Annual Report 2018
Serabi Gold plc // Report and Accounts 2018
Welcome to Serabi Gold plc
Operational Highlights
Engaged in the
evaluation and
development
of gold projects.
Our Mission
Our objective is to become a pre-eminent junior gold
mining company in Brazil, securing future growth
through expansion of our existing operations and
projects and, taking advantage of our position as
an existing gold producer, to become involved with
and successfully develop other carefully selected
opportunities within the country.
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See page 04 to read more
Our Focus
We strive to operate efficiently and effectively with
specific focus on quality and efficiency, both in our
mining practices and maximising the utilisation of our
processing facility.
Whilst we seek to maximise the long term value for
our shareholders we also aim to bring benefits to all
stakeholders and to work closely with neighbouring
communities to ensure we can bring benefits to them
from our activities.
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See page 04 to read more
2018 has been a very satisfying year.
We finished with a superb fourth quarter
and this momentum has been maintained
into the first months of 2019. Exploration
results particularly around São Chico
have been better than expected and I am
excited by the significant growth potential
that we have identified in our tenements.
Progress at our Coringa project continues
and having announced an increase in
the mineral resources of 37 per cent,
work is now progressing on a Preliminary
Economic Assessment for the end of the
second quarter.
Mike Hodgson
Chief Executive
2018 HIGHLIGHTS
• Total gold production for 2018 of 37,108 ounces.
• Mine production in 2018 totalling 167,722 tonnes
at 7.29 g/t of gold.
• 168,253 tonnes processed through the plant for the combined
mining operations, with an average grade of 7.06 g/t of gold.
• 10,371 metres of horizontal mine development completed
in the year.
• Drilling at Palito confirms northerly and southerly extensions
of the key Pipocas and G3 veins and southerly extensions
in the Chico da Santa area.
• Successful factory testing of ore sorter completed in December
2018 and the unit is now in transit to site.
• Completion of share placings in second quarter 2018 raising
more than US$23.5 million for exploration and activity and
ongoing development of Coringa project.
• Regional airborne electromagnetic and magnetic survey
identified east-west magnetic high running across the tenement,
a 10 kilometre strike of electromagnetic anomalies to the east
of São Chico and the magnetic and electromagnetic high of the
Cinderella shear zone to the south east of São Chico.
• Terrestrial Inducted Polarisation surveys around São Chico
identified significant anomalies to the west of São Chico and
also the coincident chargeability high of the Cinderella zone.
• Drilling at Coringa has extended the known mineralisation for
a further 500 metres to the west and total mineral resources
increased by 37 per cent.
Read more on how we have performed on pages 20 to 45
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Where We Operate
Contents
Serabi Gold plc // Report and Accounts 2018
01
PARA
Manaus
Santarem
Belém
Itaituba
Palito Complex
Coringa
Welcome to Serabi Gold plc
IFC
Strategic Report
Chairman’s Statement
Business Model
Our Business at a Glance
Our Near-term Objective
Our Operations
The Palito Complex
The Coringa Gold Project
Exploration Strategy
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
Modern Slavery and Human
Trafficking Statement
Social and Environmental Activities
02
04
06
08
10
12
14
16
20
24
26
34
38
46
48
Corporate Governance
Board of Directors and Senior Management 52
54
Report on Corporate Governance
63
Directors’ Remuneration Report
68
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
71
78
79
80
81
83
84
116
118
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See our website for more information on
our Company: www.serabigold.com
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Chairman’s Statement
Strategic Report
“The past 12 months have seen the
start of what, I hope, will be a sustained
period of growth for the Company. The
acquisition of the Coringa project at the
end of 2017 provided the initial impetus
and, following the successful equity
financings completed in the second
quarter of 2018, the Company has been
able to undertake an aggressive and highly
encouraging exploration programme over
the past nine months. The highlights of this
exploration work, to date, have been the
identification of significant new growth
potential in and around the São Chico
deposit and a significant enhancement
of the geological resource at Coringa
with an overall increase of 37 per cent
in the total Measured, Indicated and
Inferred Resources. These are certainly
encouraging signs that the Company’s
near term objectives, of being a 100,000
ounce per annum producer with a global
gold resource of more than two million
ounces, are well within reach.”
The current mining and processing operations
of the Palito Complex continued to perform
well during the year and overall production of
37,108 ounces represented an improvement
on 2017 levels. For 2019, the Company’s
production guidance is between 40,000
and 44,000 ounces with the improvements
expected to be generated from improved
control of mining dilution, resulting in improved
head-grades, and the increased processing
rates of stockpiled material, particularly
the historic flotation tailings. In the second
half of the year, the Company also plans to
be commissioning an ore-sorter which is
expected to liberate processing capacity
within the current plant and have a significant
production impact for 2020.
The real step change in production will begin
during 2020 with the development of the
Coringa gold project located approximately
200 kilometres to the south of the Palito
Complex. During the year the Company has
made steady progress with the permitting
and licensing of this project with trial mining
licences being issued in May 2018 and
at the end of the year the approval of the
state environmental authority (“SEMAS”)
of the Environmental Impact Assessment
(“EIA”) that had been submitted to them at
the end of 2017. This approval has allowed
the process of arranging the required
public hearings to begin, and if there is a
positive outcome from this, this will clear
the way for the award by SEMAS of the
first and generally the most contentious
licensing stage, the Preliminary Licence
(“Licençia Prévia” or “LP”). This will allow the
Company to engage consultants to prepare
and present the technical submissions to
support the application for the Installation
Licence which is required before
construction can commence.
In the meantime, the Company has been
undertaking further exploration around
the Coringa project and a diamond drilling
campaign completed in February 2019 which
has contributed to a 37 per cent increase in
the global gold resource of the project. This
is extremely encouraging and may, potentially,
extend the life of mine significantly beyond
the initial five years projected by the feasibility
study published by Anfield Gold, the previous
owners, in September 2017.
The Company has also enjoyed significant
exploration success with the regional and
near mine programmes carried out during
2018. Most significant of these was the
airborne magnetic and electromagnetic
(“VTEM”) survey flown in July 2018. This had
been long awaited and, by complementing
similar surveys undertaken in 2008 and
2011, it now means the entire 43,000
hectare tenement, that comprises the Palito
Complex, has been covered by airborne
VTEM. The survey results have highlighted the
presence of numerous pronounced magnetic
anomalies, most notably a major east-west
lineament crossing the entire tenement. This
feature is extremely interesting and there
are a significant number of electromagnetic
anomalies lying on the flanks of this magnetic
high. The survey also identified an extremely
interesting electromagnetic (“EM”) anomaly
trending north-south and located to the south
east and east of the São Chico tenement.
The Company’s current ground geophysics
and drill programmes have not extended out
this far and this is therefore untested ground.
As a completely new find and considering that
it extends for more than 10 kilometres, this is
a very exciting development.
Serabi Gold plc // Report and Accounts 2018 03
the reduced numbers of specialist mining
funds, dwindling interest from generalist
investment funds and retail investors, this
funding from major mining groups has been
a significant source of finance for juniors whilst
the majors have used the juniors to undertake
a significant element of greenfield exploration
on their behalf. Serabi’s Board is of the view
that this further reduction in the availability
of capital will create opportunities that can
be accretive and that Serabi, with its existing
cash flow and supportive shareholder base,
will be well positioned to take advantage of.
The next 12 months will undoubtedly be a
very interesting chapter in the Company’s
history. By this time next year, I very much
hope that I will be discussing progress on the
construction and development of Coringa
ahead of a first gold pour later in 2020, the
Company will have delineated the nature and
level of production expansion within the Palito
Complex, and Serabi being well on the way to
realising its target of annualised production of
100,000 ounces.
We are fortunate as a Company to have
a strong and supportive group of major
shareholders who share the vision and
strategy of the Board. On behalf of the
Board of Directors I would like to extend
my appreciation to them for the continued
support and confidence. As a Board we
are also indebted to the employees and
management of Serabi for a job well done
during the past year. Their hard work and
determination to succeed mean your
Company is well positioned to reap the
benefits of the higher gold price environment
we expect during 2019 and beyond. Finally,
thank you to the rest of 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
28 March 2019
However, the area of our near term focus will
be what has been christened the Cinderella
zone, a north east to south west trending
feature extending over seven kilometres and
traversing the south east corner of the São
Chico mining tenement. This has developed
into a very compelling exploration target, and
our exploration team has worked quickly to
develop, and have already begun, geochemical
survey programmes that will allow us to
evaluate further the potential of this zone.
It is made more interesting by the current
and historical artisanal mining activity around
the areas that drain from the anomaly. As the
old adage goes, the best place to find gold is
next to an old gold mine.
We were all deeply saddened by the recent
and tragic events at Brumadinho in Minas
Gerais state in Brazil. This has created
significant concern in Brazil over the safety of
tailings dams generally. The Group had already
undertaken studies for using a filtration plant
that would produce dry tailings which could
be stacked, and negating the need for a
tailings dam. The Group is currently amending
the Environmental Impact Study for Coringa
to incorporate a filtration plant, removing
the need for a wet tailings facility which the
Group sees as a major factor in minimising
permitting delays and concerns. I would also
like to give reassurance to our stakeholders
regarding the tailings management facility
at Palito. Serabi’s operations are all about
quality not quantity, therefore we mine and
process almost insignificant volumes of
rock relative to industrial mineral, iron ore
and bauxite operations such as Brumadinho.
New legislation had already been introduced
following the dam failure at Mariana, also
in Minas Gerais, in 2015 and the Company
undertook significant civil works during 2018
to add further strengthening to our tailings
ponds and the annual audit of our tailings
facilities, undertaken late last year by an
accredited Brazilian geotechnical engineering
expert, confirmed our tailings management
facility to be in good order, and it remains fully
licensed and certified.
Whilst the outlook for the Company is
extremely exciting it must not be forgotten
that its fortunes are very closely linked to the
gold price and also, in our case, the Brazilian
Real/ US Dollar exchange rate. Jair Bolsonaro,
the new president of Brazil, only took power
on 1 January 2019, and it will take some time
to see the reaction, both domestically and
internationally, to some of the policy changes
and initiatives that he is seeking to introduce.
After many years of control by the Workers
Party, the switch to a pro-business, right-
leaning president wanting to re-invigorate the
economy, reduce government bureaucracy
and maximise the economic benefits of the
country’s vast natural resources, including the
expansion of its hydro-electric capability, are
all encouraging signs that should promote
new investment and reduce perceived risk.
However, the task that lays ahead of him is
not easy and it can be expected that it will
take time for his reforms to be agreed by
the government and implemented. In the
long term it might be expected that renewed
economic success for Brazil will lead to a
strengthening of the currency but we feel that
it will be some time before this materialises.
Gold prices have averaged approximately
US$1,250 and US$1,260 in 2017 and 2018
respectively although across these two years
there has been some significant volatility,
with 2018 seeing a high point of more
than US$1,350 and a low below US$1,200.
Increasing tensions in US politics, questions
over the strength of the global economy and
the expectation that the US Federal Reserve
will hold off on the previously expected
interest rates rises for 2019, have in recent
months contributed to attracting investors
back to gold as they show signs of anxiety
about the state of the world. Stock markets
remain somewhat fragile and in January 2018,
Goldman Sachs raised its gold forecast and
now expects a gold price of $1,425 over the
next year. Against this backdrop, it seems a
very opportune time to be looking to develop
and bring on stream production growth.
Nevertheless, the Serabi Board will continue
to be prudent in its growth strategy 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 offer a significant value
upside 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.
We remain open to looking at further
acquisitions that we consider can bring
synergies and reduce the Company’s
overall unit costs and whilst Brazil remains
our immediate focus, we are aware of
opportunities outside of Brazil that could
represent an excellent fit for Serabi, through
increased levels of gold production and having
the potential for further long term growth.
Recent combinations of some of the larger
gold mining groups, may lead to a reduction in
the levels of funding available to junior miners
from senior miners compared with recent
years. With reduced levels of activity from US,
Canadian and European brokerage houses,
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 04
Business Model
How We Create Value
We strive to be as efficient in our mining and
processing operations as possible, utilising existing
infrastructure wherever practical to minimise the
environmental footprint whilst seeking to maximise
value for our shareholders.
OUR STRATEGY
Evaluate
Identify high quality opportunities through
exploration or acquisition of existing gold
exploration and development projects.
Develop
Plan, finance and build new mines in
a timely and cost-effective manner.
Operate
Seek continuous operational improvement
to maximise value and streamline the
production process across our sites.
Return
Generate value for all stakeholders
(investors, government and communities)
to encourage the continuation of the cycle.
OUR FOCUS
Our focus is to pursue gold mining opportunities in Brazil and beyond
appropriate to the Group’s size and capabilities, working closely
with governing bodies and communities to produce successful
and responsible returns.
Shareh old e r s
Explore
R G A N IC GROWTH
O
Pursue gold mining
opportunities
appropriate to the
Group’s size and
capabilities
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OUR STRENGTHS
At Serabi we have a particular set of
strengths that help drive the success
of our operations.
Strong Gold Production
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.
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See our Operational Review
on pages 26 to 33
Serabi Gold plc // Report and Accounts 2018
05
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.
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Read more on our Risks and
Uncertainties on page 24
Working with Government 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.
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Read more on our work with
agencies on page 48
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.
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Read more on our Corporate Social
Responsibility on page 48
HOW WE PERFORMED
Our target is to achieve an annualised rate of production of 100,000 ounces
during 2021. To ensure this, we monitor different elements of our process in
common with similar companies operating in our industry. These KPI targets
primarily focus on production and efficiency.
10,371metres
Mine development completed
162,722 tonnes
Mined ore
2018
2017
2016
10,371
9,864
11,209
2018
2017
2016
162,722
168,876
158,864
37,108 ounces
Annual gold production
168,876tonnes
Plant throughput
2018
2017
2016
37,108
37,004
39,390
2018
2017
2016
168,876
172,565
158,966
$9.8mCash holding (US$)
2018
2017
2016
$4.16m
$2.19m
7.05g/t
Average gold grade processed
$9.8m
2018
2017
2016
7.05
7.11
8.11
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See our Performance Review on page 20 to read about our KPIs
CREATING VALUE FOR OUR STAKEHOLDERS
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
Provide improvements to infrastructure,
education and healthcare to improve the
living standards and opportunities for local
populations.
Employees
Generate a stable and secure work
environment in which employees learn,
are mentored and can progress and
develop their careers.
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See our Operational Review
on pages 26 to 33
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 06
Our Business at a Glance
How We Plan to Develop
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 Group's plans
for expanding the business.
OUR STRATEGY
Focus
Pursue gold mining
opportunities appropriate
to the Group’s size and
capabilities.
Evaluate
Identify high quality
opportunities through
exploration or acquisition
of existing gold exploration
and development projects.
Develop
Plan, finance and build new
mines in a timely and cost
effective manner.
Operate
Seek continuous operational
improvement to maximise
value and streamline the
production process across
our sites.
Return
Generate value for all
stakeholders (investors,
government and
communities) to encourage
the continuation of the cycle.
WHAT WE HAVE ACHIEVED
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See our Management Discussion and Analysis on pages 26 to 33 to read more
HOW DO WE PRIORITISE
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WHAT ARE OUR PLANS
=
See our Key Performance Indicators on pages 20 to 21 to read more
See our Management Discussion and Analysis on pages 26 to 33
Management have assessed and pursued several opportunities and acquired the Coringa gold
project in December 2017, an advanced stage project capable of adding further production of
40,000 ounces per annum in the near term.
Other opportunities continue to be reviewed which could provide further accretive growth
for the Group.
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 mining operations.
Substantial exploration programmes were undertaken during 2018 which have:
The Board reviews all projects that management brings to its attention and only
A significant focus of management during 2019 will be:
•
•
•
•
Identified further resource expansion potential at Palito.
Identified extensions of the São Chico Main Vein.
Identified parallel veins at São Chico.
Identified significant new areas of exploration interest within the Group’s tenement holdings.
• Expanded the total mineral resource at Coringa by 37 per cent.
Several acquisition opportunities are continuing to be assessed, evaluated and compared
with potential returns that could be generated from organic growth opportunities.
Serabi plans to issue the results of a new Preliminary Economic Analysis for its Coringa project before
the end of June 2019. This will form the basis for negotiating a financing package for the construction.
The Group has successfully brought into production the Palito and São Chico deposits and established
a technical team that has the capability in conjunction with selected third party consultants to
undertake much of the planning and construction activities for mines of similar size and nature.
During 2018, the Group continued to seek ways to improve efficiency;
• Switching the São Chico orebody to a mechanised mining method better suited to the orebody
and improving mining productivity.
• Completed test work on the benefits of ore-sorting and acquired an X-ray and colour sorter to add
into the process flow sheet to liberate plant capacity and increase feed-grade of ore to the mills.
• Completed the construction of a scrubber unit to process historic flotation tailings to enhance
gold production.
• Upgraded tailings management facilities to comply with enhanced levels of regulation in Brazil.
•
Introduced smaller profile mining equipment to reduce the size of some mine development to
reduce costs and minimise dilution without compromising rates of advance.
The Group has established a strong track record of production which is expected to grow in 2019
and, with the acquisition of Coringa and success from exploration, has now established, what
management believe to be, a tangible pathway to growing production to 100,000 ounces in the
relatively near term.
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.
• Successful licensing, permitting and financing for the Coringa project.
• Start up of construction and development for Coringa.
• Continued evaluation, through exploration, of the organic growth
opportunities around Palito and São Chico.
• Follow up ground exploration, on key areas of interest,
in the wider Jardim do Ouro tenement holding.
Development of new opportunities or expansion of existing operations
Dependent on exploration success, the Group would be looking to develop new
are measured against development plans and costs. Performance is
satellite orebodies in close proximity to either or both of the São Chico or Palito
judged by considering adherence to time schedules, cost estimates
deposits at the earliest possible opportunity to facilitate production growth.
and performance against plan.
It has, with the introduction of the ore sorter and smaller profile development
machinery, already implemented solutions that permit the processing of
increased ore volumes and higher grade ore at low additional cost and with
negligible impact on existing operations.
The Group 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
Management continues to review all aspects of operational performance to
achieved by comparison with forecasts, using a blend of measurements with
achieve improvements in total gold production but simultaneously seeking
a key objective of efficiency in the use of the Group’s human, equipment and
to improve safety, reduce costs, improve equipment utilisation rates, reduce
financial resources.
machinery down-time and achieve better production rates per shift.
The Board seeks to add value for all of the Group’s stakeholders and recognises
The Group has and will use existing cash flow to finance its exploration and
that stakeholders may seek returns in varying ways. Returns are evaluated by the
development programmes and supplement its working capital with appropriate
ability of the Group to generate cash and sustainable cash flow, to reduce the
levels of debt and other financing instruments that are non-dilutive for
investment risk for stakeholders and increase, on a sustainable basis, the value
shareholders.
of the Group.
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.
Serabi Gold plc // Report and Accounts 2018 07
OUR STRATEGY
WHAT WE HAVE ACHIEVED
=
HOW DO WE PRIORITISE
=
See our Key Performance Indicators on pages 20 to 21 to read more
WHAT ARE OUR PLANS
=
See our Management Discussion and Analysis on pages 26 to 33
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 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 2019 will be:
• Successful licensing, permitting and financing for the Coringa project.
• Start up of construction and development for Coringa.
• Continued evaluation, through exploration, of the organic growth
opportunities around Palito and São Chico.
• Follow up ground exploration, on key areas of interest,
in the wider Jardim do Ouro tenement holding.
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, with the introduction of the ore sorter and smaller profile development
machinery, already implemented solutions that permit the processing of
increased ore volumes and higher grade ore at low additional cost and with
negligible impact on existing operations.
The Group 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, using a blend of measurements with
a key objective of efficiency 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 improve safety, reduce costs, improve equipment utilisation rates, reduce
machinery down-time and achieve 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.
Focus
Pursue gold mining
opportunities appropriate
to the Group’s size and
capabilities.
Evaluate
Identify high quality
opportunities through
exploration or acquisition
of existing gold exploration
and development projects.
Develop
Plan, finance and build new
mines in a timely and cost
effective manner.
Operate
Seek continuous operational
improvement to maximise
value and streamline the
production process across
our sites.
Return
Generate value for all
stakeholders (investors,
government and
communities) to encourage
the continuation of the cycle.
See our Management Discussion and Analysis on pages 26 to 33 to read more
Management have assessed and pursued several opportunities and acquired the Coringa gold
project in December 2017, an advanced stage project capable of adding further production of
40,000 ounces per annum in the near term.
Other opportunities continue to be reviewed which could provide further accretive growth
for the Group.
Substantial exploration programmes were undertaken during 2018 which have:
Identified further resource expansion potential at Palito.
Identified extensions of the São Chico Main Vein.
Identified parallel veins at São Chico.
•
•
•
•
Identified significant new areas of exploration interest within the Group’s tenement holdings.
• Expanded the total mineral resource at Coringa by 37 per cent.
Several acquisition opportunities are continuing to be assessed, evaluated and compared
with potential returns that could be generated from organic growth opportunities.
