is continuing the work started by
Anfield on the permitting and licencing
process and will pursue the formal approval
of the Environmental Impact Study (“EIS”)
and undertake any supplementary work or
reports that may be requested. The Group
will review the cost estimates contained in
the Coringa Feasibility Study and optimise
these, prepare its own mine development
plans and evaluate alternative construction
development and processing options that
Serabi’s management consider could enhance
the economics of the project. Coringa has
been placed on care and maintenance whilst
the permitting process is completed.
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.
2018 PRODUCTION GUIDANCE
Management does not anticipate a major shift
in mine performance and therefore hard rock
gold production, in 2018 compared with 2017.
However, with the ability to process increased
levels of stockpiled flotation tails in 2018,
management expects that gold production
for 2018 will exceed that of 2017 and be up
to 40,000 ounces.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 24
MANAGEMENT DISCUSSION AND ANALYSIS
Operational Review continued
OPERATIONAL REVIEW FOR THE YEAR
Overview
Total gold production for the fourth quarter
of 2017 was 9,337 ounces of gold resulting
in total gold production for the year of 37,004
ounces. Whilst this level of gold production
is approximately six per cent lower than for
2016, this reduction was primarily the result
of an operational issue experienced during
April and much of May (and fully described
in the Company’s Management Discussion
and Analysis for the second quarter of 2017,
issued on 14 August 2017), which has now
been resolved. The Group has designed
and is constructing an independent feed
system to increase the processing of historic
flotations tailings, produced during 2014.
Independently feeding this directly into the
plant, management anticipates will increase
the levels that can be treated each month
increasing total gold production.
The successful outcome of the ore-sorting
test work will bring feed grade improvement as
well as liberating some plant capacity for future
organic growth. Final design specifications
are being agreed although with manufacturing
and other lead time involved it is not expected
that this process enhancement will have any
impact until 2019.
Mining Operations
Mining of the Palito orebody has been at
relatively steady levels for over two years
and production and development rates are
achieving a steady state of mine output.
The ore generated from the São Chico
orebody in 2016 was derived principally from
development. With sufficient development
headings now established the Group started
to increase the level of stoping activity in the
first quarter of 2017 and consequently the
tonnage of ore that is being recovered from
stope mining. However, the stoping method
at São Chico requires the use of remote
controlled loaders to muck the broken ore,
and during the first half of 2017 the Group was
still in the process of building up its mining
fleet. Commissioning problems with the new
remote-controlled scoop fleet, significantly
reduced stope production during these
months and it was therefore necessary to
use development ore as alternative mill feed.
Ore recovered from development mining is
unavoidably more diluted and is therefore
generally lower grade. By June, with the
original unit returned to full operation and the
second new unit commissioned and operating,
production improved significantly. During the
second half of the year mine production from
the São Chico orebody has been excellent
with no further significant operational issues.
The Group is in the process of commissioning
a new de-toxification plant based on the
INCO process. This will see further reductions
of cyanide levels in the discharges and
significantly below the levels prescribed
by legislation.
There were improvements in the average
grades mined from both orebodies during
the third and fourth quarters. The fourth
quarter also saw the highest level of
mined tonnage achieved since operations
restarted with over 49,000 tonnes being
mined during the period. Mine development
from the São Chico orebody in particular
has been very encouraging, and there are
no indications that the payability of ore
development is diminishing with depth. In
addition, development is now comfortably
ahead of stoping, with over two years of ore
now developed and ‘blast ready’ at current
production rates.
At the Palito orebody, eight veins out of the
26 veins that comprise the total geological
resource, are now in various stages of
development and production. The Pipocas,
G3, and Senna veins remain the backbone of
the sources of ore, with smaller contributions
from the newly developed Jatoba, Mogno,
Zonta and G1 veins. As has been previously
reported, the G3 vein has been intersected
on the -50mRL, the lowest level in the mine,
and development on this level has been
on-going through the second half of the
year. The mineralised vein remains strong,
with very good grades being encountered.
The Pipocas vein is in development on the
30mRL and 0mRL levels, with deepening
underway to access the -30mRL level.
Performance of the combined mining
operations of both the Palito and São Chico
orebodies has resulted in approximately
170,000 tonnes of ore being extracted
during 2017 which compares with a total of
approximately 159,000 tonnes produced in
2016, representing an improvement of six
per cent. This increase in output has been
Serabi Gold plc // Report and Accounts 2017 25
assisted by the continued development of
the São Chico orebody where there are now
a number of faces available and with mining
operations (stoping and development) now
active over eight different levels.
Mined grades achieved for 2017 averaged
8.92 g/t, and whilst slightly lower than reported
for 2016, they are slightly above the reserve
grade for the two orebodies estimated by SRK
in the Palito Complex Technical Report issued
in January 2018. Lower grades from the Palito
orebody were expected and reflect variances
arising from normal mine scheduling, whilst
the lower grades from the São Chico orebody
were the consequence of the commissioning
problems with the new remote-controlled
scoop fleet during the second quarter and
the resultant increase in the higher level of
development ore mining than was undertaken
to compensate for lost stope mining and to
provide the necessary mill feed.
With both of the Palito and São Chico
orebodies, development is slightly ahead of
production, and as a result the Group has
been able to reduce the levels of development
mining activity during 2017 by almost 12 per
cent compared with rates for 2016.
At the end of 2017 combined coarse ore
stocks were approximately 15,000 tonnes
with an average grade of 3.0 g/t of gold
(31 December 2016: approximately 21,000
tonnes with an average grade of 4.0 g/t of gold).
Palito Orebody
Mining of the Palito orebody is now very much
in regime. During 2016, the Group 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 Group 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.
In the G1, G2 and G3 vein complex, the main
ramp has now reached the -50mRL where the
G3 vein has been intersected. Development
of this new level started during the second
quarter of 2017 and it is the lowest production
level in the Palito orebody.
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, 210mRL and
185mRL is on-going with the ramp now being
taken down to the 170mRL. The adjacent
Zonta vein is also under development on levels
225mRL, 210mRL and 185mRL. 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.
In the Chico da Santa sector the Ipe, Jatoba
and Mogno veins are being developed. 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.
Opening up new sectors of the Palito
orebody has created options and flexibility,
an essential part of any small underground
mining operation. Underground diamond
drilling is being used to evaluate numerous
known, but underexplored, veins and together
with these new sectors, the Group plans 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.
Such lateral development also reduces the
requirement to continue to deepen the mine
at the rates that were previously necessary.
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
that can be recovered in each vertical metre of
mine development, which can improve margins
and reduce costs.
In the longer term, management anticipates
that the Palito orebody will expand along strike
as well. To the south this will be towards the
Palito South and Currutela prospects. Recent
underground development and surface
drilling on the Pipocas vein is suggesting
good potential to the north and further to the
north there is also the Copper Hill geophysical
anomaly which offers the exciting possibility of
a significant discovery.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 26
MANAGEMENT DISCUSSION AND ANALYSIS
Operational Review continued
At this time, drill intersections on the Pipocas
north area show the vein continuing north
approximately 250 metres from the most
northerly exposure underground. Assay
analysis is currently in progress. The Group
has undertaken 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. Diamond drilling
from surface is now underway to test the
down-dip continuity of the G3 vein at depth.
São Chico Orebody
Underground development of the São Chico
orebody 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.
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 26mRL, approximately
225 metres below surface and will continue
to be deepened during 2017. Development
has been completed, or is active, on the
86mRL, 70mRL, 56mRL, 40mRL, 26mRL,
and the new 10mRL, whilst stoping activity
is currently focused on the 128mRL, 116mRL
and 100mRLs.
During 2016, the decision to implement
sublevel open stoping as the principal mining
method was taken, which resulted in the
development of sublevels with 15 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 Group to define
a clear 24 month mine plan.
The Main Vein or ore zone at São Chico can
vary from one metre to eight metres wide, but
most commonly is a 2.5 metre wide 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
mineralisation has to be mined. Whilst the
alteration zone itself is readily identifiable,
the high-grade within it is much less so, and
as a result, on-lode development levels are
mined 15 vertical metres apart, along which
regular channel sampling is made. This
is further complemented by 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.
The central pay-shoot is the most established
of these three high-grade shoots, and is some
100 to 150 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 in future periods.
During the second quarter of 2016, the Group
commenced underground exploration drilling
of the central pay-shoot targeting its down dip
extension. The on-going drilling programme is
confirming the belief that the São 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 2017 was
37,004 ounces of gold, generated from
the processing of the run of mine (“ROM”)
ore from the Palito and São Chico orebodies,
combined with the surface coarse ore
stockpiles and the stockpiled flotation tailings
accumulated from the processing of Palito
Mine production in 2014.
Gold production for 2017 came from the
processing of 172,565 tonnes from the
Palito and São Chico orebodies with an
average grade of 7.11 g/t of gold (12 months
to 30 December 2016: 158,966 tonnes at
8.11 g/t of gold). The 8.6 per cent increase
in processed ore reflects the increased plant
capacity installed and available from the
second half of 2016, and the introduction
of the gravity circuit and ILR for treating the
São Chico ore.
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 tonnes per day (“tpd”) to at least
Serabi Gold plc // Report and Accounts 2017 Summary Production Statistics for the Four Quarters Ending 31 December 2017 and 31 December 2016
2017
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Horizontal development – Total
Metres
Mined ore – Total
Milled ore
Tonnes
Gold grade (g/t)
Tonnes
Gold grade (g/t)
Gold produced
Ounces
2,251
36,918
10.12
41,722
7.09
9,861
1,855
41,684
7.80
43,294
6.26
8,148
2,996
41,263
9.80
44,205
7.21
9,657
2,762
49,011
8.25
43,345
7.27
9,337
37,004
27
Total
2017
9,864
168,876
8.92
172,565
7.11
2016
Horizontal development – Total
Metres
Mined ore – Total
Milled ore
Tonnes
Gold grade (g/t)
Tonnes
Gold grade (g/t)
Gold produced
Ounces
Quarter 1
Quarter 2
Quarter 3
Quarter 4
Total
2016
2,925
37,546
11.02
36,615
8.58
9,771
2,941
33,606
9.56
39,402
8.17
9,896
2,649
43,133
9.61
42,464
8.08
10,310
2,694
11,209
44,579
8.94
40,485
7.60
158,864
9.74
158,966
8.11
9,413
39,390
(1) Gold production are subject to amendment pending final agreed assays of the gold content of the copper/gold concentrate and cold doré that is delivered
to the refineries.
(2) Gold production totals for 2017 include treatment of 4,568 tonnes of flotation tails (2016 full year: 16,716 tonnes).
500 tpd. Further improvements undertaken
within the process plant during 2016 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 regenerates fouled carbon reducing
the need to purchase fresh carbon and has
improved gold recoveries by 1.0-2.0 per cent
since being installed.
To date the Group has tried to pump the
flotation tailings in a wet form to the CIP
plant, but this has proved to be slow and
labour intensive. Passing the material ‘dry’
through the ore feed system has to date
been restricted by belt capacity and would
therefore only displace higher grade ore.
An independent feed system has now been
designed and is in construction allowing this
material to be added to the current dry mill
feed, and therefore increase the levels that
can be treated each month.
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, a legacy
of the fact that mine production began six
months before the ore processing.
Plant performance during the fourth quarter
was excellent, with approximately 43,000
tonnes of ROM ore milled. The Group still has
approximately 15,000 tonnes of coarse ore in
stockpiles and an estimated 50,000 tonnes of
flotation tails stockpiled (with an average grade
of around 2.7 g/t of gold), levels that have been
fairly static since 2014. This reflects that the
operation remains somewhat constrained by
the capacity of the plant.
An encouraging development this year has
been the test work undertaken by the Group
on ore sorting of the Palito and São Chico ores.
Current mining operations whilst excellent
and employing the most selective methods
possible, nonetheless result in a minimum
stope mining width of generally 1.0 metre. The
veins being mined have an approximate width of
0.5 to 0.7 metres, and therefore there remains
considerable dilution from stope mining with
even higher levels in the development mining
activities. Having undertaken test work initially
in Brazil and more recently on bulk samples
at the manufacturer’s facilities in Poland,
excellent results have been achieved using
X-ray scanning using relative atomic densities
to physically separate the sulphide bearing ore
and granite waste. The contrast and results
have been quite remarkable.
The intention now is to introduce an X-ray ore
sorter after the main crushing plant that will
separate material ahead of milling and remove
from the mill feed a significant percentage
of the waste that would otherwise have
formed part of the feed into the plant. Not
only will this reduce process costs per ounce
recovered, it will also liberate capacity in a mill
constrained operation. In this way it is hoped
that, using this technology, the plant can be
debottlenecked, mill feed grade elevated as
a result, and plant capacity freed up for the
future organic growth with the added benefit
of potentially reducing the surface stockpiles
of ore. This equipment is built to order and it
is anticipated it will take between nine months
and a year before it can be fabricated, installed
and commissioned. Payback of the estimated
US$1.2 million cost is however expected to be
less than 12 months.
Palito Complex Exploration and
Licensing Matters
The Group undertook a surface diamond
drill programme in March 2015 at the São
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
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
28
MANAGEMENT DISCUSSION AND ANALYSIS
Operational Review continued
development mining that took place during
the remainder of 2015, greatly enhanced the
understanding of the orebody 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.
In February 2014, the Final Exploration
Report (“FER”) for the São 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 São 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 licence) already in place, all mining
operations can continue in parallel. Prior to
its expiry in December 2017, a submission
has been made for a further extension of
the Guia de Utilização for a period of one
additional year. 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. Any further reports
requested or updates to existing reports
will be submitted promptly upon request.
Two geophysical exploration programmes
commenced during the second half of
2016, over each orebody. 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 orebody. DHEM provides data to model
the likely geographical location and extent
of the sulphide rich zones intersected in the
2011 drill holes. The second programme
was undertaken at São Chico using surface
induced polarisation (“IP”) and, included
areas immediately around the São Chico
orebody. Some large anomalies parallel to
the São Chico orebody have been identified
and will require further testing by surface
drilling. 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.
The Group, during 2017, has secured
additional tenements located to the south
and the west of the original São Chico licence
area, and management consider that these
offer excellent potential for hosting strike
extensions of the current São Chico veins.
As noted earlier, an initial 8,000 metre drill
programme focused on four key areas around
the current Palito orebody commenced in
late November 2017. This is the first phase
of a larger exploration and evaluation drill
programme that management would like
to undertake and which it feels could, on
or before completion, provide sufficient
confidence to justify commencement
of new mine portals and underground
exploration development drives. Drilling
to date has focused on the Pipocas vein
to the north and south and while assays
received are still to be received, encouraging
intersections have been made particularly to
the north of the current mine workings.
Serabi Gold plc // Report and Accounts 2017 29
Progress has also been made in several other
areas relating to the development of Coringa.
Applications for required camp and start-up
water were submitted prior to the date of the
Acquisition and the tailings storage permit
request was submitted on 11 December
2017. Discussions for long term land access
agreements are underway with the Instituto
Nacional de Colonização e Reforma Agrária
(“INCRA”), a government agency which claims
ownership of the surface rights where the
project is situated.
OTHER EXPLORATION PROSPECTS
The Group has three other project areas,
although activities on each of these projects
have 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. These
projects are non-core for the Group and it is the
intention to relinquish these upon their expiry.
Mike Hodgson
Chief Executive
29 March 2018
JARDIM DO OURO EXPLORATION
With the addition of the new tenement to the
west and south at São Chico, the JDO Project
covers a total area of over 45,000 hectares,
incorporating the Palito and São Chico mining
licence areas. The Palito mining licence was
granted on 23 October 2007 covering an area
of 1,150 hectares, whilst the São 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 airborne
geophysical 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 São Chico orebody 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 São 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,
has provided essential data for the further
evaluation of the Main Vein and the immediate
parallel structures.
It has always been the intention of the
Group to use cash flow generated from
its production operations to advance its
exploration opportunities.
CORINGA PROJECT DEVELOPMENT
AND LICENCING
On 14 August 2017, Anfield announced
that it had received key permits required
to commence construction of the Coringa
project, being (1) the licence of operation for
exploration and trial mining, (2) the vegetation
suppression permit and (3) fauna capture
permit, all issued by the SEMAS. The SEMAS
permits contain a list of conditions for the
conservation and protection of fauna and flora.
The next step in the permitting process
will be for a formal trial mining licence to be
issued by the DNPM. The trial mining licence
will authorise the Group to commence mine
development and limited production from
Coringa. The trial mining licence will authorise
mining and processing of up to 50,000 tonnes
of ore per year at Coringa. Under applicable
regulations, once the mine is operational,
Chapleau Brazil may apply to the DNPM to
increase the processing limit.
On 27 September 2017, Anfield announced
that it understood the Brazilian Ministério
Público Federal ("MPF") was bringing an action
against SEMAS, the DNPM and Chapleau
Brazil. The action seeks to nullify the operating
licence previously granted to Chapleau Brazil
by SEMAS and states that SEMAS should not
have granted the licence without requiring
Chapleau Brazil to prepare a full socio-
economic analysis and Environmental Impact
Assessment ("EIA") for Coringa. Anfield and its
legal counsel believe that Chapleau Brazil has
complied with all applicable regulations. At an
initial hearing the court denied a request from
the MPF to cancel the operating licence and
requested submissions from SEMAS, DNPM
and Chapleau Brazil. A further hearing
has not yet been scheduled. Anfield and
Chapleau Brazil, in the meantime, continued
to progress the completion of a full EIA and
this was submitted to SEMAS for approval
on 24 November 2017.
Serabi and its legal advisers have considered
the position adopted by the MPF and believe
that the completion of the EIA should
significantly address the main concerns of
the MPF and have concluded, based on the
current available information, that there is
a low risk of significant delay to the licencing
and permitting process.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 30
MANAGEMENT DISCUSSION AND ANALYSIS
Group Mineral Reserves and Resources
Mineral Resource Statement, Palito Mine, Para State, Brazil, as of June 30, 2017
Vein Width
Quantity
Grade
Contained Metal
Classification
Underground
Measured
Indicated
Surface Stockpiles
Measured
Tailings
Measured
Combined
Measured
Indicated
Measured and Indicated
Underground
Inferred
m
0.52
0.57
–
–
–
–
–
0.77
000't
274
371
12
60
346
371
717
784
Copper
%
Gold
000'oz
Gold
g/t
15.21
10.91
3.15
2.70
12.62
10.91
11.74
0.77
0.57
–
–
0.61
0.57
0.59
7.02
0.20
Copper
t
2,110
2,115
–
–
2,110
2,115
4,225
1,568
134
130
1
5
140
130
271
177
1. Mineral Resources have been rounded. Mineral Resources are not Mineral Reserves and have not demonstrated economic viability. Mineral Resources are reported inclusive of Mineral Reserves.