Serabi plans to issue the results of a new Preliminary Economic Analysis for its Coringa project before
the end of June 2019. This will form the basis for negotiating a financing package for the construction.
The Group has successfully brought into production the Palito and São Chico deposits and established
a technical team that has the capability in conjunction with selected third party consultants to
undertake much of the planning and construction activities for mines of similar size and nature.
During 2018, the Group continued to seek ways to improve efficiency;
• Switching the São Chico orebody to a mechanised mining method better suited to the orebody
and improving mining productivity.
• Completed test work on the benefits of ore-sorting and acquired an X-ray and colour sorter to add
into the process flow sheet to liberate plant capacity and increase feed-grade of ore to the mills.
• Completed the construction of a scrubber unit to process historic flotation tailings to enhance
gold production.
• Upgraded tailings management facilities to comply with enhanced levels of regulation in Brazil.
•
Introduced smaller profile mining equipment to reduce the size of some mine development to
reduce costs and minimise dilution without compromising rates of advance.
The Group has established a strong track record of production which is expected to grow in 2019
and, with the acquisition of Coringa and success from exploration, has now established, what
management believe to be, a tangible pathway to growing production to 100,000 ounces in the
relatively near term.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 08
Our Near-term Objective
The Pathway to 100,000oz
Our short term mission is to reach an annualised production output
of 100,000oz per annum by 2020. The acquisition and permitting
of the Coringa gold project offers the Company the chance to
diversify the asset portfolio, whilst growth around our current
operations creates expansion opportunities.
Our current operations are centred in the Tapajos
region of Brazil. Our main asset, the Palito Complex,
has performed consistently well in recent years,
delivering around 40,000oz per year. With expansion
of the current operations and as Coringa achieves
expected production levels, we are planning to grow
gold production by around 120%.
BRAZIL
Belém
Santarem
Itaituba
PARÁ
THE PALITO COMPLEX
CORINGA
Efficiency
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
provides 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.
=
Read more in our Operational Review
on pages 26 to 33
Serabi Gold plc // Report and Accounts 2018 09
ACHIEVING OUR MISSION
Coringa
The start up of
Coringa in 2020
will increase
production by
an estimated
40,000oz per
annum.
Exploration
Successful
exploration,
will help to
contribute to
our 100,000oz
goal
2020
2018
2018
100,000oz est
2019
44,000oz est
The Palito
Complex
2018
40,000oz
2020 TARGETS
3Operating Sites
2,000,000oz
Global Gold Resource
100,000 ounces
Target output per year
=
Read more about our operations
on pages 10 to 14
KEY OBJECTIVES FOR 2019
• 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 fourth quarter
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
geochemistry 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.
=
Read more about our operations
on pages 10 to 14
Ore sorter
Additional
operational
advancements at
Palito will improve
efficiency, further
increasing gold
production
Scrubber
The introduction
of a scrubber
will enable the
processing of
historic tailings
for residual gold
Key:
Current Operations
Future Operations
Exploration
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 10
Our Operations
The Palito 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.
SHORT TERM PRODUCTION GROWTH
The Group has established a stockpile
of tailings from its flotation recovery
plant with an average grade in excess
of 2.75 g/t. The installation of a scrubber
(above) is allowing the Group to accelerate
the processing of this material which
will generate a production improvement
in 2019.
The Group has undertaken extensive
test-work to evaluate the benefits of
introducing an ore-sorter into the process
flow-sheet. A unit utilising both X-ray and
colour sorting was shipped to Brazil early
in 2019 and is due to be commissioned
during the second half of 2019.
APA Tapajos
N
Moraes de Almeida
Jardim do Ouro
163
MINA DO PALITO
MINA SÃO CHICO
Rod Transgarimpeira
Km
0
2.5
5
7.5
Rio Novo
FN Jamanxim
Rio Jamanxim
Riozinho
163
Mining Lease
Trial Mining Lease
Tenement Area
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
• 28 veins comprising the current resource
of which eight are in the current mine plans.
providing ore feed of 150 to 250 tpd at 8.0
to 9.0 g/t of gold.
• A trial licence for mining 50,000 tonnes
per year is in place, with a second licence
in application to increase this to 100,000
tonnes per year.
• 90,000 ounces of NI 43-101 compliant
mineral 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.
• Fully permitted.
• Currently operating at 250 to 350 tonnes
per day at 7.0 to 8.0 g/t gold.
• Mining is undertaken by on-lode
development followed by selective open
stoping between 30-40 metre vertically
spaced levels.
• The mine is dry with excellent ground
conditions.
• 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.
Serabi Gold plc // Report and Accounts 2018 11
MEDIUM TERM GROWTH
The Group has achieved excellent results
from the exploration programmes completed
during 2018. These indicate that there is
strong growth potential at Palito whilst the
São Chico area demonstrates significant
potential to be a much larger opportunity
than was originally considered when it was
initially acquired in 2013.
The São Chico main orebody is completely
open along strike and until this year the Group
had very little geological information outside
the immediate mine limits. Nonetheless there
are strong indications that substantial strike
extensions of the principal vein and adjacent
veins are waiting to be defined.
In the near term the Cinderella zone located to
the south east of the current deposit is an area
of particular interest. The Group’s IP surveys
initially identified a very prominent anomaly.
It has also been highlighted in the results
obtained from the airborne survey and the
strike was extended in a follow up IP survey.
A coincidental linear anomaly, which now
extends for seven kilometres and where there
has been historical artisanal mining activity
around the areas that drain from the anomaly,
make it an extremely compelling target.
Image of São Chico mine through EM survey
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Strategic ReportFinancial StatementsCorporate GovernanceSerabi Gold plc // Report and Accounts 2018
12
Our Operations continued
The Coringa Gold Project
Located 200 kilometres south of the Palito Complex,
containing a gold resource of 514,000 ounces.
A major stepping stone in our goal of achieving an
annualised production target of 100,000 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
Coringa hosts a total mineral resource
estimate of 514,000 ounces of gold, including
an Indicated Resource of 216,000 ounces of
gold with an average grade of 7.95 g/t and an
Inferred Resource of 298,000 ounces with an
average grade of 6.46g/t. This represents a 37
per cent increase over the resource ascribed
to the project when the Company acquired it
in December 2017. 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.
Serabi is well placed to develop
the Coringa project.
KEY ACHIEVEMENTS IN 2018
• Environmental Agency has approved
the Environmental Impact Assessment
(EIA/RIMA) submitted in November 2017
allowing the Group to plan the necessary
public hearings. This is the next stage in
obtaining the initial Licença Prévia (“LP”)
confirming the selection of the best place
for developing and conducting extractive
activities, based on the detailed EIA/RIMA.
• Following a successful drilling campaign,
increased global mineral resource by 37 per
cent and increased total resources to over
500,000 ounces.
• Secured two trial mining licences
for the project in May 2018.
• Management has many years of experience
• Land clearance for portal preparation
of operating in the region.
was completed.
•
Its location in reasonably close proximity
to the existing Palito Complex provides
opportunities to share resources and
infrastructure.
• Local and regional government are familiar
with the Group and supportive of its
objectives and plans to develop mining
operations in the region.
• Significant progress on the remediation
and refurbishment of the gold process
plant located at site.
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 216,000 ounces of gold
at 7.95 g/t and an Inferred Mineral
Resource of 298,000 ounces of gold
at 6.46 g/t.
Serabi Gold plc // Report and Accounts 2018 13
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KEY OBJECTIVES FOR 2019
• Obtain blasting licence to commence
establishing the mine portal.
• Complete initial underground mine
development to access and expose the
orebody.
• Complete public hearing and consultation
process and secure the LP.
• Advance permitting to the stage of the
Licença de Instalação (“LI”). This permit
allows the construction of the mine,
assuming compliance with any conditions
imposed by the LP.
• Complete new Preliminary Economic
Analysis by the end of June 2019.
• Secure a finance package to allow
construction to commence during the
fourth quarter of 2019.
• Maintain dialogue with 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.
Strategic ReportFinancial StatementsCorporate GovernanceCommunity and Social ResponsibilityManagement Discussion and AnalysisSerabi Gold plc // Report and Accounts 2018
14
Our Operations continued
Exploration Strategy
With little past systematic exploration undertaken in
the region, the Tapajos presents a unique and exciting
opportunity. Reportedly up to 30 million ounces of gold
have been recovered by artisanal operations and with
only 7 million ounces of hard rock resources identified
to date, there is excellent scope for significant new gold
discoveries to be made.
AIRBORNE SURVEYS
Serabi has now flown airborne electro-
magnetic and magnetic surveys (“EM”)
over its entire Jardim do Ouro tenement
holding totalling 43,000 hectares. In July
2018 the Group flew a 4,300 line kilometre
survey to supplement previous similar work
undertaken in 2008 and 2010.
The EM survey identified an extremely
pronounced magnetic high that runs
east west across the tenements. This is a
regional feature and many of the identified
electromagnetic anomalies lie on the flanks
of this magnetic high.
The EM survey also identified the smaller,
but nonetheless very exciting, Cinderella
anomaly, which is located traversing the
São Chico mining licence area in a south
west to north east trend and an extremely
interesting EM anomaly trending north
south and located to the south east and
east of the São Chico tenement.
The Group uses the results of the EM
surveys as a pathfinder for identifying
areas of interest, allowing it to prioritise
and plan surface exploration activities.
Ground geophysics surveys using Induced
Polarisation ("IP") in the vicinity of the São
Chico orebody were on-going for much of
2018 and, with a total of 127 line kilometres
now completed, a strike length totalling nine
kilometres along the São Chico trend has
now been covered with IP. Some significant
anomalies have been recorded. The
Cinderella Shear, located to the south east
of São Chico, is a very prominent IP anomaly,
coincident with a magnetic high identified
from an airborne survey, and now extends for
seven kilometres. There has been historical
artisanal mining activity around the areas that
drain from the anomaly, making this feature
extremely significant.
Results from geophysical programmes
are reviewed and priorities established
for further exploration and evaluation.
This would normally comprise undertaking
soil geochemistry using augur drilling,
trenching as well as gathering of near
surface samples.
In January 2019, an initial soil geochemistry
survey over part of the Cinderella area was
started and the samples gathered are currently
being analysed.
Surface drilling programmes are then
undertaken to establish mineral resources.
The key outcomes of the 2018 programmes
conducted around the Palito area have been:
(i)
the extension of the Pipocas vein to the
north and south, where step out traverses
have traced the vein further north than the
current mine limit,
(ii) the southerly extensions of the Ipe/Mogno
veins of the Chico da Santa area, and
(iii) the southerly and northerly extensions
of the G3 vein.
At São Chico, surface drilling has focused
on the western extension of the São Chico
mineralisation, and to date drilling has
successfully intersected what appears to be
the São Chico ore zone up to 500 metres west
of the current mine limit. Together with strong
indications of a significant strike extension of
the principal vein, drilling has also confirmed
adjacent veins that are waiting to be defined.
This includes the Highway Vein which appears
to be an easterly extension of the main Sao
Chico orebody but separated by a fault.
Surface drilling during the fourth quarter has
recorded multiple intersections of mineable
grades over mineable widths.
Serabi Gold plc // Report and Accounts 2018 Serabi Gold plc // Report and Accounts 2017 15
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Strategic ReportCorporate GovernanceCommunity and Social ResponsibilityManagement Discussion and AnalysisSerabi Gold plc // Report and Accounts 2018
16
The Gold Market
Positive Signals for Strength
The last calendar year saw the gold price in relatively
good health and it remained strong for much of
the first six months of the year with much of this
strength on the back of the uncertainty over the
relationship between the US and North Korea.
AT A GLANCE
• Central banks added 651t to official
gold reserves in 2018, the second
highest yearly total on record. Net
purchases jumped to their highest level
since the end of US dollar convertibility
into gold in 1971, as a greater pool
of central banks turned to gold as a
diversifier.
• Annual jewellery demand was virtually
unmoved: down just 1t from 2017.
Gains in China, the US and Russia
broadly offset sharp losses in the
Middle East. Indian demand was stable
at 598t (-4t).
• ETFs and similar products saw annual
inflows of 69t down from 206t in 2017.
Stock market volatility and signs of
faltering economic growth in key
markets fuelled a global Q4 recovery,
but Europe was the only region to see
net growth over the year.
• Retail investment in gold bars and
coins posted annual growth of 4%.
Coin demand surged to reach a five-
year high of 236t, the second highest
on record. Demand for gold bars
held steady at 782t, the fifth year
in succession of holding in a firm
780-800t range.
• 2018 saw marginal gains in the volume
of gold used in technology, crimped
by Q4 slowdown. After healthy gains
during Q1-Q3, a combination of slowing
smartphone sales, the trade war and
mounting uncertainty over global
economic growth, contributed to a 5%
decline in Q4.
Source: www.gold.org/goldhub/research/gold-demand-
trends/gold-demand-trends-full-year-2018
The lead up to the Singapore Summit
between President Trump and Chairman
Kim Jong-un signalled an improvement in
relations leading to a change in investment
risk perceptions and a sell off of gold,
resulting in a decline in the gold price to
US$1,176 by mid-August. The declining
investment demand for gold was also
affected by the continued appreciation of
the equities markets and the expectation of
further interest rates increase in the US in
turn leading to a strengthening dollar. Whilst
there had been an outflow from gold backed
exchange traded funds (“ETFs”) for much of
2018, this pattern did however start to shift
during the fourth quarter of 2018.
At the end of 2017, it was felt that the
valuations attributed to other investment
asset classes were a cause for concern
with some asset classes having hit multi-
year highs during 2017. Whilst there have
been some recent market corrections, there
continues to be a feeling that stock prices
remain elevated whilst interest rates in general
and US bond yields remain low. With signals
that the previously indicated levels of Federal
Reserve interest rate interventions may no
longer be required to keep the level of US
economic growth in check, concerns that
global economies are slowing once again
and continued concerns over the valuations
of other investment asset classes, there is a
strong case for a re-emergence of gold during
2019. It has been on a rising trend since
mid-November 2018 and the price has
now returned to the levels enjoyed at the
start of 2018.
This price appreciation is against the
backdrop of declining growth rates in China
and the US and continued uncertainty in
Europe both from Brexit and wider unrest
that has been seen in France and may spread
to the other major European economies.
The US policy of protectionism whilst having
a short term positive is expected to create
inflationary pressure.
The US Dollar continues to be the dominant
global currency but there is rising speculation
that in the longer term the Chinese renminbi
(RMB) could emerge as a regional currency
in Asia with the potential that world finances
become less dependent on the US Dollar.
Central banks have, during 2018, emerged
as significant buyers of gold with net demand
of over 650 tonnes being a 74 per cent
increase, year on year and the highest level
since the dissolution of the gold standard.
Russia has continued to be the largest
buyer, adding a further 274 tonnes, funded
almost entirely by its sale of US treasuries. Its
motivations are a direct response to financial
sanctions and a desire for assets that are free
of political risk. There should therefore be
some caution in reading too much into this
level of central bank buying with Kazakhstan
and Turkey being amongst the other significant
purchasers.
Whilst there has been significant interest
and speculation about crypto-currencies
the consensus is that they are currently at
levels that are not sufficiently significant to
influence mainstream fiscal and monetary
policies. Should that happen it is expected that
central banks would seek to raise the levels of
regulation significantly. Whilst these crypto-
currencies have established themselves as
a new investment class competing for the
attention of investors and competing with
gold as a speculative alternative currency, it is
expected that whilst digital currency will grow
in the years to come, it will be as an instrument
of the central banks themselves and will allow
these digital currencies to have broader appeal
and applications.
Against this backdrop there continues to be
a strong belief that gold will retain its status as
a significant monetary asset. Whilst in the near
term the US Dollar will continue to dominate
the world stage, this in itself creates risk for
central banks with rising exposure to the
fortunes of the US economy and a need
to manage their risk with other asset classes,
of which gold is one of the most obvious.
The short term outlook for gold, through
2019, looks to be positive though during
the first six months it is expected that there
will be some relative weakness before the US
Federal Reserve actions start to restrict the
rate of US growth, move real interest rates
lower, and result in a renewed interest in gold
for the remainder of the year.
For Serabi, however, with its exposure to the
Brazilian Real, the gold price in Real remains
the key pricing consideration for the Company.
Much of the past strength of its exchange rate
was attributed to currency inflows attracted
by high interest rates. However, with the
Serabi Gold plc // Report and Accounts 2018 17
BRR$ EXCHANGE RATE & GOLD PRICE IN BRR$ JANUARY 2016 TO DATE
US$ Gold Price
US Dollar per ounce
BrR$ per ounce
Real Gold Price
4.3
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
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
01/05/2018
01/07/2018
01/09/2018
01/11/2018
01/01/2019
01/03/2018
5100
5000
4900
4800
4700
4600
4500
4400
4300
4200
4100
4000
3900
3800
3700
3600
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
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
01/05/2018
01/07/2018
01/09/2018
01/11/2018
01/01/2019
01/03/2018
5100
5000
4900
4800
4700
4600
4500
4400
4300
4200
4100
4000
3900
3800
3700
3600
interest rate declining to 7.0 per cent by the
end of 2017, and currently sitting at around
6.5 per cent, without this artificial stimulant,
the exchange rate has weakened and become
more reflective of the broader economic
and political considerations.
Against the backdrop of corruption, a change
in government was always possible. The size
of the victory of President Jair Bolsonaro,
at the end of 2018, was perhaps larger than
expected but reflected the mood swing of
many elements of society against the PT
party that had controlled Brazilian politics for
so long. Whilst the new president has been
elected on the back of being more business
friendly, eliminating corruption and reducing
government spending particularly through
welfare and pension reforms, he remains
dependent on the support of various political
factions in the National Congress to confirm
the legislative changes required to enact
reforms. At the current time, therefore, the
exchange rate has remained fairly stable
and has been significantly outpaced by the
appreciation of the gold price.
As might be expected, it is often the case
that the gold price in Brazilian Real tracks the
general trend of the exchange rate, but as
shown in Figure 1 there are times when this is
not the case. The last few months have seen a
clear divergence. The gold price in US Dollars
has risen which would often be reflective of a
weakening US Dollar currency and therefore
countered by a stronger Brazilian Real. The
Real has, however, remained within a range
between about 3.70 and 3.90 to the US Dollar
since mid-November allowing Serabi to benefit
during this period from the US Dollar gold price
improvement. Having experienced prices of
around BrR$3,700 per ounce in early January
2017, the improvement to between BrR$4,800
and BrR$4,900, currently representing an
increase of 30 per cent, is very welcome.
During this same period the US Dollar price
has moved from US$1,130 per ounce to
approximately US$1,300 per ounce,
a 15 per cent improvement.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 18
The Gold Market continued
World gold supply in 2018 of 4,490 tonnes represents
a one per cent year on year increase with both mine
production and recycled gold showing marginal increases.
Mine production for 2018 represents the highest level of
annual mine production on record though year on year
growth continues to decline.
GOLD SUPPLY 2014 – 2018
3,347 tonnes
Mine production
1,173 tonnes
Recycled gold
2018
2017
2016
2015
2014
3,347
3,319
3,263
3,233
3,141
2018
2017
2016
2015
2014
1,173
1,156
1,295
1,117
1,170
Source: World Gold Council
(29) tonnes
Net producer hedging
(29)
(28)
33
14
2018
2017
2016
2015
2014
104
Chinese gold production continued the
decline trend that had been apparent in 2017,
with output falling a further nine per cent
year on year driven by stricter environmental
regulation. Production from Indonesia, Peru
and South Africa was also down, the latter in
part driven by strike action which disrupted
some operations. These declines were
counterbalanced by increases in output
elsewhere. Australia experienced record local
gold prices and output increased four per cent
and is now supporting increased exploration
expenditure. Canada saw new projects coming
on-stream helping annual output to increase
nine per cent whilst Russian gold production
rose 10 per cent.
The rapid improvement in gold prices
experienced during the first six months
of 2016 had resulted in unusual levels of
recycled supply, followed by a period of
re-balancing during 2017 with levels
remaining relatively stable during 2018.
If credit is available and relatively cheap
and whilst gold prices remain relatively
range bound, there is unlikely to be significant
stimulus to vary the levels of gold recycling.
Levels of producer hedging continue to be
low compared with the past and, continuing
the trend that started in 2017, net producer
de-hedging was down by a further 29 tonnes
in 2018. Weak currencies in some key
production countries have, however, created
opportunities for producers to undertake
tactical hedging benefitting from high local
gold prices.
Serabi Gold plc // Report and Accounts 2018 19
CHANGE IN ANNUAL GOLD DEMAND, 2017-2018
tonnes
4,600
4,500
4,400
4,300
4,200
4,100
4,000
3,900
3,800
2
5
4
)
1
(
)
8
3
1
(
3
9
3
4
,
3
3
2
7
2
2
0
6
1
4
,
2017
Central banks Bar & coin
Technology
Jewellery
ETFs &
similar
2018
Net change
(2018 v 2017)
Source: World Gold Council
GOLD DEMAND
For the ninth consecutive year central banks
were net purchasers of gold driven by Russia,
Turkey and Kazakhstan and the level of central
bank purchases was the major contributing
factor to an overall four per cent growth in
annual gold demand. Total net purchases of
651 tonnes by central banks represented a
74 per cent increase compared with 2017
and an overall increase of 277 tonnes. Whilst
these are record levels since the suspension
of dollar convertibility into gold in 1971,
they have been driven by another year of
significant buying by Russia, which it is thought
has now sold its US Treasuries portfolio as
it “de-dollarises” its reserves. Other notable
purchasers during the year were Hungary,
India, Poland and Mongolia.