All figures are rounded to reflect the relative accuracy of the estimates. Underground Mineral Resources are reported within classification domains inclusive of in-situ dilution at a cut-off grade
of 3.10 g/t gold assuming an underground extraction scenario, a gold price of US$1,500/oz, a 3.5:1 Brazilian Real to U.S. Dollar exchange rate, and metallurgical recovery of 91%. Polygonal
techniques were used for mineral resource estimates. Surface stockpiles and tailings are reported at a cut-off grade of 1.65 g/t gold assuming a gold price of US$1,500/oz, a 3.5:1 Brazilian Real
to U.S. Dollar exchange rate, and metallurgical recovery of 78%.
2. Serabi is the operator and owns 100% of the Palito Mine such that gross and net attributable mineral resources are the same. The mineral resource estimate was prepared by the Company in
accordance with the standard of CIM and Canadian National Instrument 43-101, with an effective date of 30 June 2017, and audited and approved by Mr Glen Cole of SRK Consulting (Canada)
Inc., who is a Qualified Person under the Canadian National Instrument 43-101.
Serabi Gold plc // Report and Accounts 2017
31
Mineral Reserves Statement, Palito Mine, Para State, Brazil, as of June 30, 2017
Quantity
Grade
Contained Metal
Classification
Underground
Proven
Probable
Surface Stockpiles
Proven
Tailings
Proven
Combined
Proven
Probable
Proven and Probable
000't
265
276
12
60
337
276
613
Gold
g/t
9.77
7.64
3.15
2.70
8.28
7.64
7.99
Copper
%
Gold
000'oz
0.46
0.39
–
–
0.36
0.39
0.37
83
68
1
5
90
68
157
Copper
t
1,219
1,076
–
–
1,219
1,076
2,295
1. Mineral Reserves have been rounded to reflect the relative accuracy of the estimates. Proven Underground Mineral Reserves are reported within the Measured classification domain, and
Probable Underground Mineral Reserves are reported within the Indicated classification domain. Proven and Probable Underground Mineral Reserves are inclusive of external mining dilution and
mining loss and are reported at a cut-off grade of 3.70 g/t gold assuming an underground extraction scenario, a gold price of US$1,250/oz, a 3.5:1 Brazilian Real to U.S. Dollar exchange rate, and
metallurgical recovery of 91%. Proven Mineral Reserves surface stockpiles and tailings are reported at a cut-off grade of 1.95 g/t gold assuming a gold price of US$1,250/oz, a 3.5:1 Brazilian Real
to U.S. Dollar exchange rate, and metallurgical recovery of 78%.
2. Serabi is the operator and owns 100% of the Palito Mine such that gross and net attributable mineral reserves are the same. The mineral reserve estimate was prepared by the Company in
accordance with the standard of CIM and Canadian National Instrument 43-101, with an effective date of 30 June 2017, and audited and approved by Mr Timothy Olson of SRK Consulting (US)
Inc., who is a Qualified Person under the Canadian National Instrument 43-101.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
32
MANAGEMENT DISCUSSION AND ANALYSIS
Group Mineral Reserves and Resources continued
Mineral Resource Statement, São Chico Mine, Para State, Brazil, as of June 30, 2017
Thickness
Quantity
Grade
Contained Metal
Classification
Measured
Indicated
Measured and Indicated
Inferred
M
1.82
1.79
1.81
1.80
000't
60
22
82
123
Gold
g/t
13.34
14.70
13.70
13.77
Gold
000'oz
26
10
36
54
1. Mineral Resources have been rounded. Mineral Resources are not Mineral Reserves and have not demonstrated economic viability. Mineral Resources are reported inclusive of Mineral Reserves.
All figures are rounded to reflect the relative accuracy of the estimates. Underground Mineral Resources are reported within classification domains inclusive of in-situ dilution at a cut-off grade
of 2.85 g/t gold assuming an underground extraction scenario, a gold price of US$1,500/oz, a 3.5:1 Brazilian Real to U.S. Dollar exchange rate, and metallurgical recovery of 95%. Polygonal
techniques were used for mineral resource estimates.
2. Serabi is the operator and owns 100% of the São Chico Mine such that gross and net attributable mineral resources are the same. The mineral resource estimate was prepared by the Company
in accordance with the standard of CIM and Canadian National Instrument 43-101, with an effective date of 30 June 2017, and audited and approved by Mr Glen Cole of SRK Consulting
(Canada) Inc., who is a Qualified Person under the Canadian National Instrument 43-101.
Mineral Reserves Statement, São Chico Mine, Para State, Brazil, as of June 30, 2017
Classification
Underground
Proven
Probable
Proven and Probable
Quantity
000't
65
25
90
Grade
Gold
g/t
8.15
9.15
8.43
Contained Metal
Gold
000'oz
17
7
24
1. Mineral Reserves have been rounded to reflect the relative accuracy of the estimates. Proven Underground Mineral Reserves are reported within the Measured classification domain, and
Probable Underground Mineral Reserves are reported within the Indicated classification domain. Proven and Probable Underground Mineral Reserves are inclusive of external mining dilution and
mining loss and are reported at a cut-off grade of 3.45 g/t gold assuming an underground extraction scenario, a gold price of US$1,250/oz, a 3.5:1 Brazilian Real to U.S. Dollar exchange rate, and
metallurgical recovery of 95%.
2. Serabi is the operator and owns 100% of the São Chico Mine such that gross and net attributable mineral reserves are the same. The mineral reserve estimate was prepared by the Company in
accordance with the standard of CIM and Canadian National Instrument 43-101, with an effective date of 30 June 2017, and audited and approved by Mr Timothy Olson of SRK Consulting (US)
Inc., who is a Qualified Person under the Canadian National Instrument 43-101.
Serabi Gold plc // Report and Accounts 2017
33
Mineral Resource Statement, Coringa Gold Project, Para State, Brazil, as of May 3, 2017
Classification
Measured
Indicated
Measured and Indicated
Inferred
Quantity
000't
–
726
726
1,301
Grade
Gold
g/t
–
8.36
8.36
4.32
Contained Metal
Gold
000'oz
–
195
195
181
1. Mineral Resources have been rounded. Mineral Resources are not Mineral Reserves and have not demonstrated economic viability. Mineral Resources are reported inclusive of Mineral Reserves.
All figures are rounded to reflect the relative accuracy of the estimates. A base cut-off grade of 2.0 g/t gold has been estimated assuming an underground extraction scenario, on-site operating
and processing costs of US$80 per tonne, a gold price of US$1,300/oz, and metallurgical recovery of 95%. Estimations were made from 3D block models.
2. Serabi is the operator and owns 100% of the Coringa gold project such that gross and net attributable mineral resources are the same. The mineral resource estimate was prepared in
accordance with the standard of CIM and Canadian National Instrument 43-101, with an effective date of 3 May 2017, and approved by Robert Sim, P.Geo., of SIM Geological Inc. and Bruce M.
Davis, Ph.D.,FAusIMM of BD Resource Consulting Inc. who are Qualified Persons under the Canadian National Instrument 43-101.
Mineral Reserve Statement, Coringa Gold Project, Para State, Brazil, as of July 1, 2017
Classification
Underground
Proven
Probable
Proven and Probable
Quantity
000't
–
768.6
768.6
Grade
Gold
g/t
–
6.49
6.49
Contained Metal
Gold
000'oz
–
160.3
160.3
1. The reserves summarized in the table above include diluting material, thus the grades are fully diluted.
2. Probable Reserves are reported based on Indicated resources inside of mining shapes and after it was demonstrated that it can be mined at a profit.
3. Indicated resources below the mining cut-off grade, and inside of mining solids are also included in reserves as internal dilution.
4. Mineral Reserves have been rounded to reflect the relative accuracy of the estimates. Probable Underground Mineral Reserves are inclusive of external mining dilution and mining loss and are
reported assuming an underground extraction scenario, a gold price of US$1,250/oz and metallurgical recovery of 96% for the Serra vein and 94% for the Meio vein.
5. Serabi is the operator and owns 100% of the Coringa gold project such that gross and net attributable mineral reserves are the same. The mineral reserve estimate was prepared in accordance
with the standard of CIM and Canadian National Instrument 43-101, with an effective date of 1 July 2017, and approved by Neil Prenn, P.E. and Edwin Peralta, P.E., of Mine Development
Associates who are Qualified Persons under the Canadian National Instrument 43-101.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
34
MANAGEMENT DISCUSSION AND ANALYSIS
Financial Review
The twelve month period ended 31 December 2017 has
seen higher levels of gold bullion production than the
same period of 2016 offset by lower levels of production
of copper/gold concentrate reflecting the variations in
the ore sources and grades being mined during 2017
compared with 2016. These changes do not have any
direct effect on the overall levels of gold production
achieved by the Group.
TWELVE MONTH PERIOD ENDED 31
DECEMBER 2017 COMPARED TO
TWELVE MONTH PERIOD ENDED 31
DECEMBER 2016
Gold production for the twelve month period
ended 31 December 2017 was 37,004 ounces
which is approximately six per cent less than
the same period in the previous year (39,390
ounces). The Group experienced shortfalls in
gold production during April 2017 and May
2017 resulting from commissioning problems
with some new mining fleet however, gold
production returned to previous levels from
the start of the third quarter of 2017 and
continued for the rest of the year. However, as
a result, both production and sales of gold have
decreased in comparison with corresponding
twelve month period of 2016. Reflecting the
decrease in production the total amount of
ounces sold during the 12 months of 2017
was 37,161 ounces, which is approximately
4 per cent less than the 38,561 ounces sold
during the 12 months of 2016.
The Group has recognised a gross profit for
the twelve month period ended 31 December
2017 of US$5,019,087 (2016: US$11,302,587)
and an operating loss of US$691,959 (2016
operating profit of: US$6,023,906).
The gross profit of US$5,019,087 for the
period ended 31 December 2017 can be
analysed as seen to the right.
Revenue
Under the current contracts that the Group
has in place, revenue from the sale of copper/
gold concentrate is recognised at the time that
this product departs from the port of Belem
in Brazil and the customer assumes all further
physical risk for the product.
During the twelve month period ended
31 December 2017 the Group has
recognised total sales of US$48,449,868
(2016: US$52,593,751). The sales were split
between sales of copper/gold concentrate of
US$15,620,204 (2016: US$26,368,676) and
sales of gold bullion of US$32,829,664 (2016:
US$26,225,075).
During 2017 the Group produced 1,420 wet
tonnes of copper/gold concentrate containing
an estimated 10,050 ounces (2016: 2,039 wet
tonnes containing 17,571 ounces) although
revenue has been recognised for 1,440 tonnes
containing an estimated 11,195 ounces (2016:
2,240 wet tonnes containing 17,569 ounces)
which were delivered in accordance with the
sales contract to the end customer. The unsold
material is held as inventory.
The amount of gold sold as concentrate has
therefore reduced by approximately 42 per
cent and production of gold in concentrate
has decreased by 43 per cent. This reduction
in the both the production and sale of gold
in concentrate has been partly offset by an
increase in the production and sale of gold
in the form of bullion. The concentrate sales
revenue recognised during 2017 included
adjustments for shipments sold during the
last four months of 2016 but for which final
settlement details, including pricing and gold
content, were only finalised during 2017.
This adjustment was US$0.21 million with the
equivalent adjustment recognised during 2016,
relating to gold sold during the last quarter of
2015 being approximately US$0.53 million. In
addition, following a change in purchaser and
contract terms for the Group’s production
of copper/gold concentrate, the Group
recognised during September 2016 the
Gross Profit
Full Year 2017
US$
Full Year 2016
US$
Variance
US$
Concentrate Sold (Ounces)
Bullion Sold (Ounces)
Total Ounces
11,195
25,966
37,161
17,569
20,992
38,561
(6,374)
4,974
(1,400)
Revenue from Ordinary Activity
Gold (in Concentrate)
Copper (in Concentrate)
Silver (in Concentrate)
Total Concentrate Revenue
Gold Bullion
13,661,002
1,852,679
106,523
15,620,204
32,829,664
23,676,825
2,498,933
192,918
(10,015,823)
(646,254)
(86,395)
26,368,676
26,225,075
(10,748,472)
6,604,589
Total Sales
48,449,868
52,593,751
(4,143,883)
Costs of Sales
Operational Costs
Stock Impairment Provision
Shipping Costs
Treatment Charges
Royalties
Amortisation of Mine Property
Depreciation of Plant & Equipment
(29,568,195)
(950,000)
(1,344,154)
(543,338)
(559,811)
(7,787,166)
(2,678,117)
(29,082,200)
–
(1,889,111)
(1,085,039)
(850,076)
(6,308,840)
(2,075,898)
(485,995)
(950,000)
544,957
541,701
290,265
(1,478,226)
(602,219)
Total Operating Costs
(43,430,781)
(41,291,164)
(2,139,517)
Gross Profit
5,019,087
11,302,587
(6,283,400)
Serabi Gold plc // Report and Accounts 2017
35
Key Operating Statistics and Costs
Tonnes Mined
Tonnes Milled
Ounces Produced
Operating Costs
Labour
Mining Consumables & Maintenance
Plant Consumables
General Site
12 months ended 12 months ended
December 2017 December 2016
168,876
172,565
37,004
158,884
158,966
39,390
12 months ended 12 months ended
December 2017 December 2016
US$’000
US$’000
12,860
9,358
4,176
3,174
29,568
12,140
9,699
4,209
3,034
29,082
Variance
10,012
13,599
(2,386)
Variance
US$’000
720
(341)
(33)
140
486
Variance
%
6%
9%
(6%)
Variance
%
6%
(4%)
(1%)
5%
2%
sale of an additional shipment of copper/gold
concentrate having the effect of recognition
of additional revenue of US$1.9 million.
to global prices the cost savings the Group
were enjoying in power generation reversed in
the fourth quarter of 2017.
The Group also sold 25,966 ounces of gold
bullion generating revenue of US$32,829,664
during the 2017 (2016: 20,992 ounces
(US$26,225,075). Gold bullion production
for 2017 was approximately 26,954 ounces
by comparison with the same period in 2016
when production was approximately 21,819
ounces.
Plant Processing Costs
Plant costs are roughly in line with the previous
year. There was a cost saving in power supply
costs during the first three quarters of 2017 in
comparison to the same period of the previous
year, however this was offset by an increase in
maintenance costs resulting from the aging of
the equipment and an increased mining fleet.
Operating Costs
Operating costs for the 12 months ended
31 December 2017 of US$29,568,195 (2016:
US$29,082,200) comprise all mining costs
at both the Palito and São Chico Mines, plant
processing costs, as well as all general site
costs incurred on both mine sites during the
12 month period in the production of the final
sales products as shown in the table above.
Labour Costs
Labour costs have increased by US$0.720
million for the twelve month period ended
31 December 2017 in comparison to the
same period in the previous year due to each
Brazilian employee receiving an eight per cent
increase in salary in May 2017 as a result of the
national collective agreement in Brazil.
General Site Costs
General site costs for the twelve month period
ended 31 December 2017 increased by
three per cent versus the same period in the
previous year reflecting general increases in
inflation between the two periods.
Provision for Impairment of Inventory
The Group calculates unit costs of mined
production on a cost per tonne basis
irrespective of grade and has established
stockpiles of low grade run of mine ore which
are available for processing in the future.
The Group has assessed the likely future
value of these stockpiles and made a general
impairment provision of US$0.95 million during
the 12 months of 2017 against the carrying
value of these coarse ore stockpiles.
Mining Costs
Mining consumables and maintenance for
the twelve month period ended 31 December
2017 have decreased by US$0.34 million in
comparison to the same twelve month period
from 2016. The main area of cost saving
relates to power generation and supply during
the first nine months of the year, however due
Shipping Costs
Shipping costs of US$1,344,154 (2016: US$
1,889,111), show a decrease of 29 per cent for
the year ended 31 December 2017
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. During the
twelve month period ended 31 December
2017 1,440 tonnes departed from the port
of Belem, in comparison to the 2,240 tonnes
which departed from Belem in the previous
year, a decrease of 36 per cent.
Treatment Charges
Treatment Charges of US$543,338 (2016:
US$1,085,039) are the costs for the
processing of copper/gold concentrate and
include US$482,772 of charges levied by the
refinery, (2016: US$1,006,524), and US$60,566
for the cost of weighing, sampling and assay
analysis carried out by a third party on behalf
of the Group (2016: US$78,515). The treatment
charges have decreased by 50 per cent as
a result of the decrease in the volume and
value of sales of concentrate. 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 Charges
Royalty payments of US$559,811 (2016:
US$850,076) 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 1.5 per cent royalty on gold production, (this
increased during December 2017 from the
previous rate of 1.0 per cent) and a 2.0 per cent
royalty on copper production. The decrease
by comparison with the same period in 2016
reflects an overall decrease in gold and copper
sold during the period.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
36
MANAGEMENT DISCUSSION AND ANALYSIS
Financial Review continued
Amortisation Charges
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 São 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 São Chico Mines for the 12 month period
ended 31 December 2017 is US$7,787,166
million (2016: US$6,308,940 million).
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
charge being carried in inventory and released
to the income statement when the goods
are sold. The increase in the amortisation
charge of US$1.48 million notwithstanding the
lower levels of gold production and therefore
depletion in the period has been affected
by the relative strength of the Brazilian Real
against the US Dollar compared with the
same twelve month period in 2016. The
average exchange rate for the full year of
2017 was BrR$3.19:US$1.00, compared
with BrR$3.48:US$1.00 for the same period
in 2016 which represents an eight per cent
strengthening of the Brazilian Real against
US Dollar. The amortisation charge is also
impacted by the lower levels of work-in-
progress inventories held at the end of the
current year compared with levels at 31
December 2016.
Black Scholes model. The charge for the 12
months to 31 December 2017 is in respect of
options granted between January 2015 and
31 December 2017. The Group also reported
a profit of US$0.17 million from the disposal of
assets (2016: US$0.03 million).
Depreciation Charge
Depreciation charges of US$2.68 million
(2016: US$2.08 million) are in respect of
mining and processing plant and equipment
and is an increase of US$0.60 million. The
increase is primarily due to the movement in
the exchange rate. It is also impacted by an
increased mobile fleet acquired for both the
Palito and São Chico Mine operations partly
offset by reduced depreciation charges for
equipment that remains operational but is
reaching the end of its useful life.
Operating Loss
The Group has recognised an operating
loss before interest and other income of
US$0.69 million, (2016: operating profit of
US$6.02 million) reflective of the lower level of
gross profit from operations and after incurring
US$5.50 million (2016: US$4.96 million) in
administrative expenses as well as US$0.38
million (2016: US$0.35 million) on share based
payments. The deemed value assigned to
these share options is amortised over the
expected option life and is calculated using the
Administration costs of US$5.50 million for
the twelve month period ended 31 December
2017 are comparable with the amount of
US$4.96 million in administration costs
incurred during the twelve month period ended
31 December 2016. Corporate costs in Brazil
have decreased by US$0.26 million during
2017 in comparison to the same period in the
previous year reflecting the settlement during
2016 of one off old tax bills relating to the
period between 2008-2013. Corporate costs
incurred in the United Kingdom for the year
ended 31 December 2017 have increased by
US$0.66 million in comparison to the same
period of the previous year reflecting costs
related to the compilation of a new technical
report as well as due diligence work done
on the acquisition of Chapleau Resources.
Additional consultancy and professional
fees were incurred on the evaluation of
other opportunities during the year.
The Company recorded a foreign exchange
loss of US$214,488 for the year ended 31
December 2017 which compares with a foreign
Serabi Gold plc // Report and Accounts 2017
37
exchange loss of US$236,619 recorded for the
year ended 31 December 2016. These foreign
exchange losses are primarily incurred in
respect of the cash holdings of the Company
in currencies other than US Dollars as at the
period end and 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.
Net interest charges for the 12 month period
to 31 December 2017 were US$839,056
compared with US$3,917,108 for 2016. An
analysis of the composition of these charges
is set out in the table below.
The interest on the secured loan of
US$314,732, (2016: US$281,333) is the cost
of 12 months of interest paid in relation to
funds advanced under the credit agreement
with Sprott Resource Lending Partnership, with
the increase reflecting the higher levels of loan
principal outstanding during the period. On 30
June 2017, the Group entered into a new loan
agreement with Sprott to increase the loan
facility from US$1.37 million to US$5.00 million.
The expense on the unwinding of the discount
on the rehabilitation provision of US$335,204
is as a result of changes in the discount rate
used in calculating the net present value of the
future estimated rehabilitation costs which the
Group will incur upon mine closure.
The charge on the revaluation of derivatives of
US$59,255 (2016: US$1,474,618) represents
the charge arising on the revaluation of the
derivative provision at the 31 December 2017.
The initial value of provision as at 30 June
2017 was US$650,000. This was revalued
to US$709,255 on 31 December 2017.
For the 12 months to 31 December 2016
the expense on the revaluation of derivatives
of US$1,474,618 represented the loss arising
from a period-end revaluation of the fair value
of the call options provided to Sprott
Resource Lending Partnership LLP and the
equity element of convertible loan stock.
These revaluations reflect in the case of the
call options the higher gold price prevailing
at the period end and in the case of the
convertible loan stock the higher share price
prior to exercise of the conversion rights in
August 2016.
The amortisation of fair value of derivatives
of US$130,000 represents six months
amortisation charge of the fair value ascribed
to the gold call options granted to Sprott
on 30 June 2017. As part of the new loan
arrangement the Group granted call options to
Sprott over 6,109 ounces of gold exercisable
at a price of US$1,320 which expire on 31
December 2019. On 30 June 2017, the date
these call options were granted, their value
was assessed as being US$650,000 and a
provision for a derivative financial liability of
US$$650,000 was recognised in the accounts.
LIQUIDITY AND CAPITAL RESOURCES
Non-Current Assets
On 31 December 2017, the Group’s net
assets amounted to US$60.77 million, which
compares to US$63.38 million as reported
at 31 December 2016. The Group has also
reported a loss after taxation of US$2.40
million in the twelve month period since 31
December 2016.
On 21 December 2017 (“Closing”), the
Group finalised the acquisition of Chapleau
Resources for a total amount of US$22 million,
with US$5 million being paid in cash on 21
Net Interest Charges
12 months Ended
December 2017
US$
12 months Ended
December 2016
US$
Interest on secured loan
Charge on revaluation of derivatives
Amortisation of fair value of derivatives
Unwinding of the discount on the
rehabilitation provision
Interest on trade finance facility
Interest on convertible loan
Settlement of hedging arrangements
Asset finance charges
Interest Income
Net finance expense
(314,732)
(59,255)
(130,000)
(335,204)
–
–
–
–
(839,191)
135
(839,056)
(281,333)
(1,474,618)
(355,663)
–
(294,398)
(137,049)
(1,338,426)
(36,194)
(3,917,681)
573
(3,917,108)
December 2017. A further US$5 million in
cash is payable within three months of Closing
and a final payment of US$12 million in cash
will be due upon the earlier of either the first
gold being produced or 24 months from the
date of Closing. As a result of the acquisition
of Chapleau there is a US$5 million payable
included within the Group’s current liabilities,
a US$10 million deferred payable included
within long term liabilities as well as a US$14.03
million increase in Deferred Exploration costs
and a US$6.21 million increase in Fixed Assets.
Non-current assets totalling US$77.29 million
at 31 December 2017 (31 December 2016:
US$58.64 million), are primarily comprised
of property, plant and equipment, which
as at 31 December 2017 totalled US$48.98
million, (31 December 2016: US$45.40 million),
including US$6.21 million of assets acquired
as part of the Chapleau acquisition, as well
as development and deferred exploration
costs with a value of US$23.90 million, (31
December 2016: US$10.00 million), including
US$14.03 million of assets acquired as part
of the Chapleau acquisition. The Group has
also a provision for a deferred tax asset of
US$2.94 million (31 December 2016: US$3.25
million) and a long term receivable in respect
of state taxes due in Brazil of US$1.47
million (31 December 2016: US$ nil).
The Group’s property, plant and equipment
includes the value of its mine assets relating
to the Palito Mining Complex at 31 December
2017 of US$28.41 million (2016: US$31.79
million). This includes US$4.36 million of
additions from the Palito and São Chico ore
bodies incurred during the year. Assets in
construction as at 31 December 2017 and
relating to the Palito Mining Complex had
a book value of US$3.69 million (2016:
US$2.83 million).
The Group owns land, buildings, plant and
equipment with a cost of US$11.19 million
(31 December 2016: US$10.78 million). During
2017 the Group has acquired additional plant
and machinery to the value of US$2.19 million
in relation to its ongoing operations at the
Palito Mining Complex with a further US$0.52
million of plant and equipment acquired as part
of the acquisition of Chapleau Resources.
The gross value ascribed to the Palito
Mining Complex is now being amortised
over the expected recoverable ounces of
each orebody. An amortisation charge
totalling US$7.4 million has been recorded
for the twelve month period to 31 December
2017 (2016: US$6.1 million). The increase of
US$1.3 million in the amortisation charge for
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
38
MANAGEMENT DISCUSSION AND ANALYSIS
Financial Review continued
2017 arises because the total base value
of the mining property has increased
significantly during the twelve month period
and also because the average exchange
rate from US Dollar to Brazilian Real for 2017
was US$1.00 to BR$ 3.19 in comparison to
US$1.00 to BR$3.48 for the same 12 month
period in 2016.
Deferred exploration costs as at 31 December
2017 totalled US$23.90 million (31 December
2016: US$10.00 million), which relates to
US$9.87 million capitalised exploration
expenditures around the Palito Mine, São Chico
Mine and the wider Jardim do Ouro project
area as well as US$14.03 of assets acquired
as part of the Chapleau acquisition. During
2017 the Group capitalised costs of US$2,487
(2016: US$525,444) on exploration and
evaluation expenditure.
Working Capital
The Group had a working capital position
of US$1.03 million at 31 December 2017
compared to US$8.88 million at 31 December
2016, the decrease of US$7.85 million being
detailed in the table to the right.
Inventory
The level of inventory held by the Group at 30
December 2017 has decreased by US$1.18
million since 31 December 2016. A breakdown
of the Group’s inventories at the 31 December
2017 and at 31 December 2016 is set out in
the table below.
The Group has made a provision during the
year of US$950,000 against the value of its
stockpiles of mined ore.
Inventories of consumables (fuel, spare parts,
chemicals, explosives etc.) at 31 December
2017 of US$2.58 million (31 December
2016: US$2.38 million) have increased by
approximately US$0.21 million or nine per cent.
The Group acquires stocks of certain materials
including reagents, explosives and other
Working Capital
December 2017
US$
December 2016
US$
Variance
US$
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
6,934,438
1,277,142
3,237,412
4,093,866
8,110,373
1,233,049
3,696,550
4,160,923
(1,175,935)
44,093
(459,138)
(67,057)
Total current assets
15,542,858
17,200,895
(1,658,037)
Current liabilities
Trade and other payables
Acquisition payment due
Interest-bearing liabilities
Derivative financial liabilities
Accruals
5,347,964
5,000,000
2,845,712
709,225
614,198
4,941,775
–
2,964,057
–
415,810
406,189
5,000,000
1,006,517
709,255
198,388
Total current liabilities
14,517,129
8,321,642
6,195,487
Working capital
1,025,729
8,879,253
(7,853,524)
Non-current liabilities
Trade and other payables
Aquisition payment due
Provisions
Interest-bearing liabilities
2,753,409
9,997,961
2,047,131
2,749,412
2,211,078
–
1,851,963
77,798
542,331
9,997,961
195,168
2,671,614
Total non-current liabilities
17,547,913
4,140,839
13,407,074
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 have increased
reflecting a requirement to keep on hand
higher levels of items related to equipment
and plant maintenance.
from 21,429 tonnes at 31 December 2016
to 14,957 tonnes at 31 December 2017, a
decrease of 30 per cent. The Group deemed
it necessary to establish the impairment
provision to reflect the reducing grade of the
stockpiles which has decreased from 3.58 g/t
at 31 December 2016 to approximately 2.64
g/t at 31 December 2017.
The value of the stock of surface ore has
decreased by 61 per cent from US$2.83 million
to US$1.09 million as the Group reflecting
reduced volume of the stockpile and the
US$950,000 impairment provision. The total
coarse ore stockpile tonnage has decreased
Inventory
31 December
2017 US$
31 December
2016 US$
Variance
US$
Variance
%
Stockpile of mined ore
Finished goods awaiting sale
Other material in process
Stockpile of flotation tails
Consumables
Total Inventory
1,091,656
1,741,860
1,019,593
494,117
4,347,226
2,587,212
2,829,600
1,572,774
618,350
708,775
(1,737,944)
169,086
401,243
(214,657)
5,729,500
2,380,873
(1,382,273)
206,339
6,934,436
8,110,372
(1,175,934)
(61%)
11%
65%
(30%)
(24%)
9%
(14%)
The value of finished goods awaiting sale
at 31 December 2017 of US$1.74 million
compares with the value at 31 December
2016 of US$1.57 million. The total value of
finished goods held in stock at 31 December
2017 comprises 142 bags of copper/gold
concentrate (31 December 2016: 162 bags)
and bullion on hand for smelting which, at 30
September 2017, was 39,893 grammes valued
at US$1.08 million in comparison to 13,508
grammes at 31 December 2016 valued at
US$0.33 million.
During 2014 the Group had established
a stockpile of partly processed material
which having only passed through the
flotation processing circuit, retained a gold
grade of approximately 2.5 g/t. At 31 December
2016, there were approximately 20,800 tonnes
Serabi Gold plc // Report and Accounts 2017
39
of flotation stockpile on site with a value of
US$0.71 million. During 2017 the Group
processed approximately 5,000 tonnes of
this stockpile leaving approximately 14,700
tonnes at 30 December 2017 with a value
of US$0.49 million.
The valuation attributable to gold locked up
within the processing plant has increased to
US$1.02 million as at 31 December 2017 (31
December 2016: US$0.62 million) reflecting
normal operational variances.
Taxes Receivable after more than 12 months
The Group, in common with all businesses
in Brazil, subject to a number of State and
Federal taxes on goods that it purchases. As an
exporter of goods it is exempt from any sales
taxes on its products. As a result, it is due tax
rebates by both Federal and State tax bodies.
In general, the Company is able to utilise its tax
debts by way of offset against other taxes that
it owes. The Group has however determined
that certain State taxes that it is able to recover
and is owed at 31 December 2017 are not
expected to be recovered through such an
offset arrangement during the next 12 months
and has therefore categorised the balance
owed in respect of these State taxes as being
due in more than 12 months. The Group has
received legal advice confirming that these
taxes owed to the Group by the State of Para
are fully recoverable.
Trade Receivables
Trade and other receivables at 31 December
2017 of US$1.28 million have increased by
US$0.05 million from US$1.23 million at 31
December 2016.
As at 31 December 2017 the Group was owed
US$1.22 million from the sale of its copper
concentrate in comparison to US$1.05 million
as at 31 December 2016.
Also included within trade and other
receivables are trade advances for freight
and insurance which have decreased from
US$0.18 million at 31 December 2016 to
US$0.05 million at 31 December 2017.
taxes ICMS (state taxes) and PIS and Cofins
(Federal taxes) that remain to be recovered
at the period end. The ICMS tax recoverable
tax actually increased by US$0.99 from 31
December 2016 to 31 December 2017,
however as the Group is now of the opinion
that outstanding balance is recoverable in less
than one year, an amount of US$1.47 million
has been reclassified into non-current assets.
Cash at Bank
Between 31 December 2016 and 31 December
2017, cash balances have decreased by
approximately US$0.07 million.
The Group increased the interest-bearing loan
by a further US$3.63 million from US$1.37
million at 31 December 2016 to US$5.00
million at 31 December 2017 and also paid
US$5.00 million for the acquisition of Chapleau
Resources as the first instalment of the total
consideration of US$22 million payable.
Prepayments
Prepayments have decreased by US$0.46
million from US$3.70 million at 31 December
2016 to US$3.24 million at 31 December 2017.
Prepayments are composed of recoverable
Current Liabilities
Current liabilities have increased by
US$6.20 million from US$8.32 million
at 31 December 2016 to US$14.52 million
at 31 December 2017.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 40
MANAGEMENT DISCUSSION AND ANALYSIS
Financial Review continued
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.
Total Cash Cost and All-In Sustaining Cost
The table overleaf 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.
Clive Line
Finance Director
29 March 2018
Derivative Financial Liabilities
By way of a fee for the loan agreement
with Sprott the Group has granted call
options to Sprott over 6,109 ounces of
gold exercisable at a price of US$1,320
which expire on 31 December 2019. On 30
June 2017, the date these call options were
granted, their value was assessed as being
US$650,000 and a provision for a derivative
financial liability of US$650,000 has been
recognised in the accounts. At 31 December
2017, the derivative provision was revalued to
US$709,255 with the increase in the provision
of US$59,255 being reflected as an expense in
the income statement.
Non-Current Liabilities
The Group makes provision for the future
estimated rehabilitation costs for its mine
sites at Palito and São Chico. The value of
the rehabilitation provision carried by the
Group at 31 December 2017 was US$2.01
million. The value at 31 December 2016 was
US$1.82 million. There has been a small
increase in some of the cost assumptions
underlying the provision and changes to the
discount, exchange rate and inflation factors
used to estimate the future value of the liability.
The amount due on acquisition of US$10.00
million relates to the net present value of the
US$12 million due upon the earlier of either
the first gold being produced or 24 months
from the date of closing.
The property acquisition payment due by the
Group has increased by US$0.45 million as a
result of a change in the discount rate used
and changes in the exchange rate.
The Group does not have any asset backed
commercial paper investments.
Trade Creditors
Trade and other payables amounting to
US$5.35 million at 31 December 2017
compare with an amount owed by the Group
of US$4.94 million at 31 December 2016, an
increase of US$0.41 million. This increase
in trade creditors is as a result of timing
differences between the two period ends.
Acquisition Payment Due
The amount due on acquisition of US$5.00
million relates to the second instalment due
on the acquisition of Chapleau Resources.
The Group completed the acquisition of
Chapleau Resources on 21 December 2017
for a total amount of US$22 million, making an
initial payment of US$5.00 million upon closing.
A further US$5.00 million is due three
months after closing and the balance,
a further US$12.00 million, is due upon the
earlier of either the first gold being produced
or 24 months from the date of closing.
Interest-Bearing Liabilities
On 30 June 2017 the Group entered into a
new loan agreement with Sprott for US$5.00
million expiring 31 December 2019 with the
loan repayments commencing over 24 months
starting in January 2018. Of the total loan
US$2.5 million is due in more than 12 months.
The total loan balance shown in the table above
is US$4.48 million with the balance of US$0.52
million representing the unamortised portion of
the fair value derivative relating to the gold call
options granted as part of the loan.
Obligations under Finance Leases
Obligations under finance leases for less than
one year have decreased by US$0.31 million
from US$1.17 million at 31 December 2016
to US$0.87 million at 31 December 2017.
During 2017, the Group purchased one new
underground loader, however this was offset
by lease repayments totalling approximately
US$0.64 million. All finance leases are held by
Serabi Mineracao SA (“SMSA”) in Brazil but are
denominated in Euro or US Dollar before being
converted to Brazilian Reals, the functional
currency for SMSA.
Serabi Gold plc // Report and Accounts 2017 41
Total Cash Cost and All-In Sustaining Cost
Total operating costs (calculated on a sales basis)
Add/(subtract)
Finished goods and WIP inventory stock adjustment
Grossing up of revenue for metal deductions
By-product credits
Total cash cost of production
Corporate G&A
Share-based remuneration
Capitalised cost for mine development
All-In Sustaining Cost of production
12 months ended
December 2017
(US$)
12 months ended
31 December 2016
(US$)
32,015,498
32,906,426
(347,562)
555,476
(2,663,981)
29,559,430
5,343,871
381,362
4,362,192
39,646,855
(914,050)
1,022,048
(2,691,851)
30,322,573
4,962,524
350,899
2,366,486
38,002,482
12 months ended
31 December 2017
(ounces)
12 months ended
31 December 2015
(ounces)
Gold ounces produced
37,004
39,390
12 months Ended
31 December 2017
(US$)
12 months ended
31 December 2016
(US$)
Total Cash Cost of production (per ounce)
US$799
Total All-In Sustaining Cost of production (per ounce)
US$1,071
US$700
US$965
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
42
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.
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 Estado 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 São 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.
Environmental Activities
Serabi is actively restoring areas of the
Palito and São Chico sites and uses
native plants and trees cultivated
in its own nurseries.
Serabi Gold plc // Report and Accounts 2017 43
It has established schools at Jardim do Ouro
and the village of São 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 2017
During 2017 the Company was very active
in remediation works at both the Palito and
São Chico mine-sites, concentrating at Palito
on the restoration of some old open pit
mine workings in the Senna area and at São
Chico the remediation of areas that had been
damaged by historical artisanal activity with
an area of approximately 55,000m2 affected
and needing to be re-contoured using material
from the mine excavations.
The preparatory earthworks have
resulted in a completing levelling of the
area using reclaimed soil and the Company
is now completing the remediation works by
planting of native forest trees. Use of a blend
of native trees and grasses ensures that, to
the greatest extent possible, the degraded
areas are being returned to a state consistent
with their native appearance.
Soils around the mine site are generally of low
fertility and susceptibile to erosion. In general
restoration techniques, including the planting of
native grasses, are used that can improve the
structural conditions of the soil and its capacity
for water percolation, and, in so doing, diminish
the effects of erosion and leaching.
In total an area of over 3 hectares has been
replanted at Palito to date and a further area of
approximately 2.5 hectares at São Chico using
over 25 different forest and fruit species which
have been cultivated in the Company’s own
nursery and over 9,000 seedlings have now
been planted.