Following two years of relatively strong inflows
into gold backed ETFs, the rate of inflows
slowed to 69 tonnes in 2018, down 67 per
cent on the 2017 level. The strengthening
gold price in the fourth quarter coincided with
strong inflows into ETFs during this period,
reversing the sell down of the previous quarter,
and on a global basis Europe was the only
region to see net growth during 2018, no
doubt underpinned by political uncertainty
and stock market volatility.
The key retail markets of India and China
are indicators for the demand for gold in
both jewellery and bars and coins. Jewellery
demand in China was up three per cent year
on year whilst bar and coin demand was
steady. India, which saw a one per cent
decline in jewellery demand, experienced a
fall in bar and coin demand of four per cent
year on year. Middle East markets and in
particular Iran saw reduced demand for
jewellery but in contrast demand for bar
and coin investment from Iran increased
by approximately 43 tonnes.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 20
Performance Review and KPIs
Managing Our Operations
The Board assesses the performance of the Group and its senior
management by setting annual performance targets appropriate to the
individual’s areas of responsibility. 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 2018. A key priority was to
maintain and seek to improve the operational
performance compared with the preceding
year. The second objective was to progress
the licensing and permitting of the Coringa
gold project acquired by the Group in
December 2017 together with undertaking
further exploration work to expand the
resource base. Finally, and supported by the
funds raised from an equity issue completed
during the second quarter of the year,
management were charged with pursuing
organic resource growth centred on defining
and developing strike extensions of the
Palito and São Chico deposits and to
progress a wider regional exploration
programme over the Group’s Jardim
do Ouro exploration tenements.
Mine Performance
Gold output for 2018 was slightly higher than
2017, with a modest increase of 100 ounces
of gold. With the exception of the third quarter,
production was at reasonably consistent levels
throughout the year and as Figure 1 illustrates,
quarterly gold production has, with only two
exceptions, been between 9,200 and 10,300
ounces per quarter for the last three years.
At the same time, and as is shown in Figure
2, the quarterly levels of mined tonnage and
the average grades have also shown strong
consistency over the last three years, with
average gold grades generally being between
7.50 g/t and 9.50 g/t.
Whilst overall gold production was marginally
higher than the preceding year, and the
operations performed extremely well
throughout the year, tonnage mined and
tonnage processed were slightly lower than
for 2017. This did not affect production and
plant performance in terms of average gold
recovered which was identical to 2017 levels
FIGURE 1: QUARTERLY GOLD PRODUCTION (koz)
8
9
.
9
9
.
.
3
0
1
9
9
.
4
9
.
7
9
.
3
9
.
2
9
.
7
9
.
1
8
.
7
1
0
2
:
2
Q
7
1
0
2
:
3
Q
6
1
0
2
:
1
Q
6
1
0
2
:
2
Q
6
1
0
2
:
3
Q
6
1
0
2
:
4
Q
7
1
0
2
:
1
Q
FIGURE 2: QUARTERLY MINED TONNAGE AND GRADE
t
k
1
3
4
.
t
k
6
4
4
.
t
k
7
1
4
.
t
k
3
1
4
.
t
k
9
6
3
.
t
k
6
3
3
.
11.02
7
1
0
2
:
4
Q
t
k
0
9
4
.
8
1
0
2
:
1
Q
t
k
7
9
3
.
8
1
0
2
:
2
Q
t
k
1
6
3
.
.
3
0
1
8
1
0
2
:
4
Q
t
k
3
4
4
.
1
8
.
8
1
0
2
:
3
Q
t
k
7
2
4
.
9.56
9.61
10.12
9.80
6
1
0
2
:
2
Q
6
1
0
2
:
3
Q
6
1
0
2
:
4
Q
7
1
0
2
:
1
Q
7.80
7
1
0
2
:
2
Q
8.25
7.49
8.12
7
1
0
2
:
3
Q
7
1
0
2
:
4
Q
8
1
0
2
:
1
Q
8
1
0
2
:
2
Q
6.23
8
1
0
2
:
3
Q
7.45
8
1
0
2
:
4
Q
t
k
5
7
3
.
8.92
6
1
0
2
:
1
Q
Mined Tonnage
Average Grade
Serabi Gold plc // Report and Accounts 2018
21
162,722
Mined ore (tonnes)
2018
2018
2017
2016
7.05Milled grade (g/t)
2018
2018
2017
2016
10,371
Mine development (metres)
168,876
Plant throughput (tonnes)
162,722
168,876
158,864
2018
2018
2017
2016
10,371
9,864
11,209
2018
2018
2017
2016
168,876
172,565
158,966
37,108
Gold production (ounces)
92.60%
Plant recovery
7.05
7.11
8.11
2018
2018
2017
2016
37,108
37,004
39,390
2018
2017
2016
92.60%
92,60%
91.30%
at over 92 per cent. The shortfall in gold
production from the processing of run of
mine ore was met by re-processing of some
historic tailings material.
On a monthly basis the Board reviews key
production 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.
Development rates have been slightly higher
than for 2017 assisted by the use of smaller
profile drilling and haulage equipment at
the Palito deposit. This equipment allows
development galleries to have smaller
dimensions meaning that the process of
preparation, blasting and mucking is faster.
Whilst the average mined grade for the year
was slightly below the level of 2017, this was
affected by lower grades mined in the third
quarter, when a series of lower grade areas
were simultaneously being mined at the São
Chico. Procedures have been put in place to
minimise the future occurrence of such a mine
sequencing event.
Coringa Gold Project
Significant progress with Coringa has
been made on a number of fronts. On the
exploration front, the Group has announced
a 37 per cent increase in the total mineral
resource attributable to the project, which is
now in excess of 510,000 ounces of gold, and
importantly the grade of the inferred resources
which previous stood at 4.32g/t has been
increased to 6.46g/t, representing a 50 per
cent improvement.
Success in the permitting and licensing
aspects continued with the award, in May
2018, of two trial mining licences permitting
the Group to commence mine development
and limited ore production from Coringa.
This was followed at the end of the year with
confirmation that the state environmental
agency was satisfied with the content of
the Environmental Impact Study on the
project, allowing the Group to commence
the process of co-ordinating the necessary
public hearings. These are the next stage in
the approval procedures for the issuance of
the key Preliminary Licence (“Licençia Prévia”).
Further positive news came in May 2018 when
an action brought by the Brazilian Ministério
Público Federal ("MPF"), seeking to nullify
the operating license previously granted to
Chapleau Brazil, was denied by the court
and the judge also denied any right to
appeal the decision.
Preparations for starting the mine portal
and underground ramp at Coringa are well
underway with the area having been cleared
and hard rock exposed. Progress has been
delayed waiting on the necessary blasting
licence from the army, but it is hoped that
this will be received soon and work can
recommence.
Exploration
The Group has enjoyed considerable
exploration success during the year with
significant progress being made with its near
mine site exploration programmes and the
completion of an airborne electromagnetic
and magnetic survey over the Group’s Jardim
do Ouro exploration tenements.
Drilling around the Palito deposit has extended
the Pipocas area to the north with the vein
continuing approximately 250 metres from
the most northerly exposure underground.
Diamond drilling over the G3 vein from surface
to the south has intersected economic
mineable widths and grades located 200
metres to the south of the current Palito
underground workings and only 800 metres
from the northern limits of the Currutela
Prospect. Management feel that the
continuation of the vein to Currutela is likely.
Around the São Chico deposit, simple step out
drilling, following the strike of the São Chico
Main Vein, has allowed the mineralisation to be
traced for a further 500 metres to the west of
the current mining limit.
Ground geophysics surveys in the vicinity
of the São Chico orebody were on-going
for much of 2018 with some very significant
anomalies recorded and this full IP programme
has now covered a strike length totalling
nine kilometres along the São Chico trend.
The surveys have highlighted the exploration
potential within the area, defining a significant
number of IP chargeable anomalies to the
south, east and west of the São Chico
deposit. The results suggest the potential to
the west remains very good, and provides
a comprehensive electrical resistivity and
chargeability map of the São Chico district.
The area highlighted by the geophysical survey
activities as being of the greatest interest
is the Cinderella Shear located to the south
east of São Chico. This is a very prominent
IP anomaly, coincident with a magnetic high
identified from an airborne survey, which now
extends for seven kilometres. There has been
historical artisanal mining activity around the
areas that drain from the anomaly, making
this feature extremely significant. An initial soil
geochemistry survey commenced in January
2019 over part of this area and the samples
recovered are currently being analysed.
Further details regarding the operational
performance during 2018 are set out in the
Operational Review on pages 26 to 33.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 22
Performance Review and KPIs continued
FINANCIAL PERFORMANCE REVIEW
This review should be read in conjunction
with the audited financial statements on
pages 78 to 115.
The Board adopts a variety of metrics to
evaluate the financial performance of the
Group and considers, on a regular basis, the
level of cash holdings of the Group compared
with monthly forecasts, management’s control
of capital expenditure programmes compared
with an annually approved plan, the level of
operational costs compared with annually
approved plans and headcount and staffing
levels. In assessing operational efficiency,
the Group has adopted and reports industry
standard metrics such as Cash Costs and
All-In Sustaining Costs (“AISC”) to review
the performance of the operations on a
monthly basis.
Much of the Group’s expenditure is incurred in
Brazilian Reais and accordingly the Group has
significant exposure to the fluctuations in the
exchange rate between the Brazilian Real and
the US Dollar, which is the reporting currency
of the Group. In order for the Board to assess
underlying performance and, in particular,
operational performance and cost control, the
Board reviews the financial performance of the
Group by reference to results reported in both
the US Dollar and the Brazilian Real. During
2018 the Brazilian Real weakened slightly with
the average rate for the year being BrR$3.654
to US$1.00 compared with BrR$3.193 to
US$1.00 during 2017.
ANNUAL COST BREAKDOWN (US$m)
ANNUAL COST BREAKDOWN –
UNIT COSTS (US$/tonne)
$20.28m
Mining
$125
Mining
2018
2017
2016
$20.28m
$18.84m
$17.66m
2018
2017
2016
$125
$112
$110
$39
$39
$40
$33
$32
$33
$39Plant
2018
2017
2016
$33Site
2018
2017
2016
$7.03m
$6.72m
$6.42
$5.38m
$5.52m
$5.25m
$7.03m
Plant
2018
2017
2016
$5.38m
Site
2018
2017
2016
BORROWINGS (US$m)
$6.07m
Secured Debt
2018
2017
2016
$1.37m
$0.72m
Finance Leases
$6.07m
$5.00m
2018
2017
2016
$0.72m
$1.12m
$1.25m
CASH BALANCES (US$m)
$9.8mCash holding (US$)
2018
2018
2017
2016
$4.16m
$2.19m
$9.8m
Serabi Gold plc // Report and Accounts 2018 23
Notwithstanding that the Group has been able,
in the latter part of 2018, to start reducing
the size of some of its development galleries
and whilst ore tonnage is slightly lower than in
2017, the increased level of mine development
resulted in more total rock tonnes being
moved. In addition, as the development
of the São Chico deposit continues to be
primarily vertical, costs unavoidably increase
with greater depth and haulage distances. It
is for this reason that the potential for lateral
development of this deposit is so encouraging
as this will help minimise future development
cost increases.
Fuel price increases, which affect costs for
power generation and haulage, and increased
labour costs have been the major drivers of
cost increases. 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. It is for this reason that the ore sorter
should have a positive unit cost impact by
reducing the plant operating costs per ounce
of production. The plant will process the same
tonnage but with an elevated head grade will
yield higher gold production.
Debt levels remain modest for an operation
of Serabi’s size and at the end of the year
the Group enjoyed a healthy cash balance
which subsequent to the end of the year
was improved with the realisation of a sale
of gold concentrate that had been delayed
from 2018, and also reflecting the excellent
production levels achieved during the fourth
quarter of 2018. As at 31 January 2019, the
cash holdings of the Group had increased to
US$12.8 million.
Further details regarding the financial
performance during 2018 are set out in
the Financial Review on pages 38 to 45.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 24
Principal Risks and Uncertainties
Managing Risk
There are many risks inherent with mining operations which to a greater or lesser
degree companies can anticipate, plan for and seek to mitigate. These risks may
impact on a company only in the short term or may have longer term implications
for the success and development of the enterprise and its mining projects.
The Board considers that the following risks are those which present the most
significant uncertainty for the Company at the current time.
RISK
COMMENT
Changes in gold prices. The profitability of the Group’s operations is dependent upon the market
price of gold. Gold prices fluctuate widely and are affected by numerous
factors beyond the control of the Group.
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 Agencia Nacional do Mineracao (“ANM”). The ANM can
refuse any application. Persons may object to the granting of any exploration
licence and the ANM may take those objections into consideration when
making any decision on whether or not to grant a licence.
MITIGATION
Management closely monitors
commodity prices and economic
and other events that may influence
commodity prices.
The Board will use hedging instruments
if and when it considers it appropriate.
Management closely monitors
fluctuations in currency rates and the
Board may, from time to time, make use
of currency hedging instruments.
Management, in designing and
planning the Group’s operations,
incorporates contingency planning.
The Group has multiple mining faces
to minimise geological and mining
risk to operations, it has a modular
plant to ensure gold processing can
be maintained to the greatest extent
possible at all times and deals with
customers for its products who
have good credit and standing in the
industry. Management also manages
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 ANM 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.
Serabi Gold plc // Report and Accounts 2018 25
RISK
COMMENT
MITIGATION
Existing exploration
licences may not be
renewed or approved
or converted into
mining licences.
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.
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.
Title to any of the
Group’s mineral
properties may be
challenged or disputed.
Other permits and
licences required to
conduct operations
may not be renewed
or may be revoked or
suspended.
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.
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 can result 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.
Whilst the Group has been awarded trial mining licences and an initial
operating licence, it is still in the early stages of obtaining all the necessary
permits and licences required to allow full scale 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 all the government bodies
involved with the granting and control of
mining operations 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 licensing 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 and
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
28 March 2019
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 26
Management Discussion and Analysis
Operational Review
Production momentum from the end of 2018 has
been maintained into 2019, whilst exploration
results have been better than expected.
HIGHLIGHTS
37,108ozs
Total gold production
167,722 tonnes
Mine production
7.29g/t
Mined ore grade
• Drilling at Palito confirms northerly and
southerly extensions of the key Pipocas
and G3 veins and southerly extensions
in the Chico da Santa area.
• Successful factory testing of ore sorter
completed in December 2018 and the
unit is now in transit to site.
• Completion of share placings in
second quarter 2018 raising more
than US$23.5 million for exploration
and activity and on-going development
of Coringa project.
• Regional airborne electromagnetic
and magnetic survey identified east-
west magnetic high running across
the tenement, a 10 kilometre strike
of electromagnetic anomalies to the
east of São Chico and the magnetic
and electromagnetic high of the
Cinderella shear zone to the south
east of São Chico.
• Terrestrial Induced Polarisation surveys
around São Chico identified significant
anomalies to the west of São Chico and
also the coincident chargeability high
of the Cinderella zone.
• Drilling at Coringa has increased the
total mineral resource by 37 per cent.
OUTLOOK AND STRATEGY
The Palito Complex comprises the Palito
deposit and adjacent process plant together
with the São Chico deposit located 25
kilometres to the south west. The Palito
deposit is currently operating across four
sectors with active development and mining
of 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, being
developed to a depth of approaching 300
metres and over a strike length of more
than 1.5 kilometres. Further drilling has now
extended that strike beyond the 1.5 kilometres
and it remains open to the north and south.
Management considers that there is strong
potential for the Palito veins to continue both
at depth and along strike to the south east
and the north west, 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 Group is driving development
galleries east and west towards additional
ore shoots that have been identified by
surface drilling and 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.
Surface drilling and a terrestrial Induced
Polarisation (“IP”) geophysics survey have
highlighted excellent potential for future
resource growth at São Chico whilst step out
drilling has intersected what appears to be
the strike extension of the São Chico orebody
approximately 500 metres to the west. The IP
survey has highlighted some significant and
exciting anomalies to the west and south east
which will be drilled during 2019.
The Group has been conducting extensive test
work to assess the benefits of ore-sorting to
further enhance ore feed grade and to 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 further tests on the São
Chico ore have also returned good results.
This equipment is currently being transported
to site and is expected to be commissioned
during the second half of 2019.
Total gold production for the fourth quarter of
2018 was 10,256 ounces of gold, an increase
of 10 per cent compared with the same quarter
in 2017, and resulted in total gold production for
the year of 37,108 ounces, a small increase in
total production compared with 2017.
This momentum has been continued into the
first quarter of 2019 and it is anticipated that
production for the first quarter of 2019 will be
approximately 10,000 and therefore in line with
the Company’s guidance.
Total mining rates over the Palito Complex
are, for 2018, approximately 4 per cent below
those for 2017, whilst milling rates at 168,253
tonnes for the year are approximately 3.5 per
cent lower than for 2017. Management does
not consider these variations significant given
the nature of the orebodies being mined. The
Company was however able to process over
16,000 tonnes of historic flotations tailings
during the 12 month period representing
a 360 per cent increase compared to 2017.
Management had also hoped to boost gold
production in the second half of 2018 through
an increase in the processing rate of Run of
Mine (“ROM”) surface stockpiles. However, at
the end of 2018 the stockpile of ore at surface
was 7,661 tonnes at a grade of 4.14 g/t gold, a
decrease of 1,328 tonnes compared with the
levels at 30 September 2018.
Management anticipates that the successful
commissioning of the ore-sorter will bring
improvements to feed grade as well as freeing
up some plant capacity, and is key to allowing
some future organic growth to be realised
without plant expansion. However, with the
equipment expected to be commissioned
during the second half of 2019, this process
enhancement will not have any major impact
until the end of the year.
Serabi Gold plc // Report and Accounts 2018 27
Mining
Mining of the Palito orebody has been at
relatively steady levels for over three years
with production and development rates
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
could be recovered from stope mining.
Mine development from the São Chico orebody
in recent quarters 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.
Mined grades achieved for 2018 averaged
7.29 g/t, adversely affected by lower grades
mined in the third quarter, when mine
scheduling unavoidably resulted in a need to
mine through some lower grade blocks in the
São Chico orebody, coupled with an increased
amount of development ore, which is generally
lower grade in the total. Long-hole retreat
mining is used on the São Chico orebody,
a cheaper and simpler mining method, but
whilst efficient it is less flexible in terms of
mining selectivity. During the third quarter the
Company was retreating two faces at São
Chico through economically viable blocks but
of a lower grade than anticipated. Management
anticipated an improvement in average grades
during the final quarter of 2018 and this was
realised with average grades improving to
7.45g/t in the final three month period of
2018. The average mined grade for the year
of 7.29g/t, is lower than reported for the same
period in 2017, and slightly below the average
reserve grade for the two orebodies of just over
8.0 g/t, estimated by SRK in the Palito Complex
Technical Report issued in January 2018. Whilst
the operation tries to maintain an even grade
as much as possible, the various blocks of the
different veins being mined at any time give rise
to monthly and therefore quarterly variation.
During the first quarter of 2018, the first new
generation mini scoops arrived on site together
with a new face drilling jumbo with a narrower
profile. This smaller equipment permits smaller
mine development, resulting in reduced
production costs for development mining
combined with lower dilution and higher quality
of development ore. More importantly, however,
it also greatly assists in minimising dilution
in the subsequent stoping of these veins.
Following the successful initial deployment
of this equipment, the Group has acquired
additional units. This equipment will only be
deployed at Palito, where the potential benefits
of minimising the mining widths are significant,
with some of the larger units previously used at
Palito being redeployed to São Chico.
Plant Operations
Total gold production for 2018 was 37,108
ounces of gold, generated from the processing
of ROM ore from the Palito and São Chico
orebodies, combined with the surface coarse
ore stockpiles and a small contribution from
the stockpiled flotation tailings accumulated
from the processing of Palito Mine production
in 2014.
Gold production for the year was achieved
through the processing of 168,253 tonnes
from the Palito and São Chico orebodies with
an average grade of 7.06 g/t of gold (twelve
months to 31 December 2017: 172,565 tonnes
at 7.11 g/t of gold). Whilst ROM ore processed
was lower by 3.50 per cent or approximately
4,300 tonnes, during the same period a total
of 16,466 tonnes of reprocessed tailings
were passed through the plant, an increase
of approximately 11,900 tonnes compared
with 2017.
Plant performance has been excellent
throughout the year, averaging approximately
500 tonnes per day. Mill feed is predominantly
crushed ROM and is topped up with coarse ore
stock and some stockpiled flotation tailings.
The Company still has approximately 9,000
tonnes of coarse ore stockpiled on surface
and an estimated 30,000 tonnes of flotation
tails stockpiled (with an average grade of
around 3.0 g/t of gold). Since the operations
began, plant capacity has limited the ability to
run down the surface ore stocks, a legacy of
the fact that mine production began six months
before the ore processing.