At São Chico, work has focused on the
remediation and re-contouring of areas that
were subject to historic artisanal activity, with
sterile waste from the mining activities being
placed at the base of the south facing slopes in
preparation for the topographical restoration.
Environmental
Awareness Programs
Serabi also works with the committies
through programmes aimed to improve
the awareness of the community of
the environment and incentivise and
encouraging conservation.
Community
Infrastructure
Improvements
The Company has installed public
lighting in São Chico community
and also electrical installations in the
schools of the Jardim do Ouro and
helped establish a microsystem for
water collection for the Jardim do
Ouro community.
Serabi has established initiatives
aimed at promoting the health and
safety of workers and a local medical
clinic to support the health of local
communities and also provides a
dental care programme for the
employees and communities of
the Palito and São Chico mine.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 44
COMMUNITY AND SOCIAL RESPONSIBILITY
Social and Environmental Activities continued
Our People
Local suppliers and services are prioritised to
generate more employment opportunities for
the community. Last year more than 80 per cent
of service contractors were sourced from the
local communities.
Accident prevention – Constant training is
provided to employees to raise awareness
and encourage safe practices.
Social Development Programme - 2017
Serabi has continued partnering with the
State Government in the provision of materials
and equipment to upgrade sections of the
Transgarimpeira Highway, which runs from
Moraes de Almeida past Palito and São
Chico and continues south west towards the
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. 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 São 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.
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 and nearly
R$90,000.00 was committed to support
this activity.
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 São
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 Gold plc // Report and Accounts 2017 45
Community Engagement
Education – Serabi has established schools at
Jardim do Ouro and the village of São Chico
and continues to provide support through the
provision of computers, book, uniforms, outdoor
playground and gymnasium.
Culture awareness – Serabi has established
programmes contributing to the better
understanding the arts and culture, such
as dance, arts and music aimed at bringing
communities closer together. which represented
nearly R$90,000.00 in funds being spent.
Future Plans
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 2018 include:
• 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 São Chico village;
•
•
Improved illumination of the roadway within
the São Chico village; and
Improving and expanding the electrical
distribution system to the village of
São Chico.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 46
CORPORATE GOVERNANCE
Board of Directors and Senior Management
Melvyn Williams
Non-executive Chairman
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.
Clive Line
Finance Director and Company
Secretary
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.
Mike Hodgson
Chief Executive
Aquiles Alegria
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.
Nicolas Bañados
Non-executive
R
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.
T Sean Harvey
Non-executive
A
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.
Serabi Gold plc // Report and Accounts 2017 Eduardo Rosselot
Non-executive
Mark Sawyer
Non-executive
Appointed: March 2018
Experience: Mark co-founded Greenstone
Resources in 2013 after a 16 year career
in the mining sector. Prior to establishing
Greenstone, Mr Sawyer was GM and Co-Head
Group Business Development at Xstrata plc
where he was responsible for originating,
evaluating and negotiating new business
development opportunities for Xstrata. Prior to
Xstrata Mr Sawyer held senior roles at Cutfield
Freeman & Co (a boutique corporate advisory
firm in the mining industry) and at Rio Tinto plc.
Qualifications: Mark qualified as a lawyer
and has a law degree from the University
of Southampton.
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.
Felipe Swett
Non-executive
A
Ulisses Melo
General Manager
Senior Management in Brazil
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.
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.
47
Our Diverse Board
Nationalities
Background experience
• Geology
• Mine Engineering
•
Investment Banking
• Corporate Finance
• Accounting
• Asset and Investment Management
Tenure
1–3 Years 33.3%
(3 Directors)
4–9 Years 44.5%
(4 Directors)
10+ Years 22.2%
(2 Directors)
Non-Executive 75%
(6 Directors)
Executive 25%
(2 Directors)
Composition
Committee Membership
A
R
Audit Committee
Remuneration Committee
Chairman
Member
The Directors give due regard to the principles
set out in The UK Corporate Governance
Code published in April 2016 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 2017 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.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
48
CORPORATE GOVERNANCE
Report on Corporate Governance
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 seven 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 2017, the Board met 18 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 Mel Williams 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
Position
Appointed
Status
Audit
Committee
Remuneration
Committee
Melvyn Williams
Sean Harvey
Nicolas Bañados
Felipe Swett
Eduardo Rosselot
Aquiles Alegria
Mark Sawyer
Michael Hodgson
Clive Line
Non-executive Chairman
Non-executive Director
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
23 March 2018
1 February 2007
14 March 2005
Independent
Independent
Not independent(1)
Independent
Not independent(2)
Independent
Not independent(3)
Executive
Executive
Member
Member
–
Chair
–
–
–
–
–
Chair
Member
Member
–
–
–
–
–
–
(1) Mr Banados 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.
(3) Mr Sawyer is appointed as a representative of Greenstone Resources II LP and is an officer and shareholder of Greenstone Management Ltd and Greenstone Capital LLP which
provide management and advisory service to Greenstone Resources II LP. 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.
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.
Serabi Gold plc // Report and Accounts 2017
49
Attendance at the meetings of the Board and sub-committee meetings, by the relevant Board members, is set out below:
Mel Williams
Michael Hodgson
Clive Line
Aquiles Alegria
Sean Harvey
Nicolas Bañados
Eduardo Rosselot
Felipe Swett
Board
Audit Remuneration
Committee
Committee
17
16
18
13
18
18
17
17
4
n/a
n/a
n/a
4
n/a
n/a
4
3
n/a
n/a
n/a
3
3
n/a
n/a
n/a - indicates that a Director was not a member of the committee at any time during the year
Mr Sawyer was only appointed to the Board after the end of the year, on 23 March 2018.
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 Felipe Swett and also
comprises Sean Harvey and Mel Williams. 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.
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 2017, 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 2017, 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 the potential recoverability of past tax losses; and
• determination of the appropriate accounting treatment for Chapleau Resources Ltd.
In addition to matters raised at the Committee meetings, Serabi’s management submit working papers and notes outlining the key issues, which are
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.
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50
CORPORATE GOVERNANCE
Report on Corporate Governance continued
AUDIT COMMITTEE (CONTINUED)
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 Banados.
Operations
The Remuneration Committee meets at least twice a year, or more frequently as required. In 2017, the Remuneration Committee met three times.
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 2017 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 52 to 56.
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.
Serabi Gold plc // Report and Accounts 2017 51
PROJECT STEERING COMMITTEE
Purpose
In March 2018, the Group established a Project Steering Committee, the role of which is to recommend a governance and reporting framework for
the Group’s portfolio of producing assets, its existing exploration portfolio, the recently acquired Coringa Gold Project and assess and review any
proposed Mergers and Acquisitions.
Composition
The Project Steering Committee is chaired by the Chief Executive Officer and certain of the Group’s substantial shareholders are entitled to appoint
nominees to the Project Steering Committee with the Board appointing other qualified representatives.
Responsibilities
The Project Steering Committee will make recommendations to the Board on matters including, but not limited to:
• the overall development strategy that might enhance value for shareholders whilst ensuring the Asset Portfolio is developed in
accordance with a credible financing plan;
• monitor performance against target cost, schedule and HSE and project controls through formal monthly reviews;
• matters which may or will require further approvals from the Board such as capital overruns and major contract awards;
• material changes to the approved scopes, cost and/or schedule when risk or opportunity events occur;
• the permitting plan and progress in respect of material permits, including any material communication received from government
or permitting agencies in respect of key permits and approvals;
• overall HSE performance including system implementation and review of material incidents (high potential risk incidents,
lost time injuries and reportable environmental incidents);
• stakeholder management and progress against key elements of the stakeholder plan;
• the execution plan including contracting strategy, detailed permitting register, controls/reporting, critical path, control budget
and use of contingency;
• the staffing plan; and
• the financing plan and strategy including equity, debt, royalty or off-take financing.
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 2018 Annual General Meeting to be held on 14 June 2018 will be sent to all shareholders and will be also be
available on the Company’s website in due course.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 52
CORPORATE GOVERNANCE
Directors’ Remuneration Report
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 programmes 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 programme 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 programme 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 2017 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 2017
53
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 that 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 individual’s 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 cost effective and competitive
remuneration benefits.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 54
CORPORATE GOVERNANCE
Directors’ Remuneration Report continued
COMPENSATION RISK MANAGEMENT
The Group believes that its executive compensation programme does not create risk outside the Group’s risk appetite. Some of the
risk-management initiatives currently employed by the Group are as follows:
• Appointing a Remuneration Committee comprised of independent directors to oversee the executive compensation program;
• The use of deferred equity compensation to encourage a focus on long term corporate performance as opposed to short term results;
• 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
Total
Salary
US$
221,073
198,254
–
–
–
–
–
–
Fees as
Director
US$
–
–
27,982
31,825
39,683
29,673
33,551
43,729
Other
Fees
US$
–
–
–
–
–
60,000
–
–
Bonus
US$
Pension
US$
135,466
94,826
–
–
–
–
–
–
10,302
–
–
–
–
–
–
–
IFRS 2
charge for
options
granted
US$
91,400
68,199
29,153
30,496
35,898
18,909
29,153
29,153
419,327
206,443
60,000
230,292
10,302
332,968
For the year to
31 December
2017
Total
US$
For the year to
31 December
2016
Total
US$
Other
US$
5,072
4,057
–
–
–
–
–
–
9,129
463,313
365,256
57,135
62,321
75,581
108,582
62,704
73,569
479,917
383,219
53,506
57,920
77,697
109,718
58,059
66,613
1,268,460
1,286,649
Serabi Gold plc // Report and Accounts 2017
55
DIRECTORS AND THEIR INTERESTS
Ordinary Shares and Options
The Directors of the Company, who held office during the year and as of 31 December 2017, had the following interests in the ordinary shares of
the Company according to the register of Directors’ interests:
Shares
held at
31 December
2017
441,320
Shares
held at
31 December
2016
441,320
Michael Hodgson
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
Share
options
held at
31 December
2017
Share
options
held at
31 December
2016
Option price
Exercise period
500,000
600,000
–
3,900,000
4,000,000
4,000,000
500,000
600,000
–
2,800,000
3,000,000
3,000,000
–
1,600,000
1,600,000
1,600,000
–
1,300,000
1,300,000
1,300,000
–
1,000,000
1,000,000
1,000,000
–
1,000,000
1,000,000
1,000,000
–
1,800,000
1,000,000
1,000,000
–
1,000,000
1,000,000
1,000,000
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
1,200,000
1,000,000
–
1,200,000
1,000,000
1,000,000
–
UK£0.150
UK£0.410
UK£0.050
UK£0.055
UK£0.050
UK£0.050
UK£0.150
UK£0.410
UK£0.050
UK£0.055
UK£0.050
UK£0.050
UK£0.050
UK£0.055
UK£0.050
UK£0.050
UK£0.050
UK£0.055
UK£0.050
UK£0.050
UK£0.055
UK£0.055
UK£0.050
UK£0.050
UK£0.055
UK£0.055
UK£0.050
UK£0.050
UK£0.050
UK£0.055
UK£0.050
UK£0.050
UK£0.055
UK£0.055
UK£0.050
UK£0.050
21 Dec 09 to 20 Dec 19
28 Jan 11 to 27 Jan 21
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
21 Dec 09 to 20 Dec 19
28 Jan 11 to 27 Jan 21
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
30 Sept 14 to 29 Sept 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
30 Sept 14 to 29 Sept 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
07 Apr 14 to 06 Apr 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
30 Sept 14 to 29 Sept 17
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
(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 2017 the Company’s shares have traded between 3.125 pence and 5.750 pence.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
Serabi Gold -14.8%
S&P 500/Metals & Mining 19.74%
FTSE AIM All Share 25.0%
FTSE Gold Mines -0.48%
S&P/TSX Gold Mines 14.5%
FTSE AIM All Share/Basic Resources -10.12%
160
150
140
130
120
110
100
90
80
)
)
0
0
0
0
1
1
o
o
t
t
d
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s
a
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r
r
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56
CORPORATE GOVERNANCE
70
f
f
r
r
e
e
p
p
e
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r
P
P
60
50
Directors’ Remuneration Report continued
40
30
Jan-17
Feb-17
M ar-17
Apr-17
M ay-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
N ov-17
D ec-17
Jan-18
Feb-18
M ar-18
SHARE PRICE PERFORMANCE
Share Performance Against Gold Price – 2017 to date
Serabi Gold (LHS)
BRL Gold
High
High
Low
Gold (RHS)
6.00p
3.125p
2.50p
8
7
6
5
4
3
2
1
0
)
)
p
p
(
(
e
e
c
c
i
i
r
r
P
P
Jan-17
Feb-17
M ar-17
Apr-17
M ay-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
N ov-17
D ec-17
Jan-18
Feb-18
M ar-18
Share Performance Against Industry Indices – 2017 to date
Serabi Gold -14.8%
S&P 500/Metals & Mining 19.74%
FTSE AIM All Share 25.0%
FTSE Gold Mines -0.48%
S&P/TSX Gold Mines 14.5%
FTSE AIM All Share/Basic Resources -10.12%
)
)
0
0
0
0
1
1
o
o
t
t
d
d
e
e
s
s
a
a
b
b
e
e
r
r
(
(
e
e
c
c
n
n
a
a
m
m
r
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o
o
f
f
r
r
e
e
p
p
e
e
c
c
i
i
r
r
P
P
160
150
140
130
120
110
100
90
80
70
60
50
40
30
Jan-17
Feb-17
M ar-17
Apr-17
M ay-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
N ov-17
D ec-17
Jan-18
Feb-18
M ar-18
Serabi Gold (LHS)
BRL Gold
High
High
Low
Gold (RHS)
6.00p
3.125p
2.50p
8
7
6
5
4
3
2
1
0
)
)
p
p
(
(
e
e
c
c
i
i
r
r
P
P
Jan-17
Feb-17
M ar-17
Apr-17
M ay-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
N ov-17
D ec-17
Jan-18
Feb-18
M ar-18
$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
o
o
G
G
l
l
$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
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r
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G
G
l
l
Serabi Gold plc // Report and Accounts 2017
57
CORPORATE GOVERNANCE
Directors’ Report
FOR THE YEAR ENDED 31 DECEMBER 2017
The Directors present their report together with the audited financial statements for the year ended 31 December 2017.
RESULTS AND DIVIDENDS
The Group loss for the year after taxation amounts to US$2,397,903 (2016: profit of US$4,430,292). The Directors do not recommend
the payment of a dividend.
The results for the year are set out on page 69 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 28 March 2018 the Company was aware of the following holdings of three 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
55.1%
7.1%
6.6%
4.9%
3.2%
On 23 March 2018, the Company announced a subscription for new Ordinary shares by Greenstone Resources II LP (“Greenstone”) for 297,759,419
new Ordinary Shares which will result when the subscription completes, which is expected to be on or around 12 April 2018, in Greenstone becoming
interested in 29.82% of the enlarged issued share capital of the Company and the above percentages being reduced accordingly.
SHARE CAPITAL
Details of the share capital and movements in share capital during the period are disclosed in note 20 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
7 April 2017
COMPANY’S LISTINGS
Number issued
15,650,000
Price
Expiry
5.00 pence 06 April 2020
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 23 March 2018 the Company entered into a Subscription Agreement with Greenstone Resources II LP (“Greenstone”). Greenstone has
conditionally agreed to subscribe (“the Subscription”) for 297,759,419 New Ordinary Shares (“the Subscription Shares”) at a price of 3.6 pence
per share (the “Subscription Price”). The New Ordinary Shares to be issued pursuant to the Subscription will rank pari passu with the existing
Ordinary Shares. Application will be made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM (“Admission”)
and listed for trading on the TSX. Completion of the Subscription and Admission is expected to take place at 8:00 a.m. on or around 12 April 2018.
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 fund planned
exploration and development activity on its other gold properties. However additional funding will be required to bring the newly acquired Coringa
gold project into production including the final acquisition payment. The secured loan facility is repayable by 30 June 2020 and at 31 December
2017, the amount outstanding under this facility was US$4.48 million (2016: US$1.37 million).
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. Any unplanned interruption or reduction in gold production, unforeseen reductions in the gold price or appreciation of the Brazilian
currency, could adversely affect the level of free cash flow that the Group can generate on a monthly basis. Nonetheless with the proceeds
to be received from the Subscription, the Directors consider that they will nonetheless be able to meet its financial obligations as they fall due.
On this basis, the Directors have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis.
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017
58
CORPORATE GOVERNANCE
Directors’ Report continued
FOR THE YEAR ENDED 31 DECEMBER 2017
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 20 to 21.
MANAGEMENT OF FINANCIAL RISKS
Capital management and financial risk disclosures are provided within notes 23 and 26 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 pages 46 and 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 48 to 51.
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 48 to 51.
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.
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.
Serabi Gold plc // Report and Accounts 2017 59
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 2017, 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 was renewed at the start
of 2018 for a two year period. 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 22 January 2018, the Group increased its loan with Sprott by US$3 million (“The New Loan”) and at the same time extended the final repayment
period on its existing US$5 million loan (The Existing Loan”) with Sprott by six months from 31 December 2019 to 30 June 2020. The New Loan
may be repaid, at the Company’s request and with the agreement of Sprott (the “Extension Option”) in equal monthly instalments commencing 30
September 2018 with a final payment due 22 months later on 30 June 2020. If the Extension Option is not exercised the New Loan must be repaid
in full on 30 September 2018. Notwithstanding the above, both the New Loan and the Existing Loan may be repaid by Serabi in full without penalty
at any time.
On 23 March 2018 the Company entered into a Subscription Agreement with Greenstone resources II LP (“Greenstone”), Greenstone has
conditionally agreed to subscribe (“the Subscription”) for 297,759,419 New Ordinary Shares (“the Subscription Shares”) at a price of 3.6 pence per
share (the “Subscription Price”). The New Ordinary Shares to be issued pursuant to the Subscription will rank pari passu with the existing Ordinary
Shares. Application will be made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM (“Admission”) and listed
for trading on the TSX. Completion of the Subscription and Admission is expected to take place at 8:00 a.m. on or around 12 April 2018.
With these exceptions 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
29 March 2018
Strategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2017 60
FINANCIAL STATEMENTS
Independent Auditor’s Report
TO THE MEMBERS OF SERABI GOLD PLC
OPINION
We have audited the financial statements of Serabi Gold plc (the “parent company”) and its subsidiaries (the “group”) for the year ended
31 December 2017 which comprise the group statement of comprehensive income, the group and company balance sheets, the group
and company statements of changes in equity, the group and company statements of cash flows and notes to the financial statements including
a summary of significant accounting policies. 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.
In our opinion:
• the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2017
and of the group’s loss 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.
SEPARATE OPINION IN RELATION TO IFRSS AS ISSUED BY THE IASB
As explained in note 1 (a) to the group financial statements, the group in addition to complying with its legal obligation to apply IFRSs as adopted
by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (IASB).
In our opinion the group financial statements give a true and fair view of the consolidated financial position of the group as at 31 December 2017 and
of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with IFRSs as issued by the IASB.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent
of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Use of Our Report
This report is made solely to the parent 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 parent 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 parent company and the parent company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
• the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s
or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least 12 months from the date when
the financial statements are authorised for issue.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS 61
CARRYING VALUE OF MINING PROPERTIES
KEY AUDIT MATTER
As at 31 December 2017, the Group’s mining properties and assets under construction totalled
$48.98m and details of these assets and the related critical judgements and estimates are disclosed
in notes 1(x) and 21.
Each year management are required to assess whether there has been any indication that the mining
assets may be impaired and consider whether the carrying value exceeds the recoverable amount
by considering the future discounted cash flows.
The recoverable amount of the assets is dependent on the life of mine plan and various significant
judgements and estimates, including the gold price and discount rates. The subjectivity of the judgements
and estimates and the significant carrying value of the assets make this a key area of focus for the
financial statements and the audit.
AUDIT RESPONSE
Our audit work included:
• We reviewed Management’s assessment of the indicators of impairment against IAS 36 and found
that the carrying amount of the net assets of the entity is more than its market capitalisation.
We carried out detailed testing of the value in use model as a result of this. This work included the following:
• We confirmed the mathematical accuracy and appropriateness of the model.
• We obtained an understanding of the operational plans for the Palito and São Chico mines.
• We assessed the reasonableness of the key inputs and assumptions used by Management with the
respective mine plans for Palito and São Chico by reference to our understanding of operations and
historic results.
• We further sensitised the key assumptions, focusing on the impact of a change in gold price, increasing
operating costs, increasing sustaining capital expenditure and changes in discount rate. To determine
adverse variances that would eliminate the headroom, we considered changes to each assumption
independent of one another.
• We reviewed RNS announcements, Board minutes and press releases for information inconsistent
with the impairment review as well as holding a number of discussions with Management regarding
key assumptions.
• We evaluated the adequacy of the disclosures provided within the financial statements in relation
to impairment assessment.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements 62
FINANCIAL STATEMENTS
Independent Auditor’s Report contined
TO THE MEMBERS OF SERABI GOLD PLC
GOING CONCERN
KEY AUDIT MATTER
AUDIT RESPONSE
Management is required to consider the entity’s ability to continue as a going concern for a period of at
least 12 months from the date the financial statements are approved. Refer to note 1(a) for Management’s
and the Directors’ assessment.
On 21 December 2017, Serabi Gold plc completed the acquisition of Chapleau Resources Limited, which
holds the Coringa Gold Project. An initial payment of $5m was made before the year ended 31 December
2017. There is a further $5m consideration payable within three months of completion. This payment has
been delayed until the subscription described below has been received by Serabi.
Since the year-end Serabi has increased its secured facility by $3m, and extended the final repayment
period to 30 June 2020. In addition, the Group had cash reserves of $4.1m at 31 December 2017.
On 23 March 2018, the Company announced a subscription of $15m by Greenstone Resources LP
for 297,759,419 new ordinary shares (the ‘Subscription’). The proceeds will be received in April.
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. Any unplanned interruption or reduction in gold
production, unforeseen reductions in the gold price or appreciation of the Brazilian currency, could
adversely affect the level of free cash flow that the Group can generate on a monthly basis. With the
proceeds to be received from the Placing and the Subscription, the Directors consider that they will
nonetheless be able to meet the Group’s contractual commitments as they fall due. For these reasons
Management has concluded that it is appropriate to prepare the financial statements on a going concern
basis. The projection of future performance requires a number of estimates and assumptions and actual
outcomes may vary from those projected.
Our audit work included:
• A review of management’s assessment that going concern is an appropriate basis of preparation.
• Corroboration of the management’s cash flow forecasts for the group, which include the 12 months
from the date of approval of these financial statements, to supporting information and historic data.
• Challenging and corroborating management’s assumptions included in the cash flow forecasts
and discussing with management their future plans for the group and ensuring that all contractually
committed amounts are included within the projections;
• Reviewing the terms of the group’s current debt facility including historical compliance and expected
future compliance with covenants.
• Reviewing agreements in respect of the announced finance raising and confirming that all conditions
precedent have been satisfied, that the funds are receivable and the chances of default are remote.
• Evaluating the adequacy of disclosures made in the financial statements in respect of going concern.
ACQUISITION OF CORINGA
KEY AUDIT MATTER
On 22 December 2017 Serabi completed the acquisition of Chapleau Resources Limited which holds
the Coringa Gold Project for total consideration of $22m payable in instalments.
The underlying project is an advanced exploration stage project and there is judgement involved as
to whether the transaction represents a business combination or an asset acquisition and the related
accounting treatment and valuation of assets and liabilities can differ significantly.
AUDIT RESPONSE
Our audit work included:
• We have reviewed management’s assessment that the transaction is an asset acquisition and challenged
the judgements included.
• We have reviewed the acquisition agreements and confirmed the amounts payable and that these
have been appropriately discounted in the parent company balance sheet.
• We have confirmed the tangible assets acquired and the value allocated to them to provisional external
valuation reports. We have confirmed the exploration licence acquired to legal opinions and assessed
the reasonableness of the value allocated to the exploration and evaluation assets by reference to
comparable transactions.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
63
OUR APPLICATION OF MATERIALITY
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements. We consider
materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that
are taken on the basis of the financial statements. In order to reduce to an appropriately low level the probability that any misstatements exceed
materiality, we use a lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements below
these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
Our basis for the determination of materiality has changed from prior year. We consider EBITDA to be the most significant determinant of the
group’s financial performance used by shareholders, approximate to operating cash generation, rather than revenue which was the basis used
for 2016. The benchmark percentage for calculating materiality has changed to 5% of EBITDA from the prior year of 1.5% of Revenue.
Whilst materiality for the financial statements as a whole was $500,000 (based on 30 September 2017 EBITDA figure of $10.06m)
(2016: $700,000), each significant component of the group was audited to a lower level of materiality. The parent company materiality was
$375,000 (2016: $525,000) with the other components varying from $375,000 to $220,000. These materiality levels were used to determine
the financial statement areas that are included within the scope of our audit work and the extent of sample sizes during the audit.
Performance materiality is the application of materiality at the individual account or balance level set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality. Performance materiality was set
at 75% (2016: 75%) of the above materiality levels given there has been limited experience of past misstatements
We agreed with the Audit Committee that we would report to the Committee all individual audit differences identified during the course of our
audit in excess of $25,000 (2016: $25,000). We also agreed to report differences below these thresholds that, in our view warranted reporting
on qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our group audit scope focussed on the group’s principal operating locations and legal structure. The group has operating entities based
in the UK and Brazil. The parent company, Serabi Mineraçăo SA, containing the Palito and São Chico gold mines, were the entities that were
deemed to be significant components by virtue of size.
The parent entity was subject to a full scope audit by the group auditor.
For Serabi Mineraçăo SA and Gold Aura do Brasil Mineraçăo Ltda, the BDO network firm in Brazil completed a full scope audit reporting
to the group auditor. We determined our level of involvement in the component to require a visit from the group audit team to review
the audit work papers and attend the component clearance meeting along with the component auditor, local and group management.
For the components acquired in the acquisition of the Coringa project in December 2017, the BDO network firm in Brazil performed specific
assurance procedures.
The remaining non-significant subsidiaries of the group were principally subject to analytical review procedures.
OTHER INFORMATION
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, except
to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears
to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements 64
FINANCIAL STATEMENTS
Independent Auditor’s Report continued
TO THE MEMBERS OF SERABI GOLD PLC
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 the directors’ report for the financial year for which the financial statements
are prepared is consistent with the financial statements; and
• the strategic report and the 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 in relation to which 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.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Stuart Barnsdall (Senior Statutory Auditor)
For and on behalf of BDO LLP
London, UK
29 March 2018
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS 65
FINANCIAL STATEMENTS
Independent Auditor’s Report continued
IN RESPECT OF CANADIAN NATIONAL INTRUSTMENT 52-107
(ACCEPTABLE ACCOUNTING PRINCIPLES AND AUDITING STANDARDS)
OPINION
We have audited the financial statements of Serabi Gold plc and its subsidiaries (the “group”) for the year ended 31 December 2017 which
comprise the group statement of comprehensive income, the group balance sheet, the group statement of changes in equity, the group statement
of cash flows and notes to the financial statements including a summary of significant accounting policies. The financial reporting framework that
has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as issued by the IAASB. Our audit
opinion does not cover the parent company financial statements.
In our opinion:
• the group financial statements present fairly, in all material respects, the financial position of the group as at 31 December 2017
and 31 December 2016 and its financial performance and its cash flows for the years then ended; and
• the group financial statements have been properly prepared in accordance with IFRSs as issued by the IAASB.
BASIS FOR OPINION
We conducted our audit in accordance with International Standards on Auditing (ISAs) as issued by IAASB and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional
Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the group financial statements in the UK,
and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA code. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the
current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement
team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
CARRYING VALUE OF MINING PROPERTIES
KEY AUDIT MATTER
As at 31 December 2017, the Group’s mining properties and assets under construction totalled
$48.98m and details of these assets and the related critical judgements and estimates are disclosed
in notes 1(x) and 21.
Each year management are required to assess whether there has been any indication that the mining
assets may be impaired and consider whether the carrying value exceeds the recoverable amount by
considering the future discounted cash flows.
The recoverable amount of the assets is dependent on the life of mine plan and various significant
judgements and estimates, including the gold price and discount rates. The subjectivity of the judgements
and estimates and the significant carrying value of the assets make this a key area of focus for the
financial statements and the audit.
AUDIT RESPONSE
Our audit work included:
• We reviewed Management’s assessment of the indicators of impairment against IAS 36 and found that
the carrying amount of the net assets of the entity is more than its market capitalisation.
We carried out detailed testing of the value in use model as a result of this. This work included the following:
• We confirmed the mathematical accuracy and appropriateness of the model.
• We obtained an understanding of the operational plans for the Palito and São Chico mines.
• We assessed the reasonableness of the key inputs and assumptions used by Management with the
respective mine plans for Palito and São Chico by reference to our understanding of operations and
historic results.
• We further sensitised the key assumptions, focusing on the impact of a change in gold price, increasing
operating costs, increasing sustaining capital expenditure and changes in discount rate. To determine
adverse variances that would eliminate the headroom, we considered changes to each assumption
independent of one another.
• We reviewed RNS announcements, Board minutes and press releases for information inconsistent
with the impairment review as well as holding a number of discussions with Management regarding
key assumptions.
• We evaluated the adequacy of the disclosures provided within the financial statements in relation
to impairment assessment.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements 66
FINANCIAL STATEMENTS
Independent Auditor’s Report continued
IN RESPECT OF CANADIAN NATIONAL INTRUSTMENT 52-107
(ACCEPTABLE ACCOUNTING PRINCIPLES AND AUDITING STANDARDS)
GOING CONCERN
KEY AUDIT MATTER
AUDIT RESPONSE
Management is required to consider the entity’s ability to continue as a going concern for a period of at
least 12 months from the date the financial statements are approved. Refer to note 1(a) for Management’s
and the Directors’ assessment.
On 21 December 2017, Serabi Gold plc completed the acquisition of Chapleau Resources Limited, which
holds the Coringa Gold Project. An initial payment of $5m was made before the year ended 31 December
2017. There is a further $5m consideration payable within three months of completion. This payment has
been delayed until the subscription below has been received by Serabi.
Since the year-end Serabi has increased its secured facility by $3m, and extended the final repayment
period to 30 June 2020. In addition, the Group had cash reserves of $4.1m at 31 December 2017.
On 23 March 2018, the Company announced a subscription of $15m by Greenstone Resources LP
for 297,759,419 new ordinary shares (the ‘Subscription’). The proceeds will be received in April.
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. Any unplanned interruption or reduction in gold
production, unforeseen reductions in the gold price or appreciation of the Brazilian currency, could
adversely affect the level of free cash flow that the Group can generate on a monthly basis. With the
proceeds to be received from the Placing and the Subscription, the Directors consider that they will
nonetheless be able to meet the Group’s contractual commitments as they fall due. For these reasons
Management has concluded that it is appropriate to prepare the financial statements on a going concern
basis. The projection of future performance requires a number of estimates and assumptions and actual
outcomes may vary from those projected.
Our audit work included:
• A review of management’s assessment that going concern is an appropriate basis of preparation.
• Corroboration of the management’s cash flow forecasts for the group, which include the 12 months
from the date of approval of these financial statements, to supporting information and historic data.
• Challenging and corroborating management’s assumptions included in the cash flow forecasts
and discussing with management their future plans for the group and ensuring that all contractually
committed amounts are included within the projections;
• Reviewing the terms of the group’s current debt facility including historical compliance and expected
future compliance with covenants.
• Reviewing agreements in respect of the announced finance raising and confirming that all conditions
precedent have been satisfied, that the funds are receivable and the chances of default are remote.
• Evaluating the adequacy of disclosures made in the financial statements in respect of going concern.
ACQUISITION OF CORINGA
KEY AUDIT MATTER
On 22 December 2017 Serabi completed the acquisition of Chapleau Resources Limited which holds
the Coringa Gold Project for total consideration of $22m payable in instalments.
The underlying project is an advanced exploration stage project and there is judgement involved as
to whether the transaction represents a business combination or an asset acquisition and the related
accounting treatment and valuation of assets and liabilities can differ significantly.
AUDIT RESPONSE
Our audit work included:
• We have reviewed management’s assessment that the transaction is an asset acquisition and challenged
the judgements included.
• We have reviewed the acquisition agreements and confirmed the amounts payable and that these have
been appropriately discounted in the balance sheet.
• We have confirmed the tangible assets acquired and the value allocated to them to provisional external
valuation reports. We have confirmed the exploration licence acquired to legal opinions and assessed
the reasonableness of the value allocated to the exploration and evaluation assets by reference to
comparable transactions.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
67
OTHER INFORMATION
The other information comprises the information included in the annual report and the management discussion and analysis, other than the
financial statements and our auditor’s report thereon. The directors are responsible for the other information. Our opinion on the financial
statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there
is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
RESPONSIBILITIES OF MANAGEMENT
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRSs, 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.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with International Standards on Auditing (ISAs) will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the group’s financial statements, whether due to fraud or error, designs and performs
•
audit procedures responsive to those risks, and obtains audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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 group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the group’s and the parent company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in the auditor’s report
to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based
on the audit evidence obtained up to the date of the auditor’s report. However, future events or conditions may cause the group and the parent
company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements
represent the underlying transactions and events in a manner that achieves fair presentation (i.e gives a true and fair view).
• Are required to report on consolidated financial statements, obtain sufficient appropriate audit evidence regarding the financial information
of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the
direction, supervision and performance of the group audit. We remain solely responsible for the audit opinion.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements 68
FINANCIAL STATEMENTS
Independent Auditor’s Report continued
IN RESPECT OF CANADIAN NATIONAL INTRUSTMENT 52-107
(ACCEPTABLE ACCOUNTING PRINCIPLES AND AUDITING STANDARDS)
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit
of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not
be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest
benefits of such communication.
The partner in charge of the audit resulting in this independent auditors’ report is Stuart Barnsdall.
BDO LLP
London, United Kingdom
29 March 2018
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS FINANCIAL STATEMENTS
Statement of Comprehensive Income
FOR THE YEAR ENDED 31 DECEMBER 2017
CONTINUING OPERATIONS
Revenue
Cost of sales
Provision for impairment of inventory
Depreciation and amortisation charges
Gross profit
Administration expenses
Share-based payments
Gain on disposal of fixed asset
Operating (loss)/profit
Foreign exchange loss
Finance expense
Finance income
(Loss)/profit before taxation
Income tax (expense)/benefit
(Loss)/profit 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 (loss)/profit for the period(1)
(Loss)/profit per ordinary share (basic)
(Loss)/profit 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.
69
Group
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
48,449,868
(32,015,498)
(950,000)
(10,465,283)
5,019,087
(5,500,275)
(381,362)
170,591
(691,959)
(214,488)
(839,191)
135
(1,745,503)
(652,400)
(2,397,903)
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
1,870,179
2,560,113
4,430,292
(591,720)
(2,989,623)
(0.34c)
(0.34c)
8,618,687
13,048,979
0.66c
0.61c
Notes
11
3
4
4
5
7
7
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
70
FINANCIAL STATEMENTS
Group Balance Sheet
AS AT 31 DECEMBER 2017
Non-current assets
Deferred exploration costs
Property, plant and equipment
Taxes receivable
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
Acquisition payment outstanding
Derivative financial liabilities
Accruals
Total current liabilities
Net current assets
Total assets less current liabilities
Non-current liabilities
Trade and other payables
Provisions
Acquisition payment outstanding
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
2017
US$
Notes
8
9
12
5
11
12
13
14
15
17
22
18
15
16
22
17
20
2016
US$
9,990,789
45,396,140
–
3,253,630
58,640,559
8,110,373
1,233,049
3,696,550
4,160,923
17,200,895
4,722,139
2,964,057
–
–
635,446
8,321,642
8,879,253
67,519,812
2,211,078
1,851,963
–
77,798
4,140,839
63,378,973
23,898,819
48,980,381
1,474,062
2,939,634
77,292,896
6,934,438
1,277,142
3,237,412
4,093,866
15,542,858
5,347,964
2,845,712
5,000,000
709,255
614,198
14,517,129
1,025,729
78,318,625
2,753,409
2,047,131
9,997,961
2,749,412
17,547,913
60,770,712
5,540,960
1,722,222
1,425,024
4,015,369
(31,199,568)
79,266,705
60,770,712
5,540,960
1,722,222
1,338,652
3,051,862
(30,607,848)
82,333,125
63,378,973
The financial statements were approved and authorised for issue by the Board of Directors on 29 March 2018 and signed on its behalf by:
Clive Line
Finance Director
29 March 2018
Company Number 5131528
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Company Balance Sheet
AS AT 31 DECEMBER 2017
Non-current assets
Deferred exploration costs
Property, plant and equipment
Investments in subsidiaries
Other receivables
Total non-current assets
Current assets
Trade and other receivables
Prepayments
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Interest-bearing liabilities
Derivative financial liabilities
Acquisition payment outstanding
Accruals
Total current liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Interest-bearing liabilities
Acquisition payment outstanding
Total non-current liabilities
Net assets
Equity
Share capital
Share premium reserve
Option reserve
Distributable surplus
Equity shareholders’ funds attributable to owners of the parent
71
Company
2017
US$
2016
US$
Notes
8
9
10
12
12
13
14
15
17
18
22
17
22
20
1,568,365
6,903,394
86,598,833
7,606,894
102,677,486
1,241,352
107,756
2,936,579
4,285,687
12,046,338
1,980,000
709,255
5,000,000
709,949
20,445,542
(16,159,855)
86,517,631
2,500,000
9,997,961
12,497,961
74,019,670
1,568,365
6,770,252
66,600,872
7,606,894
82,546,383
1,075,532
104,666
3,612,495
4,792,693
6,222,345
1,787,096
–
–
635,446
8,644,887
(3,852,194)
78,694,189
–
–
–
78,694,189
5,540,960
1,722,222
1,425,024
65,331,464
74,019,670
5,540,960
1,722,222
1,338,652
70,092,355
78,694,189
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 2017 was US$5,055,881 (2016: US$7,379,966).