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Management Discussion and Analysis
Operational Review continued
At the start of 2019 the Company
successfully commissioned a ‘scrubber’,
an item of equipment that will allow easier
processing of stockpiled flotation tailings.
During 2018 the Company had, with limited
success, tried to feed these flotation
tailings into the plant trialling a variety of
feed mechanisms. The scrubbing plant is
dedicated to classifying and cleaning this
material, removing impurities and allowing
it to be fed directly into the plant post milling.
An encouraging development during 2018
was 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, with veins typically 0.5 to 0.7 metres
wide, a minimum mining width of 1.0 metre
results in significant amounts of granite waste
still forming part of the mined material coming
to surface. Having undertaken test work in
Brazil and subsequently at the manufacturer’s
facilities in Poland, excellent results have been
achieved using X-ray scanning on the Palito
ore using relative atomic densities to physically
separate crushed sulphide bearing ore and
granite waste. The contrast and results have
been quite remarkable. Having completed
factory testing the unit is now on its way to site
and expected to be commissioned during the
second half of 2019. Whilst the unit will initially
be dedicated to the processing of Palito ore, a
colour scanner unit has been added to provide
flexibility for future processing of São Chico
ore which, in initial testing, was amenable to
colour sorting. The Company sees the option
to campaign or batch process both ore feeds
in the future.
The sorter will be installed after the main
crushing plant and will remove waste material
that, despite best efforts to mine selectively,
would otherwise, unavoidably, enter the plant
feed. This waste will be removed post-crushing
but ahead of milling and will reduce process
costs per ounce recovered as well as liberating
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.
Palito Complex Licensing
The Palito operation is fully permitted and
has a mining licence issued in October 2007,
covering 1,150 hectares.
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 full 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. Additionally, the Group
engaged MDM from Belem, an Environmental
Consultancy to complete a full socio-economic
analysis and Environmental Impact Assessment
("EIA") for São Chico. This is now complete,
however SEMAS, the state Environmental
Agency informed Serabi in the latter half of
2018 that, in reference to the already submitted
Coringa EIA, they could not process two EIAs
from the same company simultaneously. It is
hoped that SEMAS will assess the São Chico
EIA during 2019.
With the Guia de Utilização (a trial mining
license) already in place, and valid until 6 April
2019, and in accordance with legislation, the
renewal application has already been submitted
and protocolled. In addition, an application has
also been submitted for a second trial mining
licence. All mining operations can continue in
parallel, whilst the full mining licence application
is progressing. 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.
EXPLORATION
Cash constraints until late 2017 meant all
exploration activity had been essentially
suspended since the end of 2011 as the Group
focused its immediate efforts on bringing
the Palito orebody and subsequently the São
Chico orebody into production. The issues of
new equity completed in 2018 have allowed
management to pick up where exploration
was left in 2011, and go significantly further,
engaging, not only in ‘headframe’ exploration,
but also including regional programmes to help
evaluate its whole tenement package.
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.
Serabi Gold plc // Report and Accounts 2018 29
Recent exploration activities fall
into four categories:
• Drilling: surface diamond drilling programme
of approximately 20,000 metres, focusing on
extensions of known veins on both the Palito
and São Chico orebodies;
• Ground geophysics: exploring the
‘anticipated trend and projection’ of the main
vein at São Chico;
• Geochemistry: Follow-up soil geochemical
programme over near mine-site anomalies
adjacent to the Palito orebody;
• Regional: An airborne electro-magnetic (“EM”)
geophysical survey, covering those parts
of the JDO tenement holdings that had not
previously been covered by similar surveys.
Drilling
A planned 20,000 metre surface drill
programme was divided between both
the Palito and São Chico orebodies.
At Palito, the programme initially focused
on step out drilling on the known veins, with
a view to justify subsequent underground
development.
The key outcomes of the 2018 Palito
programme have been:
(i)
the extension of the Pipocas vein to the
north and south, where step out traverses
have traced the vein further to the north
than the current mine limit,
(ii)
the southerly extensions of the Ipe/Mogno
veins of the Chico da Santa area, and
(iii) the southerly and northerly extensions
of the G3 vein.
Smaller programmes tested the Copper Hill
and the Caixas anomalies.
Drill intersections on the Pipocas north area
show the vein continuing north approximately
250 metres from the most northerly exposure
underground. Diamond drilling over the G3
vein from surface to the south has intersected
economic mineable widths and grades located
200 metres to the south of the current Palito
underground workings and only 800 metres from
the northern limits of the Currutela Prospect.
Further details are included in the Company’s
news release of 31 August 2018. Subsequently
three further holes have been drilled on the
northern extension of the G3 vein, with all three
holes successfully cutting the vein, the best of
which reported a grade in excess of 19 g/t over
a 0.60 metre vein width, which is very typical for
Palito. The G3 vein has now been traced over 1.5
kilometres and remains open to the south and
north. Management plans to undertake further
exploration drilling during 2019.
At the São Chico orebody, the surface drilling
has focused on the western and eastern
extensions of the São Chico mineralisation,
and to date drilling has successfully intersected
what appears to be the São Chico ore zone up
Image of São Chico mine site showing location of drilling and key results
to 500 metres west of the current mine limit.
To the east drilling has confirmed an eastward
extension of mineralisation up to 200 metres
beyond the mine workings. In both cases, these
eastern and western extensions will now be
further investigated from underground.
The latest drilling programme commenced
in May 2018. The São Chico main orebody is
completely open along strike and the Group
has very little geological information outside
the immediate mine limits. Nonetheless there
are strong indications that substantial strike
extensions of the principal vein and adjacent
veins are waiting to be defined as shown in the
Figure on page 30.
More recent drilling has also followed up
on some of the initial results from terrestrial
Induced Polarisation (“IP”) geophysical surveys
which started in May 2018. This has been
simple step out drilling following the strike of
the São Chico Main Vein and although the
drilling is quite broadly spaced, it appears the
mineralisation can now be traced for a further
500 metres to the west of the current mining
limit. The mineralised intersections encountered
in the traverse 300 metres west of the São
Chico Mine returned grades of 21.97 g/t and
26.86 g/t of gold over widths of 0.80 metres
and 1.10 metres respectively. Further details are
set out in the Company’s news releases of 31
August 2018 and 31 October 2018. This strike
extension complements the potential parallel
structures of Lagoa and Crossroads that are
to the north and south of the current mine.
During the fourth quarter, surface drilling was
focused on the eastern extension at São
Chico. A near surface development level
(216mRL) had been developed to the Highway
Vein, which appears to be a continuation of
the main orebody at São Chico, though a
faulted contact separates it from the Main
Vein. All mine levels below the 216mRL to
the lowest current level of -19mRL have not
been developed to the other side of the fault.
The Group therefore undertook a surface
drill programme to test the area below the
216mRL and to the east of the current mine
development, for the continuation of the
Highway Vein at depth. This programme was
very successful with the holes drilled recording
intersections of mineable grades over
mineable widths.
Prior to 2018, the Company had undertaken
a surface diamond drill programme in March
2015 at São Chico Mine consisting of 42
diamond drill holes and totalling 7,204 metres.
A further 30 underground diamond drill holes
were completed during 2015 totalling an
additional 1,459 metres of drilling. This earlier
drill programme was a combination of in-fill
and step-out drilling and the results from this,
in conjunction with the on-lode development
mining that took place during the remainder
of 2015, greatly enhanced the understanding
of the 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.
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Management Discussion and Analysis
Operational Review continued
The understanding of the orebody has also
been assisted by paragenetic studies on mine
ore samples including detailed petrological
descriptions, SEM and QuemScan analysis.
Ground Geophysics and Geochemistry
Ground geophysics surveys in the vicinity of
the São Chico orebody were on-going for much
of 2018 with some very significant anomalies
recorded. Approximately 107 line kilometres of
IP geophysical survey was completed testing
extensions to the east, west and south. This
complemented an earlier 20 line kilometre IP
survey started in 2016, along the São Chico
strike. With a total of 127 line kilometres
now completed, a strike length totalling nine
kilometres along the São Chico trend has now
been covered with IP.
These surveys have highlighted the exploration
potential within the area, defining a significant
number of IP chargeable anomalies to the
south, east and west of the São Chico
deposit. The results suggest the potential to
the west remains very good, and provides
a comprehensive electrical resistivity and
chargeability map of the São Chico district
and, together with the detailed airborne
electromagnetic and magnetic surveying also
completed in 2018, provides an excellent
foundation for the Company’s exploration
activities in 2019.
However, in the near term, the area highlighted
by the geophysical survey activities as being
of the greatest interest is the Cinderella Shear
located to the south east of São Chico. This
is a very prominent IP anomaly, coincident
with a magnetic high identified from an
airborne survey, which now extends for
seven kilometres. There has been historical
artisanal mining activity around the areas that
drain from the anomaly, making this feature
extremely significant. A geochemical soil
sampling programme is now underway over
Cinderella and this will extend during this
year over a number of the other geophysical
IP anomalies, designed to further define the
anomalous zones and provide better targeting
for subsequent drilling that management hope
can be undertaken during the year.
SÃO CHICO AND THE CINDERELLA ZONE
Figure 1 – Image showing current IP results at São Chico and location of the Cinderella zone
Figure 2 – 115m depth slice through chargeability model. Red highs indicate high chargeable features which may reflect
sulphide bearing mineralised zones
Key to zones marked on images
FEATURE A – A two kilometre long, east-
northeast to west-southwest trending,
robust chargeability anomaly coincident
with a subtle magnetic high, situated only
two kilometres west of the São Chico mine
and one kilometre west of the recently
reported high grade intersections from
West Vein drilling (see news release of 20
September 2018). This anomalous area lies
within the São Chico structural corridor at
the intersection of several interpreted fault
sets, similar to the setting of the current São
Chico operations.
FEATURE B – An elongate chargeability
anomaly, parallel to Feature A and lying on
the western edge of the survey area.
FEATURE C – A cluster of chargeability
anomalies located in the northwest of the
survey area and lying within the São Chico
strike corridor.
FEATURE D – A chargeability/conductivity
anomaly on the flanks of the Cinderella
anomaly, also hosted within a magnetic high.
Serabi Gold plc // Report and Accounts 2018 31
Figure 3 – VRMI magnetic image showing coincident mid (100-175m depth – orange colour) and late-time (175-250m depth red) EM conductivity anomalies. The above figure includes magnetic
images generated by previous surveys conducted by the Company in 2008 and 2011
The scale of some of the features that have
been identified is significantly larger than the
signatures of the existing Palito and São Chico
orebodies.
During the year the Company also engaged
a geological contractor to undertake soil
geochemistry surveys over the Calico anomaly
close to Palito. This prospect lies some four
kilometres from the Palito deposit, and was
one of the most significant anomalies identified
during the initial airborne EM survey. Results are
still pending, but those received to date have
justified some infill sampling to be undertaken
which is on-going.
Regional Exploration
The JDO Project covers a total area of over
43,000 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 Company completed, in the third quarter
of 2018, an airborne 4,300 line kilometre
geophysical VTEM (“EM”) geophysical survey,
covering approximately 25,000 hectares of the
JDO tenement holdings that had not previously
been covered by such a survey. The survey
was flown during July and supplements the two
airborne geophysical VTEM surveys completed
in 2008 and 2010 that covered a total area of
14,650 hectares. From these original surveys
the Group has already identified a number
of geophysical anomalies which it considers
worthy of further investigation and these
surveys also provided management with the EM
and magnetic signatures of both the Palito and
São Chico orebodies, allowing any anomalies
identified to be benchmarked.
The EM survey identified an extremely
pronounced magnetic high that runs east west
across the tenements (see Figure 3). This is
a regional feature and many of the identified
electromagnetic anomalies lie on the flanks
of this magnetic high.
The EM survey also identified the smaller,
but nonetheless very exciting, Cinderella
anomaly, which is located traversing the São
Chico mining licence area in a south west to
north east trend. The airborne survey results
highlight an eight kilometre long magnetic and
electromagnetic high which is very coincidental
with the seven kilometre long chargeability
‘high’ identified by the ground geophysics
IP survey.
It also identified an extremely interesting EM
anomaly trending north-south and located
to the south east and east of the São Chico
tenement. The Group’s current ground
geophysics and drill programmes have not
extended out this far and this is therefore
untested ground. As a completely new find and
considering that it extends for more than 10
kilometres, management considers that this
represents a very exciting development.
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Management Discussion and Analysis
Operational Review continued
CORINGA PROJECT DEVELOPMENT
AND LICENSING
Serabi is continuing the work started by
Anfield on the permitting and licensing
process and has continued to pursue the
formal approval of the Environmental Impact
Assessment (“EIA”) submitted late in 2017 and
undertake any supplementary work or reports
that may be requested. Following the award of
the trial mining licence for the project during
the second quarter of 2018, management has
been informed that the state environmental
agency is satisfied with the content of the
EIA and the Group is now co-ordinating the
necessary public hearings. It is hoped that
these hearings can be completed during
the first half of 2019 and a positive outcome
should then be sufficient for SEMAS to issue
the key Preliminary Licence (“Licencia Previa”).
On 4 March 2019 Serabi released results from
its updated Geological Resource Technical
Report on Coringa (the NI 43-101 Technical
Report Coringa, Brazil) which is currently being
prepared by its consultants, Global Resource
Engineering Ltd (“GRE”). The results recorded
a NI 43-101 compliant Indicated Resource of
216,000 ounces of gold at an average grade
of 7.95 grammes per tonne (“g/t”) and an
Inferred mineral resource of 298,000 ounces
of gold at an average grade of 6.46 g/t.
This update followed the approximate 6,000
metres of surface diamond core drilling which
was finally completed early in February 2019.
In the meantime, preparations for starting the
mine portal and underground ramp at Coringa
are well underway with the area having been
cleared and hard rock exposed.
The Group is now waiting on the necessary
blasting licence from the army. It is hoped
that this will be received soon and work can
recommence. Beginning the ramp under the
trial mining licence has a dual purpose. Firstly,
the Group will obtain invaluable information
about the orebodies in terms of geometry,
thickness, and their general nature, which,
with vein mining, is very difficult to obtain
solely from drill hole data. Secondly, it is
a demonstration, to the community and
other stakeholders, of the Group’s intent to
develop the project, which is considered by
management to be a critical step to winning
support in the permitting process.
On 14 August 2017, Anfield announced
that it had received key permits required
to commence construction of the Coringa
project, being (1) the license 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.
In May 2018 trial mining licences for each
of the concessions 850568/1990 and
850567/1990, valid until 25 May 2020 and 25
November 2020 respectively, were issued by
the DNPM permitting the Group to commence
mine development and limited ore production
from Coringa. The trial mining licenses and
the concurrent operating licence authorises
mining of up to 50,000 tonnes of ore per year
at Coringa. In the absence of the necessary
processing permits, any ore recovered at this
stage will be stockpiled for future processing.
Under applicable regulations, once the mine is
operational, Chapleau Brazil may apply to the
DNPM and SEMAS to increase the mining and
processing limits.
On 23 May 2018, Serabi was informed,
following an action brought by the Brazilian
Ministério Público Federal ("MPF"), on 27
September 2017, seeking to nullify the
operating licence previously granted to
Chapleau Brazil by SEMAS, that the court and
judge who presided over the hearing on 26
April 2018 denied the MPF any action against
SEMAS, the DNPM and Chapleau Brazil and
also denied any right to appeal the decision,
thus allowing Chapleau to proceed with
advancing the project.
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.
Coringa Exploration
Recent drilling over the Coringa gold project
targeted both strike and plunge extensions
along the three main ore zones of Meio, Galena
and Serra, with the results returning a series
of high grade intersections extending the
previously modelled ore zones.
Significant new intersections returned
included:
• Galena – 2.0m @ 25.02 g/t Au from 141.50m
(COR0367) including 1.0m @ 48.18g/t Au
• Serra – 4.0m @ 3.36 g/t Au from 354.0m
(COR0370) including 1.28m @7.45g/t Au.
• Meio #2 – 0.35m @15.57 g/t Au (COR0372)
from 197.05m
• Meio #2 – 1.3m @ 32.04g/t Au (COR0373)
from 144.75m including 0.5m @ 79.47g/t Au
• Meio # 4 – 0.60m @ 4.65 g/t Au (COR0378)
from 210.70m
• Meio #4 – 0.75m @ 7.82 g/t Au (COR0380)
from 174.8m
• Meio #4 – 1.40m @ 15.82 g/t Au (COR0381)
from 275.0m including 0.70 m @ 20.29 g/t Au
• Meio #4 – 1.15m @ 9.69 g/t Au (COR0383)
from 154.5m including 0.60 m @ 17.74 g/t Au
On 4 March, 2019, the Group announced an
updated estimate of the mineral resources of
the Coringa project which represented a 37%
increase in the total global resource for the
project to 514,000 ounces. The full technical
report in relation to this new mineral resource
estimation is expected to be published on
Serabi Gold plc // Report and Accounts 2018 33
OTHER EXPLORATION PROSPECTS
The Group has three other project areas,
although activities on each of these projects
have been limited in recent periods.
Sucuba Project
The Sucuba project is located some 10
kilometres to the northwest of Palito and
the Company holds two exploration licence
applications totalling 10,449 hectares. The
Company has conducted exploration work
in the past on this area where the main gold
anomaly is centred on a small garimpeiro pit.
Initial geochemistry highlighted anomalous
gold values over an east-west area of 800
metres by 150 metres and a limited historic
drill programme returned a number of gold
values associated with structural controls
including 0.50 metres at 20.42g/t Au. The area
would appear to potentially host a polymetallic
deposit with high lead, silver and zinc values
having been returned.
Pizon and Modelo Projects
The Pion and Modelo Projects are isolated
sites located approximately 250km and 300km
to the west and northwest of the Palito Mine
with access being primarily by light aircraft.
Serabi has submitted final exploration reports
and notices of relinquishment and is awaiting
final confirmation from the authorities that the
relinquishment has been approved.
It has always been the intention of the
Group to use cash flow generated from
its production operations to advance its
exploration opportunities.
Mike Hodgson
Chief Executive
28 March 2019
or before 18 April 2019. The Group has, on
the basis of this increased mineral resource,
commenced work on the preparation of a new
Preliminary Economic Assessment (PEA), the
results of which, it is hoped, will be available
before the end of the second quarter.
The Galena vein was drilled targeting the strike
and plunge extension of the vein at depth.
The programme successfully intersected high
grade mineralisation over mineable widths
and with hole COR0367 extended the known
mineralisation for a further 100 metres to the
south of the previously known limit.
Similarly, a series of four holes was completed
on the Serra vein set. Drill hole COR0370
targeted the down dip and northern strike
extension of the modelled ore zones.
It successfully intersected a four metre
drilled width of veining and alteration which
has extended the mineralisation for a further
150 metres down dip and 140 metres along
strike to the north from the previous drill
intersections of the Serra mineralisation.
A series of nine drill holes was completed
along the Meio vein set, targeting the Meio
#2 (M2) and Meio #4 (M4) veins. The Meio
#1 (M1) vein is the most strike extensive and
drilled vein defined to date with numerous
intersections along a total strike length
of 1,500 metres. The M2 vein which lies
parallel to M1 had previously, however, only
been defined along a total strike length of
700 metres. The M4 vein is considered to
be a southern extension of the M1 vein in a
structurally off set position and past drilling
had defined the mineralisation over a 900
metre strike length.
Drill holes COR0372 and COR0373 targeted
the southern strike extension of the M2 vein,
successfully intersecting the structure and
significantly extending the strike of the M2
vein for a further 480 metres to the south,
making the drilled strike of the M2 vein to
almost 1,200 metres and it remains open
along the southern strike.
Drill holes COR0378, COR0380 and COR0381
targeted, over a strike extend of 400 metres,
the northern dip extension of M4 vein at depth.