The financial statements were approved and authorised for issue by the Board of Directors on 29 March 2018 and signed on its behalf by:
Clive Line
Finance Director
29 March 2018
Company Number 5131528
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
72
FINANCIAL STATEMENTS
Statements of Changes in Shareholders’ Equity
FOR THE YEAR ENDED 31 DECEMBER 2017
Group
Equity shareholders’ funds at 31 December 2015
Foreign currency adjustments
Profit for year
Total comprehensive loss for the year
Transfer to taxation reserve
Release of fair value provision on convertible loan
Warrants lapsed
Shares issued in period
Share options lapsed in period
Share option expense
Equity shareholders’ funds at 31 December 2016
Share
capital
US$
Share
premium
US$
5,263,182
–
–
–
Share
option
reserve
US$
Other Translation
reserve
US$
reserves
US$
(Accumulated
losses)/
retained
surplus
US$
Total
equity
US$
2,747,415
450,262 (39,226,535) 77,549,321 46,783,645
–
–
8,618,687
–
4,430,292
8,618,687
4,430,292
–
–
–
–
277,778
–
–
–
–
–
–
1,722,222
–
–
–
–
–
–
–
(1,759,662)
350,899
–
2,690,401
–
(88,801)
–
–
–
8,618,687
–
–
–
–
–
–
4,430,292 13,048,979
(2,690,401)
–
1,195,450
1,195,450
–
88,801
2,000,000
–
1,759,662
–
350,899
–
5,540,960
1,722,222
1,338,652
3,051,862 (30,607,848) 82,333,125 63,378,973
Foreign currency adjustments
Loss for year
–
–
–
–
–
–
–
–
(591,720)
–
–
(2,397,903)
(591,720)
(2,397,903)
Total comprehensive income for the year
Transfer to taxation reserve
Share options lapsed in period
Share option expense
Equity shareholders’ funds at 31 December 2017
–
–
–
–
5,540,960
–
–
–
–
1,722,222
–
–
(294,990)
381,362
1,425,024
–
963,507
–
–
4,015,369
(591,720)
–
–
–
(2,989,623)
–
–
381,362
(31,199,568) 79,266,705 60,770,712
(2,397,903)
(963,507)
294,990
–
Other reserves comprise a merger reserve of US$361,461 and a taxation reserve of US$3,653,908 (2016: merger reserve of US$361,461 and
taxation reserve of US$2,690,401).
The following is a description of each of the reserve accounts that comprise equity shareholders’ funds
Share capital
Share premium
Share option reserve
Other reserves
Translation reserve
Retained surplus
The share capital comprises the issued ordinary shares of the Company at par.
The share premium comprises the excess value recognised from the issue of ordinary shares at par.
Cumulative fair value of options charged to the statement of comprehensive income net of transfers to the profit
and loss reserve on exercised and cancelled/lapsed options.
Other reserves is comprised of a merger reserve arising on the acquisition of Kenai Resources Limited,
representing the difference between the nominal value of the shares issued and their fair value, and a warrant
reserve being the cumulative fair value of warrants issued associated with equity shares issued. The Group has
also established a taxation reserve. The reserve is used to accumulate taxation savings received by the Group as
a result of a lower taxation rate being applied in Brazil through its eligibility for a tax incentive programme (“SUDAM”)
SUDAM reduces the Group’s effective tax rate from approximately 34 per cent to approximately 15.25 per cent.
The regulations of the incentive programme require the Group to accumulate incentives received through tax
savings in a taxation reserve.
Cumulative gains and losses on translating the net assets of overseas operations to the presentation currency.
Retained surplus/(accumulated losses) comprise the Group’s cumulative accounting profits and losses
since inception.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
73
Company
Equity shareholders’ funds at 31 December 2015
Loss for the year
Comprehensive loss for year
Shares issued in period
Release of fair value provision on convertible loan
Warrants lapsed
Share options lapsed in period
Share option expense
Equity shareholders’ funds at 31 December 2016
Share
capital
US$
Share
premium
US$
Share
option
reserve
US$
(Accumulated
losses)/
retained
surplus
US$
Other
reserves
US$
Total
equity
US$
5,263,182
–
–
277,778
–
–
–
–
–
–
2,747,415
88,801 74,428,408 82,527,806
–
–
(7,379,966)
(7,379,966)
–
1,722,222
–
–
–
–
–
–
–
–
(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
5,540,960
1,722,222
1,338,652
– 70,092,355 78,694,189
Loss for the year
–
–
–
–
(5,055,881)
(5,055,881)
Comprehensive loss for year
Share options lapsed in period
Share option expense
Equity shareholders’ funds at 31 December 2017
–
–
–
5,540,960
–
–
–
1,722,222
–
(294,990)
381,362
1,425,024
(5,055,881)
(5,055,881)
–
–
294,990
–
–
381,362
–
– 65,331,464 74,019,670
Other reserves comprise a warrant reserve of US$nil (2016: US$88,801).
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
74
FINANCIAL STATEMENTS
Cash Flow Statements
FOR THE YEAR ENDED 31 DECEMBER 2017
Cash outflows from operating activities
Operating profit/(loss)
Net financial expense
Depreciation – plant, equipment and mining properties
Provision for impairment of inventory
Other provisions
Taxation (benefit)/expense
Share-based payments
Interest paid
Foreign exchange
Finance charges
Changes in working capital
(Increase)/decrease in inventories
(Increase)/decrease in receivables, prepayments and accrued income
Increase/(decrease) in payables, accruals and provisions
Increase/(decrease) in short term intercompany payables
Net cash flow from operations
Investing activities
Acquisition of subsidiary net of cash acquired
Purchase of property, plant, equipment and projects in construction
Mine development expenditure
Geological exploration expenditure
Proceeds from sale of assets
Interest received and other finance income
Net cash outflow on investing activities
Financing activities
Convertible loan received and subsequent conversion to ordinary shares
Draw-down of short term loan facility
Repayment of short term secured loan
Receipt from repayment of intercompany loan
Payment of finance lease liabilities
Receipts for short term trade finance
Repayment of short term trade finance
Net cash (outflow)/inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Exchange difference on cash
Cash and cash equivalents at end of period
See note 19 for further information on the analysis of net debt.
Group
Company
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
(2,397,903)
1,053,544
10,465,283
950,000
156,404
652,400
381,362
(747,072)
(178,753)
–
(287,898)
(1,968,858)
165,249
–
8,243,758
(4,994,665)
(2,144,753)
(4,362,192)
(2,487)
214,566
135
(11,289,396)
–
3,628,511
–
–
(644,340)
–
–
2,984,171
(61,467)
4,160,923
(5,590)
4,093,866
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
–
16,152,952
–
(3,042,043)
(2,366,486)
(525,444)
34,742
573
(5,898,658)
2,000,000
–
(3,111,111)
–
(755,858)
15,146,817
(21,384,139)
(8,104,291)
2,150,003
2,191,759
(180,839)
4,160,923
(5,055,880)
514,811
526,465
–
–
–
381,362
(273,636)
(75,889)
–
–
(168,909)
(79,711)
5,562,619
1,331,232
(5,000,000)
–
(660,181)
–
–
135
(5,660,046)
–
3,628,511
–
–
–
–
–
3,628,511
(700,303)
3,612,495
24,387
2,936,579
(7,379,963)
4,105,778
573,166
–
–
–
350,899
(2,018,161)
(85,241)
(37,500)
1,148,634
4,951,640
(346,429)
(415,775)
847,048
–
–
(697,036)
–
–
573
(696,463)
2,000,000
–
(3,111,108)
9,318,311
(200,404)
15,146,817
(21,384,139)
1,769,477
1,920,062
1,781,433
(89,000)
3,612,495
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
75
FINANCIAL STATEMENTS
Notes to the Financial Statements
FOR THE YEAR ENDED 31 DECEMBER 2017
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 57.
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):
lFRS 9 Financial Instruments
lFRS 15 Revenue from Contracts
IFRS 16 Leases
The only standard that is anticipated to be significant or relevant to the Group is IFRS 9 “Financial Instruments”. 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).
IFRS 15 ‘Revenue from Contracts with Customers’ is not expected to have a material impact on the Group at this stage of the Group’s operations.
IFRS 16 will require the recognition of an asset and liability with respect to the material operating lease commitments that the Group have.
Management are currently considering the impact that this will have on the financial statements.
The revenue contracts held by the Group 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 23 March 2018 the Company entered into a Subscription Agreement with Greenstone resources II LP (“Greenstone”), Greenstone has
conditionally agreed to subscribe (“the Subscription”) for 297,759,419 New Ordinary Shares (“the Subscription Shares”) at a price of 3.6 pence per
share (the “Subscription Price”). The New Ordinary Shares to be issued pursuant to the Subscription will rank pari passu with the existing Ordinary
Shares. Application will be made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM (“Admission”) and
listed for trading on the TSX. Completion of the Subscription and Admission is expected to take place at 8:00 a.m. on or around 12 April 2018.
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 fund planned
exploration and development activity on its other gold properties. However additional funding will be required to bring the newly acquired Coringa
gold project into production including the final acquisition payment. The secured loan facility is repayable by 30 June 2020 and at 31 December
2017, the amount outstanding under this facility was US$4.48 million (2016: US$1.37 million).
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. Any unplanned interruption or reduction in gold production, unforeseen reductions in the gold price or appreciation of the Brazilian
currency, could adversely affect the level of free cash flow that the Group can generate on a monthly basis. Nonetheless with the proceeds to
be received from the Subscription, the Directors consider that they will nonetheless be able to meet its financial obligations as they fall due.
On this basis, the Directors have therefore concluded that it is appropriate to prepare the financial statements on a going concern basis.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
76
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. Based on the circumstances of the
acquisition an assessment will be made as to whether the acquisition represents an acquisition of an asset or the acquisition of asset. In the event
of a business 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.
In the event of an asset acquisition assets and liabilities are assigned a carrying amount based on relative fair value.
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 2017 was 1.3579 (2016: 1.2275). The Brazilian Real/US Dollar exchange rate at
31 December 2017 was 3.3074 (2016: 3.2585).
(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 forecasted 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 2017FINANCIAL STATEMENTS 77
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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements 78
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.
At each balance sheet date the Company reviews the potential recoverability of investments in subsidiaries and intercompany debts by reviewing
the underlying value of the assets of those subsidiaries and the future cash generation of those subsidiaries to determine whether there is any
indication that those assets have suffered impairment or the debts may not be repaid. As with the Group each subsidiary is reviewed 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 and this determination and the indicators of impairment are consistent with those applied to the Group.
(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 reverse 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 2017FINANCIAL STATEMENTS 79
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:
the Group has a present legal or constructive obligation as a result of past events;
it is more likely than not that an outflow of resources will be required to settle the obligation; and
(i)
(ii)
(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 is 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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements 80
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 São 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 2017FINANCIAL STATEMENTS 81
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investments in Subsidiaries
(t)
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.
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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
An initial judgement is made as to whether the mining assets are impaired based on the matters identified for mining assets in the impairment
policy at 1 h) relating to IAS 36 impairment.
In the event that there is an indication of impairment, mining assets are assessed for impairment through 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 São Chico Mines are considered to be one single CGU. Management consider that there
was an indicator of impairment. Details of the estimates used are included within note 21.
The value in use calculation will also be determined by the judgements made by management regarding the levels of Mineral Reserves and Mineral
Resources that are included in the value in use calculations and judgements regarding any future changes in legislation or economic circumstances
that might impact the operations.
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 21 regarding the key assumptions made in assessing the value in use.
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 Mineral Reserves, Measured and Indicated Mineral Resources and Inferred Mineral Resources. Only Mineral Reserves have been
established to have economic viability and only at the time that such estimation is undertaken, any change in the underlying factors under which
the economic assessment was made may give rise to management making a judgement as to whether it is reasonable that such Mineral Reserves
should be used for the purposes of forecasts. This would, in turn, affect certain amounts in the financial statements such as depreciation, which is
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 (see note 21).
Mineral Resources have not been established to have economic viability and to the extent that management includes Mineral resources to
calculate projected life of mine figures or in calculations of amortisation or depreciation, management will make judgements based on historical
reports, future economic factors and other empirical measures to make estimates as the level of Mineral Resources that in incorporates into
its assessments.
Recoverability of Deferred Exploration Expenditure (note 8)
The recoverability of exploration expenditure capitalised within intangible assets is assessed based on a judgement about the potential of the
project to become commercial viable and if there are any facts or circumstances that would suggest the costs should be impaired. In making this
judgement management will consider the items noted in the impairment policy in respect of exploration assets as noted in accounting policy 1 h).
Should an indicator of impairment be identified the value in use is estimated on a similar basis as the mining asset as detailed above. Management
determined that there were no indicators of impairment in the year.
Recoverability of Debts Including Recoverable Taxes
In making its judgements over the recoverability of any amounts owed to the Group management will assess the creditworthiness of the debtor,
the legal enforceability of the Groups rights and the practicalities and costs of obtaining and enforcing judgements relative to the debt outstanding.
Based on these assessments it will estimate the likely recoverability of sums that are due to the Group, the likely time period over when such debts
might be received and any provision that needs to be established against the future recoverability. Management have determined that the debts
are recoverable and that no provision has been made.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS 83
1 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(x) Critical Accounting Estimates and Judgements (continued)
Acquisition of Chapleau (note 22)
Chapleau Resources Limited was acquired by the Group in the year. An initial judgement is made as to whether to account for this as an asset
acquisition or a business combination. If an acquisition is determined to be a business combination then it falls within the scope of IFRS 3, if it does
not then it is treated as an asset of group of assets.
The judgement involves whether the acquired entity meets the definition of a business. Key components of a business consist of inputs, processes
and outputs. Inputs and processes are the essential elements that have to be present in order to be classified as a business. A business does not
have to have outputs to qualify as a business. The acquisition has been accounted for as an asset acquisition as Chapleau is judged not to have
the required inputs and processes to qualify as a business and that a market participant would not be capable of conducting and managing the
entity as a business.
Estimates are involved in determining the respective attributable value of the assets and liabilities over which the cost of the acquisition is
attributed. Further details are included in note 22.
The following are the critical estimates 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
Inventory Valuation (note 11)
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. The balance that is most
subject to changes in estimates is the stockpile of mined ore which has been impaired in the year.
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 (note 16)
Management uses its judgement and experience to provide for and amortise the estimated mine closure and site rehabilitation over the life of the
mine. Provisions are discounted at a risk-free rate and cost base inflated at an appropriate rate. The ultimate closure and site rehabilitation costs
are uncertain and cost estimates can vary in response to many factors including changes to relevant legal requirements or the emergence of new
restoration techniques. The expected timing and extent of expenditure can also change, for example in response to changes in ore reserves or
processing levels. As a result, there could be significant adjustments to the provisions established which could affect future financial results.
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FINANCIAL STATEMENTS
Notes to the Financial Statements continued
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
Provision for Impairment
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
Profit /(loss) before taxation
Income tax (expense)/benefit
(Loss)/profit for the period
2017
2016
Brazil
US$
UK
US$
Total
US$
32,829,665
12,104,907
(27,599,361)
(950,000)
(9,938,818)
15,620,203
(12,104,907)
(4,416,137)
–
(526,465)
6,446,393
(2,737,714)
–
170,591
3,879,270
(184,299)
–
–
(1,427,306)
(2,762,561)
(381,362)
–
(4,571,229)
(30,189)
(839,191)
135
48,449,868
–
(32,015,498)
(950,000)
(10,465,283)
5,019,087
(5,500,275)
(381,362)
170,591
(691,959)
(214,488)
(839,191)
135
3,694,971
(652,400)
(5,440,474)
–
(1,745,503)
(652,400)
3,042,571
(5,440,474)
(2,397,903)
Brazil
US$
UK
US$
Total
US$
26,225,075
20,552,303
(26,900,469)
–
(7,632,981)
12,243,928
(2,864,336)
–
34,742
9,414,334
906,425
(31,739)
–
26,368,676
(20,552,303)
(6,005,957)
–
(751,757)
(941,341)
(2,098,188)
(350,899)
–
(3,390,428)
(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
10,289,020
2,560,113
(8,418,841)
–
1,870,179
2,560,113
12,849,133
(8,418,841)
4,430,292
An analysis of non-current assets by location is as follows:
Brazil – operations
Brazil – exploration
Brazil – taxes receivable
Brazil – deferred tax
Brazil – total
UK
An analysis of total assets by location is as follows:
Brazil
UK
Total non-current assets
31 December
2017
US$
31 December
2016
US$
48,980,381
23,898,819
1,474,062
2,939,634
77,292,896
–
77,292,896
45,396,140
9,990,789
–
3,253,630
58,640,559
–
58,640,559
Total assets
31 December
2017
US$
31 December
2016
US$
83,090,310
9,745,444
92,835,754
69,489,023
6,352,431
75,841,454
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
2 SEGMENTAL ANALYSIS (CONTINUED)
During the year, the following amounts incurred by project location were capitalised as deferred exploration costs:
Brazil
85
Group
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
2,487
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
Revenue
All of the Group’s revenue arises from its activities in Brazil.
Group
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
7,712,624
7,712,624
6,282,145
6,282,145
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
2017
US$
31 December
2016
US$
32,829,664
15,620,204
48,449,868
26,225,075
26,368,676
52,593,751
Customer 1 – Brazil
Customer 2 – Brazil
Customer 3 – UK
Customer 4 – UK
Total
31 December 2017
31 December 2016
US$
31,358,718
1,470,946
15,620,204
–
%
64.7%
3.0%
32.3%
–
US$
26,225,075
–
6,750,002
19,618,674
%
49.9%
–
12.8%
37.3%
48,449,868
100.0%
52,593,751
100.0%
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
86
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
3 OPERATING PROFIT
a. Group Operating (Loss)/Profit 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
Unwinding of discount on rehabilitation provision
Interest payable on finance leases
Interest payable on convertible loan
Fair value provision on convertible loan(1)
Expense from gold hedging activities
Interest payable
Finance income on short term deposits
Net finance expense
Group
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
13,677,076
2,678,117
7,787,166
191,109
11,995,399
2,075,898
6,308,840
172,497
Group
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
139,358
37,239
9,406
39,141
108,020
32,926
10,358
3,312
Group
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
–
(189,255)
(314,732)
(335,204)
–
�
–
–
(839,191)
135
(839,056)
(256,898)
(672,331)
(281,333)
–
(36,194)
(137,049)
(1,195,450)
(1,338,426)
(3,917,681)
573
(3,917,108)
(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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
5 TAXATION
Current tax
UK tax
Foreign tax
Total current tax
Deferred tax
Initial recognition of deferred tax asset
Release of deferred tax asset
Total deferred tax
Income tax charge/(benefit)
87
Group
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
–
376,917
376,917
–
275,483
275,483
652,400
–
484,960
484,960
(3,045,073)
–
(3,045,073)
(2,560,113)
The tax provision for the current period varies from the standard rate of corporation tax in the UK of 19.25% (2016: 20.00%). The differences are
explained as follows:
(Loss)/profit on ordinary activities before tax
Tax thereon at UK corporate tax rate of 19.25% (2016: 20.00%)
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 used in the period
recognised tax losses carried forward
Tax charge/(benefit)
Unrecognised 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
2017
US$
For the
year ended
31 December
2016
US$
(1,745,503)
(336,010)
211,794
251,880
(120,019)
(263,772)
633,044
275,483
–
652,400
US$
39,948,068
515,733
–
5,066,261
–
360,474
–
45,014,329
876,207
45,890,535
1,870,179
374,036
738,888
(474,206)
(341,248)
(389,908)
577,398
577,398
(3,045,073)
(2,560,113)
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
40,463,801
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88
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
5 TAXATION (CONTINUED)
Unrecognised deferred tax asset
Tax losses
Timing differences
Total unrecognised deferred tax asset
Recognised deferred tax asset
Tax losses brought forward
Tax losses (utilised)/recognised in the period
Exchange
Net recognised deferred tax asset
Group
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
9,240,984
138,828
9,379,812
US$
3,253,630
(275,483)
(38,513)
2,939,634
8,443,659
78,649
8,522,308
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
2017
Number
For the
year ended
31 December
2016
Number
For the
year ended
31 December
2017
Number
For the
year ended
31 December
2016
Number
9
12
263
14
67
365
8
10
259
14
62
353
3
–
10
1
–
14
3
–
10
1
–
14
Group
Company
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
10,113,644
381,362
3,008,806
227,339
85,255
13,816,406
8,984,427
350,899
2,509,463
25,212
125,398
11,995,399
2,477,857
381,362
93,167
–
85,255
3,037,641
2,434,263
350,899
101,350
–
125,398
3,011,910
No company within the Group operates a pension plan for the Directors or the employees. For those Executive Directors and UK based employees
who have an entitlement to pension provision, the premiums are paid directly to the personal pension plans selected by or agreed with 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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
6 EMPLOYEE INFORMATION (CONTINUED)
Directors’ Remuneration
The compensation of the Directors is:
Salary and other benefits
Post-employment benefits
Total
89
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
925,190
10,302
935,492
961,966
11,298
973,264
The remuneration of the highest paid Director during the year was US$463,313 (2016: US$479,917). The Company made cash contributions
to his money purchase pension scheme of US$10,302 (2016: US$11,298).
During the year ended 31 December 2017, two of the Directors (2016: two) were entitled to accrue retirement benefits under money
purchase schemes.
7 EARNINGS PER SHARE
(Loss)/profit attributable to ordinary shareholders (US$)
Weighted average ordinary shares in issue
Basic (loss)/profit per share (US cents)
Diluted ordinary shares in issue
Diluted (loss)/profit per share (US cents)
(1) 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.
(2) Assumes exercise of all options and warrants outstanding as of that date.
Details of share options that could potentially dilute earnings per share in future periods are set out in note 20.
8
INTANGIBLE ASSETS
Deferred Exploration Costs
For the
year ended
31 December
2017
For the
year ended
31 December
2016
(2,397,903)
4,430,292
698,701,772
(0.343)
672,502,757
0.659
698,701,772(1)
(0.343)
722,412,757(2)
0.613
Cost
Opening balance
Additions from acquisitions
Exploration and evaluation expenditure
Transfer to mining property and projects in construction
Foreign exchange movements
Total as at end of period
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
9,990,789
14,030,112
2,487
–
(124,569)
23,898,819
8,679,246
–
525,444
(558,895)
1,344,994
9,990,789
1,568,365
–
–
–
–
1,568,365
2,040,437
–
–
(472,072)
–
1,568,365
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 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
90
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
9 TANGIBLE ASSETS
Property, Plant and Equipment – Group
2017
Cost
Balance at 31 December 2016
Additions
Additions from Acquisition
Disposals
Foreign exchange movements
At 31 December 2017
Depreciation
Balance at 31 December 2016
Charge for period
Released on asset disposals
Foreign exchange movements
At 31 December 2017
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$
2,977,040
458,393
–
–
(59,976)
3,375,457
46,527,183
4,362,192
–
(235,808)
(734,366)
49,919,201
2,828,333
700,943
5,687,827
–
159,478
9,376,581
18,904,812
2,191,066
518,273
–
(304,220)
21,309,961
71,237,368
7,712,624
6,206,100
(235,808)
(939,084)
83,981,200
(1,649,735)
(25,845)
–
34,544
(1,641,036)
(14,737,325)
(7,403,395)
199,911
435,825
(21,504,984)
–
–
–
–
–
(9,454,168)
(2,580,383)
–
179,752
(11,854,799)
(25,841,228)
(10,009,623)
199,911
650,121
(35,000,819)
Net book value at 31 December 2017
1,734,421
28,414,217
9,376,581
9,455,162
48,980,381
Net book value at 31 December 2016
1,327,305
31,789,858
2,828,333
9,450,644
45,396,140
During the year ended 31 December 2017, the Group acquired assets under finance lease totalling US$358,658 (2016: US$1,127,688). The net
book value of assets acquired under finance leases at 31 December 2017 was US$2,370,102 (2016: US$2,694,735). Depreciation charged on
leased assets for the period was US$683,291 (2016:US$650,667).
2016
Cost
Balance at 31 December 2015
Additions
Transfers
Transferred from deferred exploration costs
Write-Offs
Foreign exchange movements
At 31 December 2016
Depreciation
Balance at 31 December 2015
Charge for period
Foreign exchange movements
At 31 December 2016
Net book value at 31 December 2016
Land and
buildings
– at cost
US$
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
Plant and
equipment
– at cost
US$
Total
US$
2,484,679
–
–
–
–
492,361
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
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)
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
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
91
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
Plant and
equipment
– at cost
US$
Total
US$
7,394,304
660,181
8,054,485
43,610
–
43,610
2,919,482
–
2,919,482
10,357,396
660,181
11,017,577
(1,538,232)
(162,179)
(1,700,411)
–
–
–
(2,048,912)
(364,860)
(2,413,772)
(3,587,144)
(527,039)
(4,114,183)
9 TANGIBLE ASSETS (CONTINUED)
Property, Plant and Equipment – Company
2017
Cost
Balance at 31 December 2016
Additions
At 31 December 2017
Depreciation
Balance at 31 December 2016
Charge for period
At 31 December 2017
Net book value at 31 December 2017
6,354,074
43,610
505,710
6,903,394
Net book value at 31 December 2016
5,856,072
43,610
870,570
6,770,252
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
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
Plant and
equipment
– at cost
US$
Total
US$
6,225,022
697,210
472,072
43,610
–
–
2,919,482
–
–
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)
–
–
–
(1,682,172)
(366,740)
(3,013,803)
(573,341)
(2,048,912)
(3,587,144)
5,856,072
43,610
870,570
6,770,252
Net book value at 31 December 2015
4,893,391
43,610
1,237,310
6,174,311
The net book value of assets acquired under finance leases as at 31 December 2017 was US$504,170 (2016: US$868,456). Depreciation charged
on leased assets for the period was US$364,286 (2016: US$366,565).
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
92
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
10 INVESTMENTS HELD AS FIXED ASSETS
The Group consists of the following subsidiary undertakings:
Name
Incorporated
Registered Office Address
Activity
% holding
Serabi Mineraçăo SA
Brazil
Kenai Resources Ltd
British Columbia, Canada
Gold Origin Limited
British Virgin Islands
Gold Aura do Brasil Mineraçăo Ltda
Brazil
Gold Origin Mexico SA de CV
Mexico
Serabi Mining Ltd
British Virgin Islands
Chapleau Resources Ltd
British Colombia, Canada
Chapleau Resources (USA) Inc
Alaska, USA
Chapleau Exploraçăo Mineral Ltda
Brazil
(1) indirectly held.
Cost at start of period and end of period
Acquisition of subsidiary
Impairment provision at start of period
Reallocation in period
Impairment provision at end of period
Net book value at end of period
Dormant
Investment
Gold mining and exploration
Rodovia Transgarimpeira, km 22, Gold mining and exploration
Bairro Jardim do Ouro –
Itaituba/PA CEP 68181-000
Brazil
Royal Centre, P.O Box 11125,
Suite 1750-1055
W Georgia Street,
Vancouver, Canada
Craigmuir Chambers,
Road Town, Tortola,
British Virgin Islands
Rodovia Transgarimpeira, km 54
Comunidade São Chico –
Itaituba/PA CEP 68181-000
Brazil
Paseo de la Reforma, 450
Col. Lomas de Chapultepec
C.P. 11000 Mexico
Craigmuir Chambers,
Road Town, Tortola,
British Virgin Islands
Royal Centre, P.O Box 11125,
Suite 1750-1055
W Georgia Street,
Vancouver, Canada
1029 West 3rd Avenue
Suite 400
Anchorage,
Alaska USA
Avenida Jornalista Ricardo
Marinho no 360, loja 113
Barra da Tijuca
Rio de Janeiro
RJ Brazil CEP 22.361-350
Gold mining and exploration
Gold exploration
Investment
Investment
Dormant
100%(1)
100%
96.1%(1)
99.9%(1)
100%(1)
100%
100%
100%(1)
100%(1)
Company
31 December
2017
US$
31 December
2016
US$
66,600,872
19,997,961
–
–
86,598,833
86,598,833
69,770,204
–
–
(3,169,332)
66,600,872
66,600,872
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 2017 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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
11 INVENTORIES
Consumables
Stockpile of mined ore
Stockpile of flotation tails
Other material in process
Finished goods awaiting sale
93
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
2,587,212
1,091,656
494,117
1,019,593
1,741,860
6,934,438
2,380,873
2,829,601
708,775
335,280
1,855,844
8,110,373
–
–
–
–
–
–
–
–
–
–
–
–
The Group has recorded an impairment provision during 2017 of US$950,000 in respect of stockpiled run of mine ore.
12 TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Other receivables
Trade and other receivables
Non-current
Taxes receivable
Amounts owed by subsidiaries
Impairment provision
Other receivables
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
1,230,614
46,528
1,277,142
1,474,062
–
–
1,474,062
1,054,014
179,035
1,233,049
–
–
–
–
1,230,614
10,738
1,241,352
–
16,188,272
(8,581,378)
7,606,894
1,054,014
21,518
1,075,532
–
16,188,272
(8,581,378)
7,606,894
The Group, in common with all businesses in Brazil, subject to a number of State and Federal taxes on goods that it purchases. As an exporter
of goods, it is exempt from any sales taxes on its products. As a result, it is due tax rebates by both Federal and State tax bodies. In general, the
Company is able to utilise its tax debts by way of offset against other taxes that it owes. The Group has however determined based on the actions
of the State tax authorities and the expected future operational expenditures over the next 12 months, that certain State taxes that it is able to
recover and is owed at 31 December 2017, are not expected to be recovered through such an offset arrangement during the next 12 months and
has therefore categorised the balance owed in respect of these State taxes as being due in more than 12 months. The Group has received legal
advice confirming that these taxes owed to the Group by the State of Para are fully recoverable.
The Company has undertaken an impairment review at the end of 2017 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 down payments
Other prepayments and employee advances
Prepayments
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
2,414,336
480,910
342,166
3,237,412
3,018,773
464,450
213,327
3,696,550
–
–
107,756
107,756
–
–
104,666
104,666
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
94
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
14 CASH AND CASH EQUIVALENTS
Cash and cash equivalents
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
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
4,093,866
4,160,923
2,936,579
3,612,495
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
2,800,293
971,119
786,405
790,147
–
5,347,964
2,617,495
135,914
2,753,409
2,058,388
896,621
673,815
1,093,315
–
4,722,139
2,126,873
84,205
2,211,078
628,202
–
75,153
–
11,342,983
12,046,338
396,159
–
45,803
–
5,780,383
6,222,345
–
–
–
–
–
–
(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 São Chico mining concession for a consideration of
BrR$7.7 million upon GOAB successfully securing the resources and finance for the São Chico project. GOAB will pay to Mr Martins, the sum of BrR$4 million during 2019, waive
a debt due to GOAB by Mr Martins of BrR$700,000 and pay the remainder in 36 monthly instalments of BrR$111,111 with the first instalment due within 10 months from the date
of the execution of the transfer of the NPI.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
95
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
28,946
–
384
29,330
24,160
–
4,786
28,946
–
–
–
–
–
–
–
–
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
1,823,017
(101,324)
335,204
(39,096)
194,784
2,017,801
2,047,131
1,898,714
170,157
–
(245,854)
(75,697)
1,823,017
1,851,963
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16 NON-CURRENT PROVISIONS
Employment and Claims Provision
Opening balance
As a result of changes in estimates
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 unwinding of the discount
as a result of exchange variations
Closing balance
Total non-current provisions
Employment and Claims Provision
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 São 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 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
96
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
17 INTEREST-BEARING LIABILITIES
Secured Loan Facility
On 30 June 2017 the Group entered into a new agreement with the Sprott Resource Lending Partnership (“Sprott”) for a US$5 million loan expiring
31 December 2019 (to include US$1.37 million being the remaining loan principal under the previous arrangement). The Sprott loan carries
interest at a rate of 10 per cent per annum and is repayable in 24 monthly instalments commencing 31 January 2018. The Sprott loan was taken
out to provide additional funding for the continued development of the Palito Mine and the São Chico gold project, to finance an additional drilling
programme at São Chico and for general corporate purposes.
Serabi provided to Sprott certain covenants and undertakings, consistent with normal bank lending arrangements, including an undertaking to
maintain at all times and a minimum of US$1 million in unrestricted cash and cash equivalents. The Sprott loan is subject to standard events of
default. Serabi has been and remains in compliance with all the terms of the Facility.
On 23 January 2018, the Group increased its loan with Sprott by US$3 million (“The New Loan”) and at the same time extended the final repayment
period on its existing US$5 million loan (The Existing Loan”) with Sprott by six months from 31 December 2019 to 30 June 2020. For further details
see note 28 Post Balance Sheet Events.
Current
Secured loan facility
Obligations under trade finance facility
Obligations under finance leases
Due in less than one year
Non-current
(Between one and five years)
Secured loan facility
Obligations under finance leases
Due in more than one year
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
1,980,000
–
865,712
2,845,712
2,500,000
249,412
2,749,412
1,371,489
415,607
1,176,961
2,964,057
–
77,798
77,798
1,980,000
–
–
1,980,000
2,500,000
–
2,500,000
1,371,489
415,607
–
1,787,096
–
–
–
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
Additional draw-down of short term loan
Initial fair value of derivative associated with loan
Amounts repaid during the year
Amount due on settlement of call options
Extension fee payable
Amortisation of call options in period
Value of secured loan facility at 31 December 2017
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
1,371,489
3,628,511
(650,000)
–
–
–
130,000
4,480,000
4,000,000
–
–
(3,261,111)
432,600
200,000
–
1,371,489
1,371,489
3,628,511
(650,000)
–
–
–
130,000
4,480,000
4,000,000
–
–
(3,261,111)
432,600
200,000
–
1,371,489
The amortisation of fair value of derivatives of US$130,000 represents six months amortisation charge of the fair value ascribed to the call option
granted to Sprott on 30 June 2017. On 30 June 2017, the Group entered into a new loan agreement with Sprott for a US$5 million loan facility.
As part of this arrangement the Group granted call options to Sprott over 6,109 ounces of gold exercisable at a price of US$1,320 which expire
on 31 December 2019. On 30 June 2017, the date these call options were granted, their value was assessed as being US$650,000 and a provision
for a derivative financial liability of US$650,000 was recognised in the accounts.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
97
18 PROVISION FOR DERIVATIVES
Gold Call Options
Fair value at start of period
Increase in fair value during period
Fair value at end of period
Group
Company
31 December
2017
31 December
2016
31 December
2017
31 December
2016
650,000
59,255
709,225
–
–
–
650,000
59,255
709,225
–
–
–
Fair value is determined by reference to quoted mid-market prices at each balance sheet date for gold call options with the same expiry date.
The fair value of the derivative has been measured using level 1 inputs.
19 ANALYSIS OF CHANGES IN NET DEBT
Cash and cash equivalents
Finance lease
Secured loan due within one year
Provision for derivatives
Secured loan due after one year
Total
20 SHARE CAPITAL
At
1 January
2017
4,160,923
(1,254,759)
(1,371,489)
–
–
Cash flows
(61,467)
139,635
(1,128,511)
–
(2,500,000)
Other
changes
(5,590)
–
520,000
709,225
–
1,534,675
(3,550,343)
1,223,635
At
31 December
2017
4,093,866
(1,154,124)
(2,500,000)
709,225
(2,500,000)
(792,033)
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.
2017
2016
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
Total Share Capital
Number
$
Number
$
698,701,772
5,540,960
698,701,772
5,540,960
31 December
2017
Number
31 December
2017
$
31 December 31 December
2016
$
2016
Number
698,701,772
–
698,701,772
5,540,960
656,389,204
–
42,312,568
5,540,960
698,701,772
5,263,182
277,778
5,540,960
31 December
2017
Number
31 December
2017
$
31 December 31 December
2016
$
2016
Number
–
–
–
–
–
–
140,139,065
(140,139,065)
24,021,395
(24,021,395)
–
–
698,701,772
5,540,960
698,701,772
5,540,960
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
98
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
20 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 15 June 2017. 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 2017.