This drilling has successfully extended the
vein for approximately 200 metres deeper than
previously known along this 400 metre strike.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 34
Management Discussion and Analysis
Group Mineral Reserves and Resources
MINERAL RESOURCE STATEMENT, PALITO MINE, PARA STATE, BRAZIL, AS OF 30 JUNE 2017
Classification
Underground
Measured
Indicated
Surface Stockpiles
Measured
Tailings
Measured
Combined
Measured
Indicated
Measured and Indicated
Underground
Inferred
Vein Width Quantity
Grade
Contained Metal
m
000't
Gold
g/t
Copper
g/t
Gold
000'oz
Copper
t
0.52
0.57
274
371
15.21
10.91
0.77
0.57
134
130
2,110
2,115
–
–
–
–
–
12
60
346
371
717
3.15
2.70
12.62
10.91
11.74
–
–
0.61
0.57
0.59
1
5
140
130
271
–
–
2,110
2,115
4,225
0.77
784
7.02
0.20
177
1,568
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 US 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 2018
35
MINERAL RESERVES STATEMENT, PALITO MINE, PARA STATE, BRAZIL, AS OF 30 JUNE, 2017
Classification
Underground
Proven
Probable
Surface Stockpiles
Proven
Tailings
Proven
Combined
Proven
Probable
Proven and Probable
Quantity
Grade
Contained Metal
000't
265
276
12
60
337
276
613
Gold
g/t
Copper
g/t
Gold
000'oz
Copper
t
9.77
7.64
3.15
2.70
8.28
7.64
7.99
0.46
0.39
–
–
0.36
0.39
0.37
83
68
1
5
90
68
157
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 US 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 US 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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report
36
Management Discussion and Analysis
Group Mineral Reserves and Resources continued
MINERAL RESOURCE STATEMENT, SÃO CHICO MINE, PARA STATE, BRAZIL, AS OF 30 JUNE 2017
Classification
Measured
Indicated
Measured and Indicated
Inferred
Thickness Quantity
Grade
Contained Metal
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 US 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 30 JUNE 2017
Classification
Underground
Proven
Probable
Proven and Probable
Quantity
Grade
Contained Metal
000't
65
25
90
Gold
g/t
8.15
9.15
8.43
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 US 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 2018
37
MINERAL RESOURCE STATEMENT, CORINGA MINE, PARA STATE, BRAZIL, AS OF 4 MARCH 2019
Classification
Underground
Indicated
Total Indicated
Underground
Inferred
Vein Width Quantity
Grade
Contained Metal
m
000't
0.7
845
Gold
g/t
7.95
0.7
1,436
6.46
Gold
000'oz
216
298
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 2.0g/t gold assuming an underground extraction scenario, a gold price of US$1,500/troy oz, an operating cost of $100/t, and metallurgical recovery of 95%.
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 by Global
Resource Engineering in accordance with the standard of CIM and Canadian National Instrument 43-101, with an effective date of 4 March, 2019 by Mr Kevin Gunesch and Dr Hamid Samari,
who are both Qualified Persons under the Canadian National Instrument 43-101.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report
38
Management Discussion and Analysis
Financial Review
The twelve month period ended 31 December 2018 has seen
higher levels of gold bullion production than the same period
of 2017 offset by lower levels of production of copper/gold
concentrate reflecting the variations in the ore sources and
grades being mined during 2018 compared with 2017.
TWELVE MONTH PERIOD ENDED
31 DECEMBER 2018 COMPARED
TO THE TWELVE MONTH PERIOD
ENDED 31 DECEMBER 2017
Gold production for the twelve month period
ended 31 December 2018 was 37,108
ounces which is a small increase compared
with production for 2017 of 37,004 ounces.
The total amount of ounces sold during the
twelve months of 2018 was 33,551 ounces,
which is approximately ten per cent less than
the 37,161 ounces sold during 2017.
The Group has recognised a gross profit for
the twelve month period ended 31 December
2018 of US$2,879,340 (2017: US$5,019,087)
and an operating loss of US$2,711,602
(2017 operating loss of: US$691,959).
The gross profit of US$2,879,340 for the
twelve month period ended 31 December
2018 is analysed in table 1.
Revenue
For the twelve-month period ended 31
December 2018 the Group generated
US$9,469,336 (2017: US$15,620,204)
in revenue by selling an estimated 6,745
ounces of gold from the sale of 1,040
tonnes of copper/gold concentrate (2017:
11,195 ounces from 1,440 tonnes) and
also recognised revenue for 26,806 ounces
of gold bullion generating total revenue of
US$33,792,407 during the twelve months
of 2018, (2017: sale of 25,966 ounces for
revenue of US$32,829,664).
During the twelve months of 2018, with
the Group producing more gold in the form
of bullion as opposed to in copper/gold
concentrate, there has been a three per cent
increase in bullion sales compared with the
same period of 2017. At the same time there
has been a 40 per cent decrease in sales
of copper/gold concentrate.
Gross Profit
Concentrate Sold (Ounces)
Bullion Sold (Ounces)
Total Ounces
12 months
12 months
ended December ended December
2017 (US$)
2018 (US$)
6,745
26,806
33,551
11,195
25,966
37,161
Variance
US$
(4,450)
840
(3,610)
Revenue from Ordinary Activity (US$)
Gold (in Concentrate)
Copper (in Concentrate)
Silver (in Concentrate)
Total Concentrate Revenue
Gold Bullion
8,214,400
1,203,019
51,917
9,469,336
33,792,407
13,661,002
1,852,679
106,523
15,620,204
32,829,664
(5,446,602)
(649,660)
(54,606)
(6,150,868)
962,743
Total Sales
43,261,743
48,449,868
(5,188,125)
Costs of Sales
Operational Costs
Release of/provision for
impairment of inventory
Shipping Costs
Treatment Charges
Royalties
Amortisation of Mine Property
Depreciation of Plant & Equipment
(29,491,414)
(29,568,195)
76,781
400,000
(898,005)
(432,082)
(679,515)
(6,180,735)
(3,100,652)
(950,000)
(1,344,154)
(543,338)
(559,811)
(7,787,166)
(2,678,117)
1,350,000
446,149
111,256
(119,704)
1,606,431
(422,535)
Total Operating Costs
(40,382,403)
(43,430,781)
3,048,378
Gross Profit
Table 1
During the twelve months to 31 December
2018 the Group produced 1,134 wet tonnes
of copper/gold concentrate, containing an
estimated 7,543 ounces; (twelve months to
31 December 2017: 1,420 wet tonnes of
copper/gold concentrate, containing 10,050
ounces of gold). The unsold material is held
as inventory.
Operating Costs
Operating costs for the twelve months
ended 31 December 2018 of US$29.49
million (2017: US$29.57 million) 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 twelve month period in
the production of the final sales products as
shown in table 2.
2,879,340
5,019,087
(2,139,747)
Labour Costs
Labour costs have increased by US$0.15
million for the twelve month period ended
31 December 2018 in comparison to the
same period in the previous year due to
each Brazilian employee receiving a three
per cent increase in salary in May 2018 as a
result of the national collective agreement in
Brazil (in May 2017 the labour force received
an eight per cent increase). There was also
an increased number of operational staff
employed during 2018 in comparison to
2017. Whilst production in the fourth quarter
of 2018 was higher than the preceding year,
a reduction in the relative level of sales has
resulted in greater levels of inventory at the
end of 2018. Accordingly, a higher level of
labour and other operating costs is being
carried as a cost of inventory compared with
2017 whilst a variation in exchange rates has
also resulted in costs being relatively lower
when translated into US Dollars.
Serabi Gold plc // Report and Accounts 2018
39
Key Operating Statistics and Costs
12 months ended
December 2018
12 months ended
December 2017
Variance
Variance (%)
Tonnes Mined
Tonnes Milled
Ounces Produced
Ounces Sold
Operating Costs
Labour
Mining Consumables & Maintenance
Plant Consumables
General Site
Table 2
Mining Costs
Mining consumables and maintenance for
the twelve month period ended 31 December
2018 have decreased by US$0.09 million
in comparison to the same twelve month
period from 2017. This is primarily due to a
reduction in sales recognised offset by cost
increases relating to power generation and
supply during the twelve months of the year as
a result the global increase in the price of oil.
Maintenance costs have also increased during
the twelve months of 2018 in comparison
to the same period of the previous year as
the underground fleet increased in size and
reflecting the age profile of the mining fleet.
These increases in mining costs have been
offset by the weakening of the Brazilian Real
in comparison to the US Dollar by 14 per cent
compared with the same twelve month period
ending December 2017.
Plant processing costs
Plant costs for the twelve months of 2018
are broadly similar to the costs for the same
period in the previous year. This is primarily
due to a reduction in sales recognised for
the full year 2018 in comparison to the same
period of the previous year. Costs in local
currency have increased but have been offset
by the 14 percent weakening of the average
exchange rate between the Brazilian Real and
the US Dollar for the twelve month period
ended 31 December 2017 in comparison to
the same period in 2018. The main area of
cost increases relates to power generation
and supply during the twelve months of the
year as a result of the global increase in the
price of oil. There was also an increase in
maintenance costs resulting from the ageing
of the equipment.
162,722
168,253
37,108
33,551
167,555
172,949
37,004
37,161
(4,833)
(4,696)
104
(3,610)
(3%)
(3%)
0%
(10%)
12 months ended
December 2018
12 months ended
December 2017
Variance
Variance
US$’000
US$’000
US$’000
13,006
9,269
4,151
3,064
29,490
12,860
9,358
4,176
3,174
29,568
146
(89)
(25)
(110)
(78)
%
1%
(1%)
(1%)
(3%)
0%
General Site Costs
General site costs for the twelve month
period ended 31 December 2018 decreased
by three per cent versus the same period in
the previous year. This is primarily due to a
reduction in sales recognised for the full year
2018 in comparison to the same period of the
previous year. Costs in local currency have
increased but have been offset by the 14 per
cent weakening of the exchange rate between
the Brazilian Real and the US Dollar.
Cost increases in local currency reflect
general increases in inflation between the two
periods as well as more third-party contractors
required to undertake works on the Group’s
tailings management facilities to maintain
compliance with new regulations
that had come into force.
Release of Impairment Provision
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. For
the year ended 31 December 2017, the Group
had recognised a general impairment provision
of US$950,000 against the carrying value of
these coarse ore stockpiles. At 31 December
2018, the value of the provision against the
carrying value of these coarse ore stockpiles
was reduced to US$550,000, therefore the
reduction in the impairment provision of
US$400,000 was released to
the Income Statement.
Shipping Costs
Shipping costs of US$0.89 million (2017:
US$1.34 million) include all domestic road
and river freight in Brazil from the Palito Mine
to the international port at Belem and also
international sea freight to the end purchaser
as well as air transport and insurance for the
bullion sold from the Palito Mine to its final
destination in Sao Paulo. The decrease by
comparison to the same period in 2017 reflects
the reduction in the volume of concentrate
shipped; twelve months of 2018 being 1,040
tonnes in comparison to 1,440 tonnes for the
same period of the previous year.
Treatment Charges
Treatment Charges have decreased by 20 per
cent between 2017 and 2018 as the Group
sold 400 tonnes less, 28 per cent of copper/
gold concentrate in the twelve month period
ended 31 December 2018 compared with the
2017 calendar year.
Royalties
Royalty payments of US$0.68 million (2017:
US$0.56 million) comprise statutory levies
payable in Brazil. Rates are uniform across
all mining operations, however royalties on
gold increased during the fourth quarter of
2017, with a new rate of 1.5 per cent on gold
replacing the previous rate of 1.0 per cent.
The royalty on copper production of 2.0 per
cent was not changed. The increase in royalty
payments of US$0.12 million compared with
2017 reflects this increase of 0.5 per cent on
gold royalties.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report
40
Management Discussion and Analysis
Financial Review continued
Amortisation
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 orebodies. In each
case the base carrying cost of the asset is
adjusted to include a provision for future mine
development costs for each of these ore
bodies. The total amortisation charge relating
to the Palito and São Chico ore bodies for
the twelve months of 2018 is approximately
US$6.18 million (2017: US$7.79 million).
The reduction year on year in part reflects
the weakening of the average exchange rate
between the Brazilian Real and the US Dollar
by 14 per cent together with the reduction
in the reported level of contained gold in the
ore mined compared with the same period
in 2017. The charge reported in the Income
Statement is also adjusted to reflect the level
of sales rather than the level of production,
with part of the depreciation being carried as
an inventory cost and released to the Income
Statement when the goods are sold.
Depreciation
There was also a depreciation charge of
US$3.10 million recorded during the twelve
months of 2018 on plant and equipment used
in the mining and processing (twelve months
of 2017: US$2.68 million). The movement
reflects the 14 per cent weakening of the
Brazilian Real against the US Dollar, offset by
an increase in the charge in local currency
due to the larger mobile fleet acquired for
both the Palito and São Chico Mines over the
last twelve months. In addition, the Group has
during the fourth quarter made an accelerated
charge of approximately US$400,000 in
respect of plant and machinery that has
reached the end of its useful life.
Operating Loss
The Group has recognised an operating loss
before interest and other income of US$2.71
million (2017: operating loss of US$0.69
million) reflective of the lower level of gross
profit from operations and after incurring
US$5.54 million (2017: US$5.50 million) in
administrative expenses as well as US$0.33
(2017: US$0.38 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 Black Scholes model. The charge for the
twelve months to 31 December 2018 is in
respect of options granted between January
2015 and 31 December 2018. The Group also
reported a profit of US$0.27 million from the
disposal of assets (2017: US$0.17 million).
Administration costs of US$5.54 million for
the twelve month period ended 31 December
2018 are at a consistent level to the expense
of US$5.50 million incurred during the twelve
month period ended 31 December 2017.
The Company recorded a foreign exchange
loss of US$0.59 million for the twelve months
ended 31 December 2018 which compares
with a foreign exchange loss of US$0.21
million recorded for the twelve months ended
31 December 2017. 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 twelve month
period to 31 December 2018 were US$2.17
million compared with US$0.84 million for
the same twelve month period of 2017.
An analysis of the composition of these
charges is set out in table 3.
The interest on the secured loan of
US$685,517 (2017: US$314,732) is the cost
of twelve months of interest paid in relation to
funds advanced under the credit agreement
with Sprott, with the increase reflecting the
higher levels of loan principal outstanding
during the period. On 30 June 2017, the Group
entered into a new agreement with Sprott
to increase the loan from US$1.37 million
to US$5.00 million and further increased this
loan to US$8.00 million on 23 January 2018.
Serabi Gold plc // Report and Accounts 2018 Net Interest Charges
12 months ended
December 2018
US$
12 months ended
December 2017
US$
Interest on secured loan
Unwinding of discount on outstanding
acquisition payment
Unwinding of discount on
rehabilitation provision
Unwinding of the discount on the rehabilitation provision
Loss on revaluation of derivatives
Amortisation of fair value of derivatives
Arrangement fee for secured loan
(314,732)
(59,255)
(130,000)
–
–
(520,000)
(180,000)
(281,333)
(1,474,618)
(355,663)
(335,204)
(59,255)
(130,000)
–
(839,191)
(59,255)
–
135
(2,385,313)
318,279
538,371
4,780
(1,523,883)
(839,056)
Gain on revaluation of derivatives
Unwinding of the discount on
the rehabilitation provision
Interest income
Net finance expense
Table 3
The expense on the unwinding of the discount
on acquisition is as a result of the change in
the net present value of the final payment due
on the acquisition of Chapleau Resources.
paid to Sprott during the third quarter of 2018
for the extension of the new US$3 million loan
from its original maturity date of 30 September
2018 to 30 June 2020.
41
included within current liabilities representing
the discounted net present value of the US$12
million final payment.
Non-current assets totalling US$73.77 million
at 31 December 2018 (31 December 2017:
US$77.29 million) are primarily comprised
of property, plant and equipment, which as
at 31 December 2018 totalled US$42.34
million (31 December 2017: US$48.98 million),
including assets acquired as part of the
Chapleau acquisition, as well as development
and deferred exploration costs with a value
of US$27.71 million (31 December 2017:
US$23.90 million), including assets acquired
as part of the Chapleau acquisition. The Group
has also a provision for a deferred tax asset
of US$2.16 million (31 December 2017:
US$2.94 million) and a long term receivable in
respect of state taxes due in Brazil of US$1.55
million (31 December 2017: US$1.47 million).
The weakening of the Brazilian Real from
31 December 2017 when the exchange rate
was BrR$3.3074 to US$1.00 to the rate of
BrR$3.8742 to US$1.00 at 31 December
2018 has had a negative impact on the net
asset position but the main movements are
discussed in more detail below.
The amortisation of fair value of derivatives
of US$520,000 represents the amortisation
charge of the fair value ascribed to a gold call
option granted to Sprott on 30 June 2017.
As part of the US$5 million 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.
On 19 January and at the same time as taking
out an additional US$3 million loan with Sprott,
a six month extension to the repayment terms
for this US$5 million loan was agreed. Under
IFRS 9, this variation, being more than 10 per
cent of the future cash flows, was considered
a substantial modification to the original US$5
million loan. Accordingly, the original loan
under the terms of IFRS 9 was considered
to be repaid and a new loan for US$5 million
taken out but with no derivative instrument
attached to it. As a result, the outstanding fair
value of the derivative, totalling US$520,000,
attaching to the original US$5 million loan
was required to be amortised in full upon the
deemed repayment of the original loan.
The arrangement fee for the secured loan
of US$180,000 relates to two payments of
US$90,000 to Sprott for the organisation and
extension of the loan. US$90,000 relates to
the fee paid to Sprott during the first quarter
for the new US$3 million loan and the revision
to the terms of the existing US$5 million loan.
The second fee of US$90,000 relates to the fee
The gain on the revaluation of derivatives of
US$318,279 (twelve months to 31 December
2017: loss of US$59,255) represents the gain
arising on the revaluation of the derivative
provision at the 31 December 2018. The initial
value of the provision as at 30 June 2017 was
US$650,000 which having been revalued to
US$709,255 as at 31 December 2017 required
a revaluation to US$390,976 at 31 December
2018 resulting in a gain during the twelve
month period ended 31 December 2018.
The Group’s property, plant and equipment
includes the value of its mine assets relating
to the Palito Mining Complex at 31 December
2018 of US$22.65 million (2017: US$28.41
million). This includes US$3.81 million of
additions in relation to the capital development
of the Palito and São Chico ore bodies incurred
during the year. Assets in construction as at
31 December 2018 and relating to the Palito
Mining Complex had a book value of US$5.70
million (2017: US$3.69 million).
The gain on the unwinding of the discount
on the rehabilitation provision is as a result
of change in the net present value of the
rehabilitation provision.
LIQUIDITY AND CAPITAL RESOURCES
Non-Current Assets
On 31 December 2018, the Group’s net
assets amounted to US$69.11 million, which
compares to US$60.77 million as reported
at 31 December 2017. The Group has also
reported a loss after taxation of US$5.75
million in the twelve month period to
31 December 2018.
On 21 December 2017 (“Closing”), the
Group finalised the acquisition of Chapleau
Resources for a total value of US$22 million,
with US$5 million being paid in cash on
21 December 2017. A further US$5 million
in cash was paid on 16 April 2018 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 US$11.00 million payable
The Group owns land, buildings, plant and
equipment with a value of US$9.31 million
(31 December 2017: US$11.19 million).
During the twelve months of 2018 the Group
has acquired additional plant and machinery to
the value of US$2.81 million in relation to its on
going operations at the Palito Mining Complex.
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$6.10 million has been recorded for the
twelve month period to 31 December 2018
(twelve month period to 31 December 2017:
US$7.40 million).
Deferred exploration costs as at 31 December
2018 totalled US$27.71 million (31 December
2017: US$23.90 million), which relates to
US$16.3 million attributable to the value of
the projects acquired as part of the Chapleau
acquisition as well as capitalised costs
of US$4.61 million (2017: US$2,487) on
exploration and evaluation expenditure.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report
42
Management Discussion and Analysis
Financial Review continued
Working Capital
The Group had a working capital position
of US$0.32 million at 31 December 2018
compared to US$1.03 million at 31 December
2017, the movement of US$0.71 million being
detailed in table 4.
The weakening of the Brazilian Real from
31 December 2017 when the exchange rate
was BrR$3.3074 to US$1.00 to the rate of
BrR$3.8742 to US$1.00 at 31 December
2018, a weakening of 17 per cent, has had a
negative impact on the primary areas which
make up the working capital position, however
the main movements are discussed in more
detail to the right.
Inventories
The level of inventory held by the Group at
31 December 2018 has increased by US$1.58
million since 31 December 2017. A breakdown
of the Group’s inventories at 31 December
2018 and at 31 December 2017 is set out in
table 5.
Inventories of consumables (fuel, spare parts,
chemicals, explosives etc.) at 31 December
2018 of US$2.93 million (31 December
2017: US$2.59 million) have increased by
approximately US$0.34 million. The Group
acquires stocks of certain materials including
reagents, explosives and other consumables
in quantities that are sufficient for up to three
to four months’ consumption requirements to
minimise freight and other logistics costs and
improve pricing. The levels of inventory have
increased reflecting a requirement to keep on
hand higher levels of items related
to equipment and plant maintenance.
During 2017, the Group made a provision of
US$950,000 against the value of its stockpiles
of mined ore. At 31 December 2018, the value
of the provision against the carrying value
of these coarse ore stockpiles was reduced
to US$550,000, with the reduction in the
impairment provision of US$400,000 being
released to the Income Statement.
The value of the stock of surface ore has
decreased by 45 per cent from US$1.09
million to US$0.60 million. The total coarse
ore stockpile tonnage has decreased from
Working Capital
31 December 2018 31 December 2017
US$
US$
Variance
US$
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
8,511,474
758,209
4,166,916
9,216,048
6,934,438
1,277,142
3,237,412
4,093,866
1,577,036
(518,933)
929,504
5,122,182
Total current assets
22,652,647
15,542,858
7,109,789
Current liabilities
Trade and other payables
Acquisition payment due
Secured loan
Finance leases and unsecured loan
Derivative financial liabilities
Accruals
6,273,321
10,997,757
3,636,360
666,438
390,976
372,327
5,347,964
5,000,000
1,980,000
1,980,000
709,255
614,198
(925,357)
(5,997,757)
(1,656,360)
(1,65
318,279
241,871
Total current liabilities
22,337,179
14,517,129
(7,820,050)
Working capital
315,468
1,025,729
(710,261)
Non-current liabilities
Trade and other payables
Acquisition payment due
Provisions
Secured loan
Finance leases
955,521
–
1,543,811
2,424,246
48,850
2,753,409
9,997,961
2,047,131
2,500,000
249,412
1,797,888
9,997,961
503,320
75,754
200,562
Total non-current liabilities
4,972,428
17,547,913
12,575,485
Table 4
approximately 15,000 tonnes at 31 December
2017 to approximately 8,000 tonnes at
31 December 2018, a decrease of 48
per cent. Whilst the Group has reduced
by US$400,000 the level of impairment
provision carried against the value of coarse
ore stockpiles, the changing unit production
costs and the weakening of the Brazilian
Real between 31 December 2017 and
31 December 2018 explains the remainder
of the decrease.
The value of finished goods awaiting sale
at 31 December 2018 of US$3.82 million
compares with the value at 31 December
2017 of US$1.74 million. The total value of
finished goods held in stock at 31 December
2018 comprises 236 bags of copper/gold
concentrate with a value of US$1.45 million
(31 December 2017: 142 bags with a value
of US$0.66 million) and bullion on hand for
smelting which, at 31 December 2018, was
86,744 grammes valued at US$2.37 million
in comparison to 39,893 grammes at
31 December 2017 valued at US$1.08 million.
During 2014, when the current operations
were started, the Group 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 2017,
there were approximately 14,700 tonnes of
this stockpile on site with a value of US$0.49
million. During 2018 this particular stockpile
was processed in its entirety.
The valuation attributable to gold locked up
within the processing plant has decreased to
US$1.17 million as at 31 December 2018 (31
December 2017: US$1.02 million) reflecting
normal operational variances.
Inventory
31 December
2018 US$
31 December
2017 US$
Variance
US$
Variance
%
Stockpile of mined ore
Finished goods awaiting sale
Other material in process
Stockpile of flotation tails
Consumables
Total Inventory
Table 5
600,335
3,819,685
1,162,157
–
5,582,177
2,929,297
1,091,656
1,741,860
1,019,593
494,117
(491,321)
2,077,825
142,564
(494,117)
4,347,226
2,587,212
1,234,951
342,085
8,511,474
6,934,438
1,577,036
(45%)
119%
14%
(100%)
28%
13%
23%
Serabi Gold plc // Report and Accounts 2018
43
Trade Receivables
Trade and other receivables at 31 December
2018 of US$0.76 million have decreased by
US$0.52 million from US$1.28 million at
31 December 2017.
As at 31 December 2018 the Group was owed
US$0.62 million from the sale of its copper/
gold concentrate in comparison to US$1.23
million as at 31 December 2017.
Prepayments
Prepayments have increased by US$0.93
million from US$3.24 million at 31 December
2017 to US$4.16 million at 31 December
2018. The main reason for this increase is
because during the second half of 2018
the Group made several down payments
on underground mining equipment, and for
the ore sorter as well as more usual supplier
deposits for monthly consumable supplies and
import taxes. At 31 December 2018 the total
amount of supplier down payments totalled
US$1.14 million, (2017: US$0.48 million).
There has also been an increase of US$0.12
million in prepaid taxes including recoverable
taxes of PIS and Cofins (Federal taxes) that
remain to be recovered at the period end.
Cash at Bank
Between 31 December 2017 and 31
December 2018, cash balances have
increased by approximately US$5.13 million.
During the second quarter of 2018, the Group
received a total of US$23.24 million, net of
legal fees, for the issue of 474,437,864 shares.
The Group also repaid the second instalment
of US$5.0 million for the acquisition of
Chapleau on 16 April 2018.
During the first quarter of 2018, the Group
increased the interest-bearing secured loan
by a further US$3.0 million from US$5.0 million
at 31 December 2017 to US$8.0 million.
The additional loan was taken out in January
2018 to replace working capital that had been
used to make a US$5.00 million payment for
the acquisition of Chapleau Resources as the
first instalment of the total consideration of
US$22 million payable. The Group has also
repaid US$1.94 million of this loan during the
twelve months of 2018.
During 2018, the Group has also spent
US$4.61 million on exploration activities
around the Palito Mining Complex, US$4.10
million on mine development, US$4.05 million
on plant and equipment and US$2.27 million
on pre-operating costs at the Coringa project.
The Group also made the second instalment
of the acquisition payment to Chapleau of
US$4.74 million (US$5.0 million less the
working capital adjustment of US$0.26 million).
Current Liabilities
Current liabilities have increased by US$7.82
million from US$14.52 million at 31 December
2017 to US$22.34 million at 31 December
2018. This mostly reflects that the third and
final payment in respect of the acquisition of
the Coringa gold project of US$12.00 million
is now due within 12 months and has been
reclassified as a current liability whereas at
the end of the prior year this payment was a
non-current liability. In addition, a liability of
US$1.33 million relating to the acquisition of
a historic third party interest in the São Chico
project was re-classified as a current liability.
Trade Creditors
Trade and other payables amounted to
US$6.27 million at 31 December 2018
compared with an amount owed by the
Group of US$5.35 million at 31 December
2017, an increase of US$0.92 million. This
increase in current trade creditors is primarily
because the Group has re-classified as a
current liability the amount of US$1.33 million
relating to the acquisition of a historic third
party net profits interest in the São Chico
project. In the previous year this payable was
included within long term trade payables.
The Group has determined that this liability
will now be settled in a series of payments
over the coming 24 months.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 44
Management Discussion and Analysis
Financial Review continued
Interest-Bearing Loan
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. An amendment
to this agreement was completed on 22
January 2018 whereby 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. On 14 September 2018, the
Company exercised its option to extend the
term of the New Loan to 30 June 2020 with
repayment being in equal monthly instalments
commencing on 30 September 2018.
Of the total loan US$3.64 million is due in less
than 12 months with US$2.16 million due in
more than twelve months. A total of US$1.94
million was repaid during the period.
Obligations under Finance Leases and
Unsecured Equipment Loan
Obligations under finance leases and
unsecured equipment loans for less than
one year have decreased by US$0.20 million
from US$0.87 million at 31 December
2017 to US$0.67 million at 31 December
2018. During 2018, the Group has made
one new equipment acquisition using lease
finance arrangements and has made capital
repayments totalling approximately US$0.80
million. All finance leases are held by Serabi
Mineração SA (“SMSA”) in Brazil but are
denominated in Euro or US Dollar before being
converted to Brazilian Reals, the functional
currency for SMSA.
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$0.71
million. At 31 December 2018, the derivative
provision was revalued to US$0.39 million with
the decrease in the provision that has arisen in
the year of US$0.32 million being reflected as
finance income in the Income Statement.
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. The fair value of the derivative has
been measured using level 1 inputs.
Acquisition Liability
The amount due on acquisition of US$11.00
million relates to the net present value of
the US$12 million cash payment due upon
the earlier of either the first gold being
produced from the Coringa gold project
or 21 December 2019.
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 2018 was US$1.54
million. The value at 31 December 2017 was
US$2.01 million. The variation is as a result of
changes in estimates as well as exchange rate
variations between the two periods.
The Group does not have any asset backed
commercial paper investments.
NON-IFRS FINANCIAL MEASURES
The gold mining industry has sought to
establish a common voluntary standard to
enable investors to assess and compare
the performance of companies engaged in
gold mining activities. The Group has elected
to provide calculations of Cash Costs and
All-In Sustaining Costs and has conformed
its calculation of these performance
measurements with the guidance notes
released by the World Gold Council. The
measures seek to capture all the important
components of the Group’s production
and related costs. In addition, management
utilises these and similar metrics as a
valuable management tool to monitor cost
performance of the Group’s operations.
These measures and similar measures have
no standardised meaning under IFRS and
may not be comparable to similar measures
presented by other companies. This measure
is intended to provide additional information
and should not be considered in isolation or
as a substitute for measures of performance
prepared in accordance with IFRS.
Total Cash Cost and All-In Sustaining Cost
Table 6, 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
28 March 2019
Serabi Gold plc // Report and Accounts 2018 45
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 2018
(US$)
12 months ended
31 December 2017
(US$)
31,501,016
32,015,498
(106,436)
346,468
(1,268,161)
30,472,886
5,359,000
329,620
4,386,397
40,547,903
(347,562)
555,476
(2,663,981)
29,559,430
5,343,871
381,362
4,362,192
39,646,855
12 months ended
31 December 2018
(ounces)
12 months ended
31 December 2017
(ounces)
Gold ounces produced
37,108
37,004
12 months Ended
31 December 2018
(US$)
12 months ended
31 December 2017
(US$)
Total Cash Cost of production (per ounce)
US$821
Total All-In Sustaining Cost of production (per ounce)
US$1,093
US$799
US$1,071
Table 6
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report
46
Modern Slavery and Human Trafficking Statement
The Company is committed to the
prevention of the use of forced labour
and has a zero tolerance policy for human
trafficking and slavery.
Serabi Gold plc (“Serabi” or the “Company”
or, together with its subsidiaries, the
“Group”) publishes this statement
in compliance with section 54 of the
Modern Slavery Act 2015. This statement
describes the steps Serabi has taken to
prevent modern slavery in its business
and supply chains. Where the context so
requires, references in this statement to
the Company include references to the
Company and all of its subsidiaries from
time to time. The Company is committed to
the prevention of the use of forced labour
and has a zero tolerance policy for human
trafficking and slavery.
The Modern Slavery Act 2015 (Act) requires
any commercial organisation in any sector,
which supplies goods or services, and carries
on a business or part of a business in the
United Kingdom, and is above a specified total
turnover, to produce and publish an annual
slavery and human trafficking statement.
1. Organisational structure
Serabi Gold plc is an established gold
production and development company, with
its shares listed on the stock exchanges
operated by AIM in the United Kingdom and
the TSX in Canada. Current gold production
of 40,000 ounces per annum is derived
from the Company’s Palito Complex mining
operations located in the Tapajos region, in
the southwest of the State of Para in northern
Brazil. The Company is developing the Coringa
gold project also located in the Tapajos region
and currently anticipates that this will be in
production in 2020. The Company directly
employs approximately 350 staff in
its operations in Brazil and has a small
head office staff based in London, England.
2. Our policies on slavery
and human trafficking
2.1 - The Company will not use or allow the
use of forced, compulsory labour, slavery,
servitude or human trafficking in the course of
its business. This includes sexual exploitation,
securing services by force, threats or
deception and securing services from
children and vulnerable persons.
2.2 - The Company operates the following
policies which are relevant to the prevention of
slavery and human trafficking in its operations:
2.2.1 - Anti-slavery and human trafficking
policy – this policy sets out the steps that the
Company has taken, and will take, to prevent
human trafficking and slavery within its
business and its supply chain.
2.2.2 - Serabi Social Plans – Serabi is a
significant employer in the region and
provides a number of initiatives each year to
support and improve the conditions of local
communities, through, inter-alia, supporting
education, provision of medical and dental
facilities, power and water, and general
improvement of roads.
2.2.3 - Procurement Policy - Serabi’s
operations are supported by a supply chain
which predominantly comprises goods and
services required for the mining, processing
and recovery of gold. Where practical, Serabi
sources goods and services necessary to
maintain its operations via supply chains.
The Company tries to use local suppliers if
possible and appropriate in order to enhance
its contribution to socioeconomic welfare in
the Tapajos region and the State of Para.
The Group currently conducts business
with numerous suppliers, with the significant
majority of them based in Brazil and
cumulatively covering over 90 per cent of
the Group’s requirements. The majority of the
other suppliers are based in North America
and Europe.
The Group maintains open channels of
communication with its suppliers and
encourages them to raise any issues or
concerns that arise in the conduct of their
business.
2.2.4 - Employment Policy – Employment
terms and conditions for the Company’s
employees based at its UK office and at its
Brazilian mining operations are regulated
by and are operated in compliance with all
Serabi Gold plc // Report and Accounts 2018 47
relevant prevailing national and local legislation.
Employment terms and conditions provided to
staff meet or exceed the national norms. The
Group’s mining and processing operations are
labour intensive and unionised.
2.2.5 - Whistleblowing – The Company
encourages all of its employees to report any
concerns related to the activities of the firm.
The Company will ensure that any matter
raised under this procedure will be investigated
thoroughly, promptly and confidentially, and
the outcome of the investigation reported
back to the individual who raised the issue.
Additionally, the Company will ensure that no
one will be victimised for raising a matter under
this procedure.
2.3 - In addition, internal policies are reviewed
regularly to ensure continued compliance with
the Modern Slavery Act 2015.
3. Due diligence processes for slavery
and human trafficking
The Company believes that in order to prevent
human trafficking and slavery within its
business and its supply chain it is necessary to
first understand the areas where the Company
is most at risk. Although the work conducted
at the Company’s mining operations is
labour intensive, the Company feels that the
unionised workforce and the Company’s
adherence to strict employment policies and
regular inspection by the Ministry of Labour
negates the risk of modern slavery in this
operation. As a consequence, the Company
feels its supply chain is the area that presents
the most risk. As a result of the due diligence
process the Company has conducted,
systems have been put in place to:
3.1 - Continue to identify and assess potential
risk areas in the Company’s business and
supply chains;
3.2 - Continue to adhere to, and enforce
the Company’s procurement policy and the
Company’s employment policies;
3.3 - Seek to continue the good relationship
built with unions and the Ministry of Labour in
Brazil; and
3.4 - Protect whistle blowers.
4. SUPPLIER ADHERENCE TO OUR VALUES
AND ETHICS
4.1 - To ensure contractors and those in the
Company’s supply chain comply with its values
and ethics, the Company incorporates into
its procurement procedures a requirement
for suppliers to positively confirm their own
commitments to prevent human trafficking
and slavery.
4.2 - In addition efforts are made to
confirm that the Company’s suppliers are
as committed to the prevention of human
trafficking and slavery as the Company, and
each supplier’s conduct is carefully considered
when awarding or renewing business.
4.3 - Reviews of the Company’s suppliers
and its supply chain profile will be conducted
annually.
5. TRAINING
To ensure a high level of understanding of the
risks of modern slavery and human trafficking
in its supply chains and business, the
Company will provide the necessary training
to all relevant employees.
6. PERFORMANCE INDICATORS
The Company will use the following key
performance indicators to measure how
effective it is in ensuring that slavery and
human trafficking is not taking place in any
part of its business or supply chain:
6.1 - completion of necessary training
of the policy by all relevant staff;
6.2 - communication of the policy
to suppliers; and
6.3 - continued progress of the social
and labour plan of the Group in Brazil.
7. FURTHER STEPS
This statement is reviewed annually by the
Company’s Chief Executive Officer Michael
Hodgson and approved by Serabi’s Board
of Directors.
This statement is made pursuant to
section 54(1) of the Act and constitutes
the Company’s antislavery and human
trafficking statement for the calendar
year ended 31 December 2018.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 48
Social and Environmental Activities
Supporting Communities and the Environment
Serabi has been active for over 13 years in the State
of Para in the region of Tapajos and is dependent on
close co-operation with the communities of Jardim
do Ouro, Moraes d’Almeida, Novo Progress and Itaituba,
in particular, for its continued growth and success.
The presence of Serabi’s operations in the
Tapajos region has created many employment
opportunities to local communities as well as
other improvements. These towns provide
support services particularly engineering,
construction and fabrication as well as
staff for the Group’s mining and exploration
activities. As with any similar relationship, the
support and contracts that Serabi provides
stimulate growth and investment to these
local communities which in the long term
improves the quality and levels of support that
these communities can provide. It is a strong
objective of the Group to, wherever practical,
increase the local content in its operations in
order to maximise the economic benefits to
local businesses and individuals and to the
State of Para.
The programme of prioritisation of the
workforce, services and equipment has
yielded excellent results during the year with
the generation of new jobs for local people
living in and around the municipality of Itaituba
and the number of positions taken by local
staff increasing by approximately 25 per cent
during the year.
ENVIRONMENTAL
Brazil has a well-developed and strong
environmental regime 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 and for
2019 has commenced a programme to use
waste material from its mining operations to
remediate some historic artisanal dams that are
located within the Palito mine site.
Serabi Gold plc // Report and Accounts 2018 49
During 2018 the Group was involved in an
extensive programme to bring its tailings
management facilities into full compliance
with new Brazilian legislation that had been
introduced following the dam failure at
Mariana, in the state of Minas Gerais, in
2015. An annual audit of our tailings facilities,
undertaken late in 2018 by an accredited
Brazilian geotechnical engineering expert,
confirmed our tailings management facility to
be in good order, and it remains fully licensed
and certified.
Serabi has established a programme to
support scientific research in new species
found in the local area and which it hopes
will help to increase the local awareness and
protection of the flora, fauna and the wider
ecosystem in the local region.
COMMUNITIES, EDUCATION AND HEALTH
Serabi has created a number of programmes
targeting different areas such as education,
health, dental, environmental, cultural, social
and safety in order to assist and positively
impact communities in the areas around
Serabi’s operations.
One of the educational programmes includes
the school at Jardim do Ouro which was
originally built by Serabi and for which Serabi
continues to provide assistance. The school
educates children from the neighbouring local
communities and regions around and with
Serabi’s help gives these children access
to books to motivate reading, other learning
materials to assist them during classes, school
uniform and computers with internet access.
The health programme created by Serabi
includes a medical facility that was created to
provide healthcare services and support to
local communities giving new born children
and pregnant women priority when needed.
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.
In 2018, Serabi continued to provide local
communities with access to health care
through dental programmes and campaigns
focusing on oral health. All the appointments
are made in the dental clinic developed by
Serabi. With each appointment the children
and their parents learn how to develop healthy
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 50
Social and Environmental Activities continued
The safety training programme is very
important to make sure that all the operations
run with the minimum risk possible to
the environment. The Company has daily
monitoring programmes in place to minimise
the risks. The safety training programme aims
to train and enable all local employees to
observe and report any potential problem or
failing in the programme. Daily inspections are
undertaken by the Group’s health and safety
teams which provide staff with daily briefings
and training before the start of each shift, as
part of its preventive actions and contingency
planning for its mining and exploration
activities.
Serabi has in 2018 also continued its
Christmas campaign which aims to create
a memorable day for local communities by
providing a Christmas party and a donation
of toys to local children.
habits to care for their teeth while they are
young. These habits can set the stage for
good oral healthcare throughout their entire
life, and help to avoid many of the problems
that result from poor oral health, including gum
disease, cavities, and tooth decay.
Serabi’s educational environmental
programmes aim to make changes that can be
implemented both individually and collectively.
The main purpose of these programmes
is to leave a legacy of sustainability in all
communities where the Company has
influence. In order to increase the local levels
of care for the environment, during 2018
Serabi created a number of initiatives involving
the communities. In particular, Serabi created
inclusion programmes in partnership with
local teachers making decisions related to the
environment, with the intention of encouraging
local students to be more aware of the
environment. This action has resulted in more
people involved in environmental programmes
held by the schools.
Serabi has established a programme which is
focused on improved social communication
to promote the idea of clear and participative
communications between the Company and
the communities. The programme involves a
monthly meeting with the local leaders with
the purpose to update both parties about any
progress on agreed programmes or concerns.
Serabi has also provided donations to build
the 103 PPD station for the Military Police
in the District of Moraes Almeida with the
main purpose of increasing local safety in
the communities.
Serabi implemented the expansion of the
water supply for the indigenous population
of Ethnia Kayapoin in order to improve water
facilities into the community. This project
provides the expansion and optimisation
of water to Ethnia Kayapoin. All the positive
aspects of this expansion were examined
through interviews with the local community
and site visits.
Serabi created a programme to incentivise
participation in art, music and local and
national culture in the communities. The
programme was created with the intention to
improve cultural understanding and awareness
and it was supported by the Ministry of
Culture. Serabi donated nearly R$90,000 to
invest in musical instruments to the Jardim
do Ouro community band to encourage the
local community to pursue new experiences
through art and music and as result bring the
community closer. The programme also offers
the opportunity for the local kids to learn
theatre to help them in their self-development.
Serabi Gold plc // Report and Accounts 2018 51
PLANNED INITIATIVES FOR 2019
Development of the Local Economy
Continue the prioritisation of hiring suppliers
and local services from Jardim do Ouro,
Moraes Almeida and Itaituba.
Continuing improvement to infrastructure
– health, education and sanitation for the
communities around Palito and São Chico
• Continuing improvement to infrastructure
– health, education and sanitation for the
communities around Palito and São Chico.
• Continue actions of medical and dental
care at Jardim do Ouro and São Chico
communities.
• Continue and look to expand the provision
of a public power and lighting network for
the São Chico community.
•
Initiation of the process of water abstraction
to serve the community of São Chico.
• Refurbishment of Health Support Office in
Jardim do Ouro community, in partnership
with the Health Department of Itaituba.
• Continued maintenance of the
Transgarimpeiro Highway which links Jardim
do Ouro and São Chico to the main BR163
Highway.
• Donations of diesel for the police vehicles of
the communities of São Chico and Jardim
do Ouro in order to help to improve the
security/safety in the region.
Programmes focusing on Coringa
communities
• Maintenance programmes for the access
roads from the BR163 Highway which
support the local “Terra Nossa” community.
• Continuing donations to local Indigenous
populations to assist them to maintain their
traditions and keep their community intact.
• Assistance for an ophthalmologist in a
project that will provide free glasses and
consultation for the local children.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsSerabi Gold plc // Report and Accounts 2018Strategic Report 52
Board of Directors and Senior Management
Effective Leadership and Management
Melvyn Williams
Non-executive Chairman
A
R
Mike Hodgson
Chief Executive
Appointed: March 2011
Experience: Mel was, until June 2011, the Chief
Financial Officer and Senior Vice President of Finance
and Corporate Development of Brigus Gold. Mel
has over 40 years of financial experience, much
of that time spent within the mining industry. From
November 2003 through January 2004, Mel 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.
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.
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.
Aquiles Alegria
Non-executive
Nicolas Bañados
Non-executive
R
T Sean Harvey
Non-executive
A
R
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: 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.
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 2018 53
OUR DIVERSE BOARD
Nationalities
Background experience
• Geology
• Mine Engineering
•
Investment Banking
• Corporate Finance
• Accounting
• Asset and Investment Management
Tenure
1–3 Years 11%
(1 Director)
4–9 Years 67%
(6 Directors)
10+ Years 22%
(2 Directors)
Non-Executive 78%
(7 Directors)
Executive 22%
(2 Directors)
COMMITTEE MEMBERSHIP
A
R
Audit Committee
Remuneration Committee
Chairman
Member
Felipe Swett
Non-executive
A
Roney Almeida
Chief Operating Officer
Senior Management in Brazil
Composition
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, Mark
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 Mark 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.
Appointed: September 2014
Experience: Felipe is a Partner and heads the asset
management team at Asset Chile, a Chilean-based
investment bank. Felipe 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: Roney has worked in a variety of mining
operations both open-pit and underground and,
as well as gold, also has experience with other ore
types including nickel, iron-ore and limestone having
worked with companies such as Anglo American,
Vale, Votorantim (including a two year period as a
mine manager in Ontario, Canada) and most recently
with Compania Siderurgia Nacional in the position of
Corporate and Operations Mine Manager.
Qualifications: Roney has degrees in Geology
and Mine Engineering from the School of Mines
of the Federal University of Ouro Preto, in Minas
Gerais, Brazil, and an MBA From the Getulio Vargas
Foundation in Sao Paulo.
Ulisses Melo
General Manager
Experience: Ulisses, who was previously the Chief
Financial Officer of Serabi Mineraçăo Limitada in
Brazil, took over the role of
General Manager in April 2009. He has
overall responsibility for the day-to-day
affairs of Serabi in Brazil. Prior to joining Serabi
he spent five years working with the international
accounting firm Arthur Andersen and a further ten
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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
54
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 2018, the Board met 10 times excluding the Annual General Meeting and Special Meetings of shareholders. 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. Any new Directors appointed during the period following the last Annual General Meeting, are required to stand for
election at the next Annual General Meeting.
CORPORATE GOVERNANCE CODE
The Board of Directors of Serabi monitors the business affairs of the Company on behalf of shareholders. The Board currently consists of the
Non-executive Chairman, Managing Director, Finance Director and five further Non-executive Directors. None of the Non-executive Directors has
held an executive position with the Company in the past. The Directors have responsibility for the overall corporate governance of the Company
and recognise the need for the highest standards of behaviour and accountability.
The Board of Directors is responsible for the stewardship of the Company through consultation with management of the Company. Any
responsibility that is not delegated to management or to the committees of the Board of Directors remains with the Board of Directors, subject to
the powers of the shareholders’ meetings. The frequency of Board of Directors’ meetings, as well as the nature of agenda items, varies depending
on the state of the Company’s affairs and in light of opportunities or risks which the Company faces. Members of the Board of Directors are in
frequent contact with one another and meetings of the Board of Directors are held as deemed necessary.
Until September 2018, companies whose shares were listed on AIM had not been obliged to formally adopt or follow a specific corporate
governance code but Serabi’s Board always sought, where practical and reasonable, to follow the best practice guidelines set out in the
recommendations of the UK Corporate Governance Code (“the Code”). With effect from September 2018 it became mandatory for UK companies
whose shares were listed on AIM to adopt and follow a corporate governance code and therefore since 1 September 2018, the Directors, being
committed to the principles underlying best practice in corporate governance, adopted the Corporate Governance Code (“the QCA Code”)
prepared by the Quoted Companies Alliance (“QCA”). In addition, the Company as a result of the listing of its shares on the TSX is obliged to comply
with Canadian National Policy 58-201 – Corporate Governance Guidelines which establishes corporate governance guidelines that apply to all
public companies. The Company has instituted corporate governance practices that also, where practical, take consideration of these guidelines.
The Company is also subject to the UK City Code of Takeovers and Mergers.
Serabi Gold plc // Report and Accounts 2018 55
The QCA Code sets out 10 principles of Corporate Governance that the Company should adopt. These are listed below together
with a short explanation of how the Company applies each of the principles:
PRINCIPLE ONE
Business Model and Strategy
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.
With this in mind the Company,
1. is focused on pursuing gold mining opportunities in Brazil appropriate to the Group’s size and capabilities,
2. will identify and evaluate high quality opportunities through exploration or acquisition,
3. expects to plan, finance and build new mines in a timely and cost-effective manner, and
4. will seek continuous operational improvements to maximise value.
In this way it anticipates that this will lead to value creation for all stakeholders.
SHAREHOLDERS
HOST GOVERNMENT AND
GOVERNMENT AGENCIES
LOCAL COMMUNITIES
EMPLOYEES
Generation of short term
capital appreciation through
investment of cash in accretive
growth to grow longer term
cash generation to sustain
distributions to shareholders.
PRINCIPLE TWO
Generation of tax and royalty
receipts to sustain a high quality
oversight and regulatory regime.
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.
Understanding Shareholder Needs and Expectations
The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Company has close
on-going relationships with its private shareholders. Institutional shareholders and analysts have the opportunity to discuss issues and provide
feedback at meetings with the Company and management undertake roadshows to help facilitate meeting opportunities. All shareholders are
encouraged to attend and participate in all shareholder meetings called by the Company and especially its Annual General Meeting. Investors
also have access to current information on the Company though its website, www.serabigold.com, and via Mike Hodgson, CEO and Clive Line,
CFO who are available to answer investor relations enquiries.
PRINCIPLE THREE
Considering Wider Stakeholder and Social Responsibilities
The Board recognises that the long term success of the Company is reliant upon the efforts of the employees of the Company and its contractors,
suppliers, regulators and other stakeholders. The Board and management have put in place a range of processes and systems to ensure that there
is close oversight and contact with its key resources and relationships.
The Company has staff dedicated to ensuring that it has active relationships with local communities who are within the vicinity of its operations
to understand their concerns and expectations, thereby seeking to ensure a mutually beneficial co-operation for both sides. The Company is
subject to oversight by a number of different governmental and other bodies who directly or indirectly are involved with the licensing and approval
process of mining operations in Brazil. Additionally, given the nature of the Company’s business, there are other parties who, whilst not having
regulatory power, nonetheless have interest in seeing that the Company conducts its operations in a safe, responsible, ethical and conscientious
manner. The Company makes all reasonable efforts, directly or through its advisers, to engage in and maintain active dialogue with each of these
governmental and non-governmental bodies, to ensure that any issues faced by the Company, including but not limited to regulations or proposed
changes to regulations, are well understood and ensuring to the fullest extent possible that the Company is in compliance with all appropriate
regulation, standards and specific licensing obligations, including environmental, social and safety, at all times.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 56
Report on Corporate Governance continued
PRINCIPLE FOUR
Risk Management
In addition to its other roles and responsibilities, the Company’s senior management, its Audit Committee and the Board are responsible for
ensuring that procedures are in place and are being implemented effectively to identify, evaluate and manage the significant risks faced by
the Company.
The Company is subject to a number of risks and includes in its quarterly Management Discussion and Analysis (a copy of which is available on
the Company’s website at www.serabigold.com) a detailed analysis of the various areas of risk for the Company, its activities and ultimately its
stakeholders. A condensed version of these risks is set out in this Annual Report on pages 24 to 25 which summarises the principal risks and the
manner in which the Company and its management seeks to mitigate these. This risk matrix is updated as changes arise in the nature of risks or
the controls that are implemented to mitigate them. The Audit and Compliance Committee reviews the risk matrix and the effectiveness of scenario
testing on a regular basis.
The Board considers that an internal audit function is not necessary or practical due to the size of the Company and the close day to day control
exercised by the Executive Directors. However, the Board will continue to monitor the need for an internal audit function. The Executive Directors
have established appropriate reporting and control mechanisms to ensure the effectiveness of the Company’s control systems.
PRINCIPLE FIVE
A Well-Functioning Board of Directors
The Board is currently comprised of the Chief Executive, Mike Hodgson, the Financial Director, Mr Clive Line and seven Non-executive Directors.
Of the Non-executive Directors, Mr Mel Williams, the Chairman, Mr Sean Harvey, Mr Felipe Swett and Mr Aquiles Alegria are considered to
be independent, whilst Mr Nicolas Bañados, Mr Eduardo Rosselot and Mr Mark Sawyer, under the QCA Code, by virtue of being appointed
representatives of significant shareholders, are not considered to be independent. Biographical details of the current Directors are set out on the
Company’s website and on page 52 of this report. Executive and Non-Executive Directors are subject to re-election usually at the Company’s
Annual General Meeting, at intervals of no more than three years. Summary terms and conditions of each of the Directors are disclosed annually
in the Company’s Annual Reports and also in the Management Information Circular which accompanies the Notice of Annual General Meeting.
Copies of both these documents are available on the Company’s website at www.serabigold.com.
The Board meets on a regular basis and during 2018 met a total of ten times. It has established an Audit and Compliance Committee, a
Remuneration Committee and a Project Steering Committee, particulars of which are set out in this report. The Board has not at this time felt it
necessary to establish a separate Nominations Committee and considers that this responsibility can be currently discharged by the Remuneration
Committee or, if the circumstances so dictate, the Board as a whole. The Board is responsible for the stewardship of the Company through
consultation with management of the Company. Any responsibility that is not delegated to management or to the committees of the Board remains
with the Board, subject to the rights of the Shareholders. The frequency of Board meetings, as well as the nature of agenda items, varies depending
on the state of the Company's affairs and in light of opportunities or risks which the Company faces. Members of the Board are in frequent contact
with one another and meetings of the Board are held as deemed necessary.
Additionally, the Board has appointed an Executive Committee to oversee and co-ordinate 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.
The Chief Executive and the Finance Director are full time employees of the Company whilst each of the Non-executive Directors are considered
to be part time but are expected to provide as much time to the Company as is required.
The Board is satisfied that, as a whole, it is able to exercise independent judgement. The Articles of Association of the Company have already
been specifically amended to restrict the role of the Directors in any situation where there is considered to be a conflict of interest and requiring
such conflicted Director(s) to abstain from voting and participation in any meeting or voting where the matter giving rise to the conflict is to be
considered. The Company has also entered into Relationship Agreements with each of Fratelli Investments Limited (“Fratelli”) and Greenstone
Resources II LP (“Greenstone”), its two principal shareholders, details of which are set out in the Annual Information Form filed by the Company on
SEDAR on 29 March 2019 and available on the Company’s website. The Relationship Agreements inter alia require that (i) the Company is capable
of carrying on its business independently of each of Fratelli and Greenstone; (ii) transactions between any member of the Group and any member
of either Fratelli or Greenstone are made at arm's length on a normal commercial basis and approved by Directors independent of Fratelli or
Greenstone as appropriate; (iii) any disputes between Fratelli and / or Greenstone and any member of the Group shall be dealt with by a committee
of the independent Directors; (iv) the selection, approval and removal of senior management and Executive Directors shall be subject to the
approval of a majority of the Non-executive Directors of the Company; and (v) neither Fratelli nor Greenstone shall take any action as a result
of which there would be fewer than two Directors independent of Fratelli and Greenstone.
Serabi Gold plc // Report and Accounts 2018 57
The Board of the Company may meet without management when any Board meetings are held and at any other time if so requested by the
Chairman. The Audit Committee and the Remuneration Committee are both comprised solely of Non-executive Directors and the Remuneration
Committee will as a matter of its normal business meet without management during the course of the year. Other Non-executive Directors are
generally invited to attend meetings of the Remuneration and Audit Committees to permit joint consideration of matters without the presence of
management and whilst subject matter will generally be confined to the areas of audit, controls and remuneration the Chairman invites participation
on other topics at these meetings. Accordingly, forums do occur every three to four months that comprise meetings of the Non-executive Directors.
Attendance at Board and Committee Meetings
During 2018, the Board held 10 Board meetings. Attendance by each of the Directors at these meetings and meetings of its committees are as set
out in the table below.
Director
Mel Williams
Michael Hodgson
Clive Line
Aquiles Alegria
Nicolas Bañados
Sean Harvey
Eduardo Rosselot
Mark Sawyer(1)
Felipe Swett
Board Meetings
(Attended/Held)
Audit
Committee
Meetings
(Attended/Held)
Remuneration
Committee
Meetings
(Attended/Held)
9/10
9/10
10/10
5/10
9/10
6/10
6/10
2/8
6/10
4/4
n/a
n/a
n/a
n/a
4/4
n/a
n/a
4/4
2/2
n/a
n/a
n/a
2/2
2/2
n/a
n/a
n/a
(1) Mr Sawyer was only appointed to the Board on 23 March 2018.
PRINCIPLE SIX
Appropriate Skills and Experience of the Directors
The Company believes that the current balance of skills in the Board as a whole reflects a very broad range of commercial and professional skills
across geographies and industries and each of the Directors has previous experience in public markets.
The Company has an established and stable Board which it considers to be well suited to its fundamental objective of enhancing and preserving
long term shareholder value and ensuring that the Company conducts its business in an ethical and safe manner. The Board is considered to be
of sufficient number to provide more than adequate experience and perspective to its decision-making process and given the size and nature of
the Company, the Board does not consider at this time that it is appropriate to increase the size of the Board or amend its composition. The Board
is however conscious of the different perspectives that individuals from different cultural backgrounds and with different work and life experiences
can bring. For this reason, when considering any change to its composition it will actively seek to further increase its current diversity to become
more inclusive taking into account considerations such as gender, age and ethnicity to ensure that the Board benefits from a broad range of
perspectives and experiences appropriate to its activities and needs.
As the Board is not currently anticipating any change to its size or composition, it has not yet implemented a written policy regarding the
identification and nomination of women directors. In the event that one of the existing members of the Board stands down from their current
position, the Company will, at that time, give further consideration to the specific selection of a female member of the Board and the adoption
of a formal policy relating to the positive appointment of additional female members of the Board for future opportunities.
The Board does consider that its current composition already encompasses significant diversity. Of its nine members, its membership covers three
nationalities, and includes three Directors with strong technical mining and geological expertise, two Directors with financial backgrounds and four
Directors bringing investment banking and corporate finance experience. All of the Board members have spent significant, and in some cases, all of
their careers working within the natural resources industries. With the exception of Mr. Sawyer, who was appointed in March 2018 concurrent with
the announcement of the subscription by Greenstone Resources for new ordinary shares, all of the current Non-executive Directors have served for
periods of between four to eight years which the Board considers is an indicator of an appropriate level of turnover and renewal while maintaining
continuity and knowledge.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
58
Report on Corporate Governance continued
The Board has not adopted a target regarding the number of women on the Board of Directors. The Board of Directors does expect more diversity
on the Board of Directors over time and each future appointment will be made on the basis of ensuring that its Board is able to provide the widest
possible experience and perspective that is consistent with achieving the highest level of professionalism and continues to enhance and preserve
long term shareholder value and ensure that the Company conducts its business in an ethical and safe manner. Today, none (zero per cent) of the
Company’s Directors are women.
The Board is responsible for: (a) ensuring that all new Directors receive a comprehensive orientation, that they fully understand the role of the Board
and its committees, as well as the contribution individual Directors are expected to make (including the commitment of time and resources that the
Company expects from its Directors) and that they understand the nature and operation of the Company's business; and (b) providing continuing
education opportunities for all Directors, so that individuals may maintain or enhance their skills and abilities as directors, as well as to ensure that
their knowledge and understanding of the Company's business remains current.
Given the size of the Company and the in-depth experience of its Directors, the Company has not deemed it necessary to develop a formal
process of orientation for new directors but encourages all its Directors to visit the Company's operations to ensure familiarity and proper
understanding. The Directors conduct a discussion of the business of the Company at its meetings to ensure that new Directors are provided
with an overview of the Company's operations.
From time to time, corporate officers and legal, financial and other experts are invited to attend Board meetings to describe matters in their areas
of expertise. The Board ensures that any new Board member receives a written memorandum (the "Memorandum") prepared by the Company's
lawyers setting out their responsibilities as a director and ensures that each Director is conversant with the regulations of any stock exchange
on which the Company's shares are traded.
Directors are entitled to attend seminars that they determine necessary to keep themselves up-to-date with current issues relevant to their
services as Directors of the Company.
PRINCIPLE SEVEN
Evaluation of Board Performance
The Board has determined that it shall itself be responsible for assessing the effectiveness and contributions of the Board as a whole, its
committees (which currently comprise the Audit Committee, the Remuneration Committee and the Project Steering Committee) and individual
Directors. The size of the Board allows for open discussion. The Chairman has regular dialogue with the Chief Executive whereby the Board's
role and effectiveness can be considered. The Finance Director also has regular dialogue with the Head of the Audit Committee whereby that
Committee's effectiveness can be considered.
No formal assessments have been prepared, however the Board will keep this matter under review and especially if either the size of the Board or
the number of committees increases which in turn may require a more formalised assessment and evaluation process to be established to ensure
continued effectiveness.
PRINCIPLE EIGHT
Corporate Culture
The Board recognises that its decisions regarding strategy and risk will impact the corporate culture of the Company as a whole and that this will
impact the performance of the Company. The Board is very aware that the tone and culture set by the Board will greatly impact all aspects of the
Company as a whole and the way that employees behave. The corporate governance arrangements that the Board has adopted are designed
to ensure that the Company delivers long term value to its shareholders and that shareholders have the opportunity to express their views and
expectations for the Company in a manner that encourages open dialogue with the Board.
A large part of the Company's activities is centred upon what needs to be an open and respectful dialogue with employees, clients and other
stakeholders. Therefore, the importance of sound ethical values and behaviours is crucial to the ability of the Company to successfully achieve
its corporate objectives. The Board places great import on this aspect of corporate life and seeks to ensure that this flows through all that the
Company does. The Directors consider that at present the Company has an open culture facilitating comprehensive dialogue and feedback
and enabling positive and constructive challenge.
The Company has adopted, with effect from the date on which its shares were admitted to AIM, a code for Directors' and employees' dealings
in securities which is appropriate for a company whose securities are traded on AIM and is in accordance with the requirements of the Market
Abuse Regulation which came into effect in 2016.
Serabi Gold plc // Report and Accounts 2018 59
PRINCIPLE NINE
Maintenance of Governance Structures and Processes
Ultimate authority for all aspects of the Company's activities rests with the Board, with the responsibilities of the Executive Directors arising as a
consequence of delegation by the Board.
The Board has adopted appropriate delegations of authority which set out matters which are reserved to the Board. The Chairman is responsible
for the effectiveness of the Board, while management of the Company's business and primary contact with shareholders has been delegated by
the Board to the Chief Executive Officer and the Finance Director.
Audit and Compliance Committee
The Audit and Compliance 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. 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). 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.
The Audit and Compliance 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. It receives reports from the executive management and auditors relating to the quarterly
and annual accounts and the accounting and internal control systems in use throughout the Company.
The Audit and Compliance Committee shall meet not less than four times in each financial year and it has unrestricted access to the Company's
auditors. The Audit Committee is required to consist of not less than three Non-executive Directors.
During 2018, the Audit and Compliance 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;
• approving the estimation and accounting treatment for derivative transactions.
In addition to matters raised at the Committee meetings, Serabi’s management submits working papers and notes outlining the key issues,
which are circulated to the Committee for consideration ahead of the meetings.
The Committee is comprised of Messrs. Swett (Chair), Harvey and Williams. Each member of the Committee is considered to be independent
within the meaning of NI 52-110. All members of the Committee are financially literate in that they have the ability to read and understand a set
of financial statements that are of the same breadth and level of complexity of accounting issues as can be reasonably expected to be raised
by the Company's financial statements.
Mr. Swett has worked for over ten years in investment management, initially working as analyst appraising the performance of a wide range
of companies and businesses, and now heads the Asset Management team at Asset Chile, a Chilean-based investment bank. He also holds
an MBA from the Kellogg School of Management, Northwestern University.
Mr Williams is a Chartered Certified Accountant and holds an MBA from Cranfield School of Management. Mr Williams has over 40 years of
financial experience much of which has been spent in the mining industry. Until June 2011 he served as the Chief Financial Officer and Senior
Vice President of Finance and Corporate Development of Brigus Gold and he has also served as Chief Financial Officer of TVX Gold Inc.
Mr Harvey has qualifications in economics and law and had a ten-year career in investment and merchant banking primarily focused in the mining
area taking up executive positions within the mining industry. He has served as the Chief Executive Officer for TVX Gold Inc and Orvana Minerals,
was the Chairman of Andina Minerals Inc. and served on its audit committee and currently serves on the audit committee of Perseus Mining Limited.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 60
Report on Corporate Governance continued
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.
The Remuneration Committee determines the level of compensation the Chief Executive Officer and the Chief Financial Officer are to receive on
an annual basis and relies on the Company's economic performance and the responsibilities and risks involved in being an effective Chief Executive
Officer and Chief Financial Officer of a gold production and development company. The Remuneration Committee considers current compensation
of both the Chief Executive Officer and the Chief Financial Officer to adequately cover such responsibilities and risks.
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 comprises Messrs. Williams (Chair), Bañados and Harvey. Mr Williams and Mr Harvey are both independent Directors
and Mr Bañados whilst not independent by virtue of his executive position with an affiliated entity of the Company has no executive position within
the Company and is thus considered independent and objective for the purposes of the Remuneration Committee.
Operations
The Remuneration Committee meets at least twice a year, or more frequently as required. In 2018, the Remuneration Committee met two 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
2018 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 63 to 67.
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 2018 61
Nomination Committee
The Company does not currently have a Nomination Committee. The Board as a whole is responsible for identifying and recommending candidates
for the Board of the Company. The Board reviews and makes determination with respect to:
(i) the size and composition of the Board;
(ii) the organisation and responsibilities of the appropriate committees of the Board;
(iii) the evaluation process for the Board and committees of the Board and the Chairpersons of the Board and such committees; and
(iv) creating a desirable balance of expertise and qualifications among Board members.
In the nomination process, the Board assesses its current composition and requirements going forward in light of the stage of the Company
and the skills required to ensure proper oversight of the Company and its operations.
The Board has not at this time considered that the size and complexity of the Company warrants a requirement for a separate Nomination
Committee. It is currently envisaged that should any appointment be undertaken that the Remuneration Committee would fulfil the role of the
Nomination Committee.
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 and 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 makes recommendations to the Board on matters including, but not limited to:
• the overall development strategy that might enhance value for shareholders whilst ensuring the Group’s mineral projects are developed in
accordance with a credible financing plan;
• the monitoring through formal monthly reviews of i) performance against target costs and schedules, ii) health , safety and environmental
performance and iii) project controls;
• 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.
Operations
The Project Steering Committee has convened twice during the year and meets as frequently as is considered necessary and in particular if there
is a need to consider and discuss investment opportunities and project developments in advance of presenting these to the Board as a whole.
In addition to reports from the Project Steering Committee, Mr Eduardo Rosselot, a mining engineer and Non-executive Director and Mr Aquiles
Alegria, a geologist and Non-executive Director, undertake visits to the Group’s operations and also assist, as required, with evaluations of new
investment opportunities and report to the Board and the Project Steering Committee on their findings.
Non-executive Directors
The Board has not adopted term limits for Directors or other mechanisms of Board renewal. The Board evaluates its performance and composition
on a regular basis and will make adjustments as and when indicated. When assessing the independence of each Non-executive Director, length of
service is one of the considerations. The Board will when assessing new appointments in the future consider the need to balance the experience
and knowledge that each independent Director has of the Company and its operations, with the need to ensure that independent Directors can
also bring new perspectives to the business.
In accordance with the Companies Act 2006, the Board complies with: a duty to act within its powers; a duty to promote the success of the
Company; a duty to exercise independent judgement; a duty to exercise reasonable care, skill and diligence; a duty to avoid conflicts of interest;
a duty not to accept benefits from third parties; and a duty to declare any interest in a proposed transaction or arrangement.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 62
Report on Corporate Governance continued
PRINCIPLE TEN
Shareholder Communication
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, and other meetings of shareholders that may be called by the Company from time to time, provide an opportunity
for communication with all shareholders and the Board encourages the shareholders to attend and welcomes their participation. The Board
is committed to maintaining good communication and having constructive dialogue with its shareholders. The Company has close on-going
relationships with its private shareholders. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at
meetings with the Company. In addition to its Annual Report the Company provides detailed quarterly reports outlining operational and financial
performance in each quarter.
Board Independence
Melvyn Williams
Sean Harvey
Nicolas Bañados
Felipe Swett
Eduardo Rosselot
Aquiles Alegria
Mark Sawyer
Michael Hodgson
Clive Line
Position
Appointed
Status
Audit Remuneration
Committee
Committee
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 Bañados is appointed as a representative of Fratelli Investments and holds the position of Managing Director of Private Equity. He is therefore not considered to be fully
independent by virtue of his relationship with one of the Company’s major shareholders. 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 one of the Company’s major shareholders. 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 one of the
Company’s major shareholders. He has never held an executive position with the Group.
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.
Serabi Gold plc // Report and Accounts 2018
Directors‵ Remuneration Report
For the year ended 31 December 2018
63
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 2018 consist 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.
Performance related bonus
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.
Peer group data is also used to assess the level
of fees for the Non-executive Directors.
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 establishes 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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 64
Directors‵ Remuneration Report continued
For the year ended 31 December 2018
ELEMENT OF
COMPENSATION PACKAGE
Share options
PURPOSE AND LINK TO STRATEGY
NATURE OF REVIEW
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.
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. The Group’s scheme is limited to no more
than ten per cent of the issued capital and whilst
there is no maximum value to which options that
may be granted in one year, nor any cap on the level
than an individual may hold, the Committee exercises
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,
at its election, approve single lump sum payments
which can increase the overall level of retirement
benefit provided for any individual.
The Group provides private medical and life
assurance benefits for employees and Executive
Directors which may be linked to base salary.
Pension provision
The provision of pension benefits is a relatively
normal constituent of compensation offered by
peer companies. The Group will contribute to
defined contribution 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.
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 programme;
• 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.
Serabi Gold plc // Report and Accounts 2018 Serabi Gold -31.1%
S&P 500/Metals & Mining -19.1%
Gold -6.9%
FTSE Gold Mines -11.9%
S&P/TSX Global Mining -12.8%
FTSE AIM All Share/Basic Resources -19.9%
160
150
140
65
90
80
70
120
110
130
100
f
f
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e
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e
c
c
NON-EXECUTIVE REMUNERATION
)
)
0
0
0
0
1
1
o
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t
t
d
d
e
e
s
s
a
a
b
b
e
e
The remuneration package for Non-executive Directors is established by the Board as a whole but Non-executive Directors do not vote on any
r
r
(
(
e
e
c
c
changes to their own fees.
n
n
a
a
m
m
r
r
o
o
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 QCA 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
M ar-19
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 and necessary to continue to permit the participation of its Non-executive Directors in its equity participation plans.
Aug-18
Sep-18
N ov-18
Feb-18
Feb-19
Jun-18
M ay-18
D ec-18
Jan-18
Jan-19
Apr-18
M ar-18
Oct-18
Jul-18
i
i
r
r
P
P
50
60
30
40
SHARE PRICE PERFORMANCE
Serabi Gold (LHS)
BRL Gold
Gold (RHS)
Share performance against gold price – 2018 to date
High
High
Low
200
180
160
140
120
100
80
60
40
20
0
)
)
p
p
(
(
e
e
c
c
i
i
r
r
P
P
Jan-18
Feb-18
M ar-18
Apr-18
M ay-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
N ov-18
D ec-18
Jan-19
Feb-19
M ar-19
Share performance against industry indices – 2018 to date
Serabi Gold -31.1%
S&P 500/Metals & Mining -19.1%
Gold -6.9%
FTSE Gold Mines -11.9%
S&P/TSX Global Mining -12.8%
FTSE AIM All Share/Basic Resources -19.9%
)
)
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
r
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-18
Feb-18
M ar-18
Apr-18
M ay-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
N ov-18
D ec-18
Jan-19
Feb-19
M ar-19
Serabi Gold (LHS)
BRL Gold
High
High
Low
Gold (RHS)
200
180
160
140
120
100
80
60
40
20
0
)
)
p
p
(
(
e
e
c
c
i
i
r
r
P
P
Jan-18
Feb-18
M ar-18
Apr-18
M ay-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
N ov-18
D ec-18
Jan-19
Feb-19
M ar-19
$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
i
i
r
r
p
p
d
d
l
l
o
o
G
G
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
66
Directors‵ Remuneration Report continued
For the year ended 31 December 2018
DIRECTORS AND THEIR INTERESTS
Ordinary Shares and Options
The Directors of the Company, who held office during the year and as of 31 December 2018, had the following interests in the ordinary shares
of the Company according to the register of Directors’ interests:
Share
options
held at
31 December 31 December 31 December
Shares
held at
Shares
held at
2018(1)
2017(1)
2018(1)
Michael Hodgson
22,066
22,066
Clive Line
38,332
38,332
T Sean Harvey
60,000
60,000
Melvyn Williams
14,750
14,750
Aquiles Alegria
5,000
5,000
Felipe Swett
Eduardo Rosselot
–
–
–
–
Nicolas Bañados(2)
1,122,197
1,122,197
Mark Sawyer(3)
–
–
25,000
30,000
–
200,000
200,000
400,000
25,000
30,000
–
150,000
150,000
300,000
–
80,000
80,000
100,000
–
65,000
65,000
125,000
–
50,000
50,000
100,000
–
50,000
50,000
100,000
–
50,000
50,000
100,000
–
50,000
50,000
100,000
100,000
Share
options
held at
31 December
2017(1) Option price(1)
25,000
30,000
195,000
200,000
200,000
–
25,000
30,000
140,000
150,000
150,000
–
80,000
80,000
80,000
–
65,000
65,000
65,000
–
50,000
50,000
50,000
–
50,000
50,000
50,000
–
50,000
50,000
50,000
–
50,000
50,000
50,000
–
–
UK£3.00
UK£8.20
UK£1.10
UK£1.00
UK£1.00
UK£0.75
UK£3.00
UK£8.20
UK£1.10
UK£1.00
UK£1.00
UK£0.75
UK£1.10
UK£1.00
UK£1.00
UK£0.75
UK£1.10
UK£1.00
UK£1.00
UK£0.75
UK£1.10
UK£1.00
UK£1.00
UK£0.75
UK£1.10
UK£1.00
UK£1.00
UK£0.75
UK£1.10
UK£1.00
UK£1.00
UK£0.75
UK£1.10
UK£1.00
UK£1.00
UK£0.75
UK£0.75
Exercise period
21 Dec 09 to 20 Dec 19
28 Jan 11 to 27 Jan 21
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
02 July 18 to 1 July 21
21 Dec 09 to 20 Dec 19
28 Jan 11 to 27 Jan 21
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
02 July 18 to 1 July 21
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
02 July 18 to 1 July 21
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
02 July 18 to 1 July 21
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
02 July 18 to 1 July 21
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
02 July 18 to 1 July 21
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
02 July 18 to 1 July 21
22 Jan 15 to 21 Jan 18
16 May 16 to 15 May 19
07 Apr 17 to 06 Apr 20
02 July 18 to 1 July 21
02 July 18 to 1 July 21
(1) On 19 June 2018, the Group completed a capital reorganisation with every 20 existing shares being consolidated into one new share (the “Share Consolidation”). For comparative
purposes the details of the shares and options held as at 31 December 2017 have been adjusted to reflect the Share Consolidation.
(2) Mr. Bañados has a direct interest in 7,214 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 7,983 Ordinary Shares; and (2) 25 per cent of the units in Inversiones Villarrica Limitada, a private financial investment fund, which is interested
in 1,107,000 Ordinary Shares.
(3) Mr Sawyer is a partner of Greenstone Resource LP which is interested in 14,887,970 Ordinary Shares.
During the year ended 31 December 2018 the Company’s shares have traded between 85 pence(1) and 30.5 pence(1).
(1) The share prices quoted during the year have been adjusted to reflect the Share Consolidation.
Serabi Gold plc // Report and Accounts 2018
67
REMUNERATION
Director
Michael Hodgson
Clive Line
Aquiles Alegria
Nicolas Bañados
T Sean Harvey
Eduardo Rosselot
Mark Sawyer
Felipe Swett
Melvyn Williams
Salary
US$
236,874
229,623
–
–
–
–
–
–
–
Fees as
Director
US$
–
–
25,833
28,918
32,773
26,604
18,314
31,617
42,027
Other
Fees
US$
–
–
–
–
–
60,000
–
–
–
Bonus
US$
Pension
US$
133,280
93,296
–
–
–
–
–
–
–
10,662
–
–
–
–
–
–
–
–
IFRS 2
charge for
options
granted
US$
80,970
60,709
20,246
20,246
27,749
20,246
7,740
20,246
25,933
For the
year to
For the
year to
31 December 31 December
2017
Total
US$
2018
Total
US$
Other
US$
5,028
4,190
–
–
–
–
–
–
–
466,813
387,817
46,079
49,164
60,523
106,850
26,055
51,863
67,960
463,313
365,256
57,135
62,321
75,581
108,582
–
62,704
73,569
Total
466,496
206,086
60,000
226,576
10,662
284,085
9,218
1,263,123
1,268,460
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
68
Directors‵ Report continued
For the year ended 31 December 2018
The Directors present their report together with the audited financial statements for the year ended 31 December 2018.
RESULTS AND DIVIDENDS
The Group loss for the year after taxation amounts to US$5,754,541 (2017: loss of US$2,397,903). The Directors do not recommend the payment
of a dividend.
The results for the year are set out on page 78 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 Mine Complex 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 Strategic Review
and the Management Discussion and Analysis – Operational Review and Financial Review.
SUBSTANTIAL SHAREHOLDINGS
As at 28 March 2019 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
Greenstone Resources II LP
River and Mercantile
Garraway Capital Management LLP
Anker Holding AG
Drake PIPE Fund
SHARE CAPITAL
Number of
shares held
19,318,786
14,887,970
5,724,999
2,940,000
2,523,850
2,298,984
Percentage
32.79%
25.27%
9.72%
4.99%
4.28%
3.90%
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
2 July 2018
COMPANY’S LISTINGS
Number issued
Price
Expiry
1,700,000
UK£0.75
1 July 2021
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
As at 31 December 2018 the Group had cash in hand of $9.2 million and net assets of $69.1 million. The Directors have prepared a cash flow
forecast for the period to 31 March 2020. Based on this forecast, which includes planned capital and exploration programmes, the Group may
not be able to generate sufficient cash flows to settle, in full, the deferred consideration of US$12 million payable for the acquisition of Coringa
which falls due in December 2019.
The Directors believe there is a reasonable prospect of the Group securing further funds as and when required in order that the Group can meet
all liabilities including the deferred consideration payable for the acquisition of Coringa as and when they fall due in the next 12 months and have
prepared the financial statements on a going concern basis.
As at the date of this report the outcome of raising further funds remains uncertain and this represents a material uncertainty surrounding going
concern. If the Group fails to raise the necessary funds the Group may be unable to realise its assets and discharge its liabilities in the normal
course of business. The matters explained indicate that a material uncertainty exists that may cast significant doubt on the Group and Parent’s
ability to continue as a going concern. These financial statements do not show the adjustments to the assets and liabilities of the Group or the
Parent company if this was to occur.
Serabi Gold plc // Report and Accounts 2018
69
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 24 to 25.
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 have responsibility for the overall corporate governance of the Company 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 have
adopted the Corporate Governance Code (“the QCA Code”) prepared by the Quoted Companies Alliance (“QCA”). In addition, the Company
as a result of the listing of its shares on the TSX is obliged to comply with Canadian National Policy 58-201 – Corporate Governance Guidelines
which establishes corporate governance guidelines that apply to all public companies. The Company has instituted corporate governance
practices that also, where practical, take consideration of these guidelines.
BOARD COMPOSITION
The Directors who served during the year are shown on page 66.
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 of individuals dominate 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 54 to 62.
COMMITTEES
The Company has established an Audit Committee, a Remuneration Committee, a Project Steering Committee and an Executive Committee.
Details of these committees are set out in the Report on Corporate Governance on pages 54 to 62.
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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 70
Directors‵ Report continued
For the year ended 31 December 2018
SHARE DEALING
The Company has adopted a share dealing code for Directors and employees in accordance with the AIM Rules and Market Abuse Regulations and
takes proper steps to ensure compliance by the Directors and its employees.
INTERNAL CONTROLS
The Directors acknowledge their responsibility for the Group’s system of internal controls and procedures and for reviewing the effectiveness of
these and ensuring that management of its subsidiaries review the internal controls and procedures operating in the subsidiaries. Such controls
and procedures are designed to safeguard the Company’s and the Group’s assets and ensure reliability of reporting information, financial and
otherwise, for both internal use and external publication. The Group’s management has designed internal controls over financial reporting, in order
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with IFRS.
Throughout the year the design and operating effectiveness of the Group’s internal controls over financial reporting are reviewed. Based on these
evaluations the Board has concluded that the internal controls over financial reporting were effective as at 31 December 2018, 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 September 2014).
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
Subsequent to 31 December 2018, 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
28 March 2019
Serabi Gold plc // Report and Accounts 2018 Independent Auditor‵s Report
To the members of Serabi Gold plc
71
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 2018 which comprise the group statement of comprehensive income, the group and company balance sheets, the group and
company statements of changes in shareholder’s equity, the group and company cash flow statements and notes to the financial statements
including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements 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 2018
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 2018 and
of its consolidated financial performance and its consolidate 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.
MATERIAL UNCERTAINTY RELATED TO GOING CONCERN
We draw attention to note 1 to the financial statements, which explains that the Group may require further funding to settle the deferred
consideration of $12m from the acquisition of the Coringa Gold Project, which is due to be paid on the earlier of first day of production or
22 December 2019.
The matters explained in note 1 indicate that a material uncertainty exists that may cast significant doubt on the group and parent company’s
ability to continue as a going concern. Our opinion is not modified in respect of this matter.
We considered going concern and working capital requirements to be a Key Audit Matter based on our assessment of the risk and the effect
on the audit.
We performed the following work in response to this key audit matter:
• A review of management’s assessment that going concern is an appropriate basis of preparation.
• Corroboration of management’s cash flow forecasts for the group, which include the twelve months from the date of approval of these financial
statements, to supporting information and historic data. In particular we corroborated the cash flow forecasts to the life of mine models for Palito
and São Chico to ensure forecast cash inflows from production were reasonable and in line with current performance.
• 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 and liabilities are included within the projections;
• Reviewing the terms of the group’s current debt facility including historical compliance and expected future compliance with covenants.
• Evaluating the adequacy of disclosures made in the financial statements in respect of going concern.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 72
Independent Auditor‵s Report continued
To the members of Serabi Gold plc
KEY AUDIT MATTERS
In addition to the matter described in the material uncertainty related to going concern section, 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
How our audit addressed
the key audit matter
As at 31 December 2018, the Group’s mining properties and assets under construction totalled $43.04m
and details of these assets and the related critical judgements and estimates are disclosed in notes 1(x)
and 9.
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.
Our audit work included:
• Management carried out their impairment review and concluded there were no indicators of impairment
in line with the provisions of IAS 36. We have assessed the mining and exploration operations at Palito,
São Chico and Coringa with reference to the impairment indicators as documented in IAS 36. We did not
identify any indicators of impairment with reference to Palito, São Chico or Coringa.
• We visited the mine sites at Palito and São Chico to understand both the historic performance and future
developments and assess whether there are any clear indicators of impairment.
• We have reviewed operational data in the year and compared this to the prior year’s mine model and
operational data. We have noted that tonnes milled and ounces of gold produced in 2018 are in line with
the previous year’s model indicating the mines are operating as intended.
• We have reviewed the Departamento Nacional de Produção Mineral (DNPM) website and noted some
of the licences had expired or were expiring in the next 12 months. We have obtained the application
for renewal for the trial mining licence for the São Chico mine and ensured the applications for expired
exploration licences have been submitted. We have verified legal documentation to support that legal
title remains in the period under renewal.
• We have made enquiries of solicitors in Brazil and noted no material litigation or dispute that would
affect mining and exploration operations.
• We enquired with management of any known breaches of laws and regulations in the year and none
were noted.
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 remained consistent with the prior year. We consider EBITDA to be the most significant
determinant of the group’s financial performance used by shareholders and approximates to operating cash generation. The benchmark
percentage for calculating materiality is 5% of EBITDA which is consistent with the prior year.
Whilst materiality for the financial statements as a whole was $500,000 (2017: $500,000), each significant component of the group was audited to
a lower level of materiality. The parent company materiality was $300,000 (2017: $375,000) with the other components varying from $100,000 to
$300,000. 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%
(2017: 75%) of the above materiality levels given there has been limited experience of past misstatements.
Serabi Gold plc // Report and Accounts 2018 73
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 $10,000 (2017: $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 focused 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 Mineração SA, containing the Palito and São Chico
gold mines, Gold Aura do Brasil Mineracao Ltda and Chapleau Resources Limited, were the entities that were deemed to be significant components
by virtue of size and risk.
The parent entity was subject to a full scope audit by the group auditor.
For Serabi Mineração SA, Gold Aura do Brasil Mineração Ltda