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:
31 December
2017
Number
31 December
2017
WAEP UK£
31 December 31 December
2016
WAEP UK£
2016
Number
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 the end of the period
48,185,000
15,650,000
(15,800,000)
–
48,035,000
32,385,000
0.0645
0.0500
0.0550
–
0.0642
0.0630
46,335,000
15,650,000
(13,800,000)
–
48,185,000
32,751,675
0.0683
0.5000
0.0610
–
0.0645
0.0705
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 the end of the period
–
–
–
–
–
–
–
–
31 December
2017
Number
31 December
2017
WAEP C$
31 December 31 December
2016
WAEP C$
2016
Number
1,572,500
(1,572,500)
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:
31 December
2017
Number
31 December
2017
WAEP UK£
31 December 31 December
2016
WAEP UK£
2016
Number
Outstanding at the beginning of the period
Expired during the period
Outstanding at the end of the period
Exercisable at the end of the period
1,725,000
(25,000)
1,700,000
1,700,000
0.1861
2.6400
0.1500
0.1500
2,278,285
(553,285)
1,725,000
1,725,000
0.6862
2.6400
0.1861
0.1861
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
99
20 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
07/04/17
16/05/16
22/01/15
28/01/11
28/01/11
21/12/09
Vesting
period
(years)
First
vesting
date
Expected
life
(years)
Risk
free
rate
Exercise
price
Volatility
of share
price
Fair
value
Options
vested
Options
granted
2
2
2
2
2
2
07/04/17
16/05/16
22/01/15
28/01/11
28/01/11
21/12/09
3
3
3
3-5
3-5
3-5
0.75% UK£0.050
0.75% UK£0.050
0.75% UK£0.055
UK£0.41
UK£0.37
UK£0.15
1%
1%
1%
66% UK£0.0179
5,216,672 15,650,000
66% UK£0.0197 10,433,336 15,650,000
55% UK£0.0178 15,000,000 15,000,000
1,285,000
50% UK£0.085
450,000
50% UK£0.094
1,700,000
50% UK£0.080
1,285,000
450,000
1,700,000
Expiry
08/04/20
15/05/19
21/01/18
27/01/21
27/01/21
20/12/19
34,085,008 49,735,000
During the year a charge of US$381,362 (2016 : US$350,899) has been recorded in these financial statements in respect of these options
of which US$Nil (2016 : US$Nil) has been capitalised as deferred exploration expenditures.
21 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).
Mining operations at the Palito Mine 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 São 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 São Chico and working capital during the start-up of Palito and São Chico. The Company declared commercial production for the
São 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 São Chico are considered to be a single cash generating unit forming the Palito Mining Complex. Whilst the orebodies 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 São Chico and the exploration, pre-development and development expenditures incurred by Serabi since acquisition.
Exploration and Evaluation Assets
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 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
100
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
21 IMPAIRMENT (CONTINUED)
The Palito Mining Complex
The carrying value of the assets relating to the Palito and São Chico Mines is US$44.36 million.
The Company’s management have provided to the Directors an assessment of the expected future cash flows that the Palito and São 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 2018 and ending in December 2025. The resulting pre-tax Net Present Value of the project was in excess of the carrying value
of US$44.36 million and therefore the Directors have decided that no impairment provision is required against the carrying value of the Palito and
São Chico Mines.
The carrying value for the Group of the Palito and São Chico cash generating unit at 31 December 2017 comprises:
Mining Property
Projects in Construction
Plant and Equipment
Land and Buildings
Ore Stockpiles
Carrying
value at
31 December
2017
US$ million
Carrying
value at
31 December
2016
US$ million
28.41
3.69
8.94
1.73
1.59
44.36
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 273,000 gold ounces compared with the Group’s declared inventory of Measured and Indicated mineral resources of 271,000 gold
ounces and Inferred resources of 177,000 gold ounces as estimated at the end of June 2017. Since mine development operations at Palito were
re-commenced in 2013 and up to 31 December 2017, the Group has declared total production recovered from the Palito Mine operations of
approximately 108,188 ounces and has mined approximately 446,684 tonnes at an average grade of 9.53 g/t. The plan also anticipates remaining
LOM production from the São Chico Mine of 87,000 gold ounces compared with the Group’s declared inventory of Measured and Indicated mineral
resources of 34,000 gold ounces and Inferred resources of 54,000 gold ounces as estimated at the end of June 2017. Since mine development
operations at São Chico were commenced in 2015 and up to 31 December 2017, the Group has declared total production recovered from the
São Chico Mine operations of approximately 27,700 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 2018 to 31 December 2025
US$1,250 for each year of the plan
3.25 for each year of the plan. The prevailing exchange rate
at 31 December 2017 was 3.3047.
10 per cent
Based on current estimates being used by management for budgetary purposes
Maintaining current anticipated levels of production for both operations
165,000 tonnes per annum
41,000 ounces
8 years for Palito and 5 years for São 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 2017 that will be completed in 2018,
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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
21 IMPAIRMENT (CONTINUED)
The Palito Mining Complex (continued)
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 $100
Variation in mineral reserves by 10%
Variation of BrR$:US$ exchange rate by 10%
Variation in discount factor by 5% point
Variation in operating cost estimates by 10%
101
Improvement
US$m
Decline
US$m
18.7
16.3
13.5
18.2
16.9
18.7
19.7
16.5
13.4
13.9
None of the changes in sensitivities shown in the table above would lead to an impairment provision being required.
22 ACQUISITION OF SUBSIDIARY
On 14 November 2017, the Boards of Directors of the Company and Anfield Gold Corp. (“Anfield”) announced that they had entered into
a conditional agreement (“the Agreement”), subject to the approval of shareholders of Anfield, approval of the Company’s secured lender, Sprott,
completion of due diligence by the Company and other conditions precedent, whereby Serabi would acquire all the issued and outstanding
common shares of Chapleau Resources Limited (“Chapleau”) a wholly owned subsidiary of Anfield (the “Transaction”). Chapleau through its
wholly owned subsidiary Chapleau Exploracao Mineral Ltda, holds the Coringa gold project located in the Tapajos gold province in Para, Brazil.
On 22 December 2017, the Company announced that all conditions had been satisfied and the Transaction completed on 21 December 2017
(“Closing”).
Serabi made an initial payment to Anfield on Closing of US$5 million in cash (“Initial Consideration”). A further US$5 million in cash was payable
within three months of Closing and a final payment of US$12 million in cash will be due upon the earlier of either the first gold being produced
or 24 months from the date of Closing (both payments together being the “Deferred Consideration”). The total proposed consideration for the
acquisition amounts to US$22 million in aggregate.
The acquisition of Chapleau (the “Acquisition”) has been accounted for as an Asset Purchase and the assets and liabilities of Chapleau have
been consolidated within the Group financial statements from 21 December 2017, being the effective date of the acquisition.
The Deferred Consideration has been discounted at a 10 per cent cost of capital.
The following table sets out the book values of the identifiable assets and liabilities acquired and their attributable value to the Group arising
in the acquisition:
Deferred exploration costs
Property, plant and equipment
Project in construction
Recoverable Taxes
Cash and cash equivalents
Trade and other receivables
Trade and other payables
Loan repayable(1)
Net (liabilities)/assets acquired
(1) All the loans due by Chapleau are to be repaid to the Group.
(2) The above values are provisional and may be subject to change in the next accounting period.
Chapleau
carrying value Adjustments
US$
US$
Fair value
US$
12,312
518,273
14,765,401
95,312
5,335
45,550
(384,451)
(31,927,876)
14,017,800
–
(9,077,574)
–
–
–
–
31,927,876
14,030,112
518,273
5,687,830
95,312
5,335
45,550
(384,451)
–
(16,870,144)
36,868,102
19,997,961
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102
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
22 ACQUISITION OF SUBSIDIARY (CONTINUED)
The Palito Mining Complex (continued)
Consideration paid and costs incurred
Cash paid on date of acquisition
Fair value of deferred consideration
Total consideration incurred
Cash acquired
Cash paid
Total net cash outflow
Fair value
US$
5,000,000
14,997,961
19,997,961
5,335
(5,000,000)
(4,994,665)
From the date of acquisition to 31 December 2017, the acquired business has contributed US$ nil to group revenue and US$ nil to the loss
before tax.
23 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 30 June 2017, the Group entered into a new loan with Sprott further details of which are set out in note 17 (Interest-bearing liabilities).
As at 31 December 2017, the amount of US$4.48 million (2016: US$1.37 million) was outstanding in respect of the Sprott loan.
On 23 March 2018 the Company entered into a Subscription Agreement with Greenstone resources II LP (“Greenstone”), Greenstone has
conditionally agreed to subscribe (“the Subscription”) for 297,759,419 New Ordinary Shares (“the Subscription Shares”) at a price of 3.6 pence per
share (the “Subscription Price”). The New Ordinary Shares to be issued pursuant to the Subscription will rank pari passu with the existing Ordinary
Shares. Application will be made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM (“Admission”) and
listed for trading on the TSX. Completion of the Subscription and Admission is expected to take place at 8:00 a.m. on or around 12 April 2018.
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.
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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
103
24 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$121,354 (2016: US$50,355).
Operating Lease Commitments
The Group has commitments under non-cancellable operating leases as follows:
Commitments falling due:
Within one year
Between one year and five years
Total
Group
Company
31 December
2017
US$
31 December
2016
US$
31 December
2017
US$
31 December
2016
US$
167,428
304,944
472,372
162,903
161,411
324,314
96,742
301,623
398,365
93,029
11,215
104,244
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$94,000, which at the year-end is equivalent to US$28,000.
25 RELATED PARTY TRANSACTIONS
During the period the Company has made no loans to subsidiaries (2016: US$Nil). There were no loans converted into new shares issued
by subsidiaries during 2017 (2016: US$Nil).
The Company has loans receivable from subsidiaries totalling US$16,188,272 (2016: US$16,188,272) before any provision for the impairment
of these loans (see note 12).
The Company has purchased, during the year from its subsidiary SMSA, 1,440 tonnes of copper/gold concentrate for a consideration of
US$12,082,870 (2016: 2,080 tonnes; US$20,552,303).
Key Management Remuneration
Key management comprises the Executive, Non-executive Directors and country manager only. Their compensation is:
Short term employee benefits
Post-employment benefits
Share-based payments
Total
For the
year ended
31 December
2017
US$
For the
year ended
31 December
2016
US$
1,195,684
10,302
332,968
1,538,953
1,189,595
11,298
313,384
1,514,277
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
104
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
26 FINANCIAL INSTRUMENTS
The Group’s and the Company’s financial assets at 31 December 2017 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 2017, the Group carried inventory of finished goods and work-in-progress
valued at US$4.67 million (31 December 2016: US$5.73 million) including US$0.66 million of copper/gold concentrate representing 142 tonnes
of material awaiting sale (31 December 2016: US$1.24 million; 162 tonnes) and US$4.6 million of other material in process (31 December 2016:
US$4.50 million). All inventory as at 31 December 2017, 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 2017 and 2016 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 a US$5 million loan with Sprott further details of which are set out in note 17 (Interest-bearing liabilities).
As at 31 December 2017, the amount of US$4.48 million (2016: US$1.37 million) was outstanding in respect of the Sprott loan.
Group
2017
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Interest-bearing liabilities
Total
2016
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Interest-bearing liabilities
Total
Weighted
average effective Non-interest
bearing
US$
interest rate
%
Fixed interest maturity
Floating
US$
One year
or less
US$
Over one to
five years
US$
Total
US$
0.1%
–
–
1,277,142
1,277,142
4,093,866
–
4,093,866
–
–
–
–
–
–
4,093,866
1,277,142
5,371,008
–
9.37%
24,422,787
–
24,422,787
–
–
–
–
2,845,712
2,845,712
–
2,749,414
2,749,414
24,422,787
5,595,126
30,017,911
Weighted
average effective Non-interest
bearing
US$
interest rate
%
Fixed interest maturity
Floating
US$
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
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
105
26 FINANCIAL INSTRUMENTS (CONTINUED)
Interest Rate Risk (continued)
Company
2017
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Interest-bearing liabilities
Total
2016
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Interest-bearing liabilities
Total
Weighted
average effective Non-interest
bearing
US$
interest rate
%
Fixed interest maturity
Floating
US$
One year
or less
US$
Over one to
five years
US$
Total
US$
0.1%
–
–
8,848,246
8,848,246
2,936,579
–
2,936,579
–
–
–
–
–
–
2,936,579
8,848,246
11,784,825
–
10%
28,463,503
–
28,463,503
–
–
–
–
1,980,000
1,980,000
–
2,500,000
2,500,000
28,463,503
4,480,000
32,943,503
Weighted
average effective Non-interest
bearing
US$
interest rate
%
Fixed interest maturity
Floating
US$
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%
6,857,791
–
6,857,791
–
–
–
–
1,787,096
1,787,096
–
–
–
–
–
–
Total
US$
3,612,495
5,617,760
9,230,255
6,857,791
1,787,096
8,644,887
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 a US$5 million loan with Sprott, further details of which are set out in note 17 (Interest-bearing liabilities).
As at 31 December 2017, the amount of US$4.48 million (2016: US$1.37 million) was outstanding in respect of the Sprott loan.
As at 31 December 2017, in addition to the Sprott loan, the Company had obligations under fixed rate finance lease amounting to US$1.12 million
(2016: US$1.25 million) (see note 17).
The following table sets out the maturity profile of the financial liabilities as at 31 December 2017:
Due in less than one month
Due between one month and three months
Due between three months and one year
Total due within one year
Due more than one year
Total
2017
Group
US$
Company
US$
1,174,801
7,051,493
6,290,835
14,517,129
15,500,782
2,121,776
8,605,740
9,718,026
20,445,542
12,497,961
30,017,911
32,943,503
2016
Group
US$
1,774,068
2,462,350
4,085,224
8,321,642
2,288,876
Company
US$
1,296,733
2,161,222
5,186,932
8,644,887
–
10,610,518
8,644,887
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
106
FINANCIAL STATEMENTS
Notes to the Financial Statements continued
26 FINANCIAL INSTRUMENTS (CONTINUED)
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
2017
US$
31 December
2016
US$
2,635,299
44,578
126,198
28,101
105,977
1,153,713
4,093,866
3,425,809
(5,183)
136,159
6,350
53,261
544,087
4,160,923
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.
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:
Functional Currency
Currency of net monetary asset/(liability)
US Dollar
Canadian Dollar
Sterling
Australian Dollar
Euro
Brazilian Real
Total
Brazilian Real
Canadian $ United States $
31 December 31 December 31 December
2017
US$
2017
US$
2017
US$
–
–
–
–
(1,426,375)
2,317,533
891,158
689
12,966
–
–
–
–
13,655
(16,248,498)
42,125
(1,287,012)
28,108
106,164
–
(17,359,114)
Total
31 December
2017
US$
(16,247,809)
55,091
(1,287,012)
28,108
(1,320,211)
2,317,533
(16,454,301)
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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS
26 FINANCIAL INSTRUMENTS (CONTINUED)
Currency Risk (continued)
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
107
Against Sterling
US$
63,958
(74,127)
Against Euro
US$
(125,476)
125,476
The Group’s main subsidiaries operate 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.
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$10,082,482
(2016: US$9,090,502). It is the Group’s policy to only deposit surplus cash with financial institutions that hold acceptable credit ratings.
The Group currently sells nearly all of its gold bullion to a single customer. The Group seeks to receive full settlement by bank transfer on delivery
of its product to the purchaser to minimise its exposure to any credit risk on that customer.
The Group currently sells all of its copper/gold concentrate production to a single customer, a publicly quoted trading group located in Japan.
Settlement terms are in accordance with industry norms. The customer has a strong reputation within the industry and has a good credit risk
history. As at the balance sheet date there were no amounts owed to the Group that were overdue, (2016 amount overdue: US$Nil).
The Company’s exposure to credit risk amounted to US$11,892,581 (2016: US$12,399,587). Of this amount US$7,606,894 (2016: US$4,437,562)
is due from subsidiary companies, US$2,936,579 represents cash holdings (2016: US$3,612,495) and a significant portion of the remainder
represented by trade debtors for the sale of copper/gold concentrate.
27 ULTIMATE CONTROLLING PARTY
Fratelli Investments Ltd owns 386,375,734 ordinary shares representing 55.13 per cent of the voting shares in issue and is considered to be the
controlling party. Following completion of the placement of 297,759,419 new ordinary shares (see note 28 Post balance sheet events) announced
on 23 March 2018, the interest of Fratelli will reduce to 38.7 per cent of the voting shares in issue.
28 POST BALANCE SHEET EVENTS
On 22 January 2018, the Group increased its loan with Sprott by US$3 million (“The New Loan”) and at the same time extended the final repayment
period on its existing US$5 million loan (The Existing Loan”) with Sprott by six months from 31 December 2019 to 30 June 2020. The New Loan
may be repaid, at the Company’s request and with the agreement of Sprott (the “Extension Option”) in equal monthly instalments commencing
30 September 2018 with a final payment due 22 months later on 30 June 2020. If the Extension Option is not exercised the New Loan must be
repaid in full on 30 September 2018. Notwithstanding the above, both the New Loan and the Existing Loan may be repaid by Serabi in full without
penalty at any time.
On 23 March 2018 the Company entered into a Subscription Agreement with Greenstone resources II LP (“Greenstone”), Greenstone has
conditionally agreed to subscribe (“the Subscription”) for 297,759,419 New Ordinary Shares (“the Subscription Shares”) at a price of 3.6 pence per
share (the “Subscription Price”). The New Ordinary Shares to be issued pursuant to the Subscription will rank pari passu with the existing Ordinary
Shares. Application will be made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM (“Admission”) and
listed for trading on the TSX. Completion of the Subscription and Admission is expected to take place at 8:00 a.m. on or around 12 April 2018.
With these exceptions 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 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
108
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”
“Cu”
“cut-off grade”
“deposit”
“DNPM”
“electromagnetics”
“garimpeiro”
“geochemical”
“geophysical”
“geophysical techniques”
“gold equivalent”
“gossan”
“grade”
“g/t”
“hectare” or a “ha”
“indicated mineral resource”
“inferred mineral resource”
“IP”
is a sulphide of copper and iron.
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.
means the Departamento Nacional de Producao Mineral.
is a geophysical technique tool measuring the magnetic field generated by subjecting the sub-surface
to electrical currents.
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.
refers to quantities of materials other than gold stated in units of gold by reference to relative product values
at prevailing market prices.
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.
is a unit of measurement equal to 10,000 square metres.
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.
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.
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS 109
“measured mineral resource”
“mineralisation”
“mineralised”
“mineral reserve”
“mineral resource”
“mt”
“NI 43-101”
“ore”
“oxides”
“ppm”
“saprolite”
“sulphide”
“tailings”
“tpd”
“vein”
“VTEM”
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.
the concentration of metals and their chemical compounds within a body of rock.
refers to rock which contains minerals e.g. iron, copper, gold.
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.
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Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTSStrategic ReportManagement Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial Statements
110
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
BOARD OF DIRECTORS
Mel Williams – Non-executive Chairman
Mike Hodgson – Chief Executive
Clive Line – Finance Director
Aquiles Alegria – Non-executive Director
Nicolas Banados – Non-executive Director
Sean Harvey – Non-executive Director
Eduardo Rosselot – Non-executive Director
Mark Sawyer – Non-executive Director
Felipe Swett – 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
Serabi Gold plc // Report and Accounts 2017FINANCIAL STATEMENTS Serabi Gold plc // Report and Accounts 2017
Design and Production
www.carrkamasa.co.uk
This document is printed on Chorus Silk, a paper containing
100% virgin fibre sourced from well managed, responsible,
FSC® certified forests.
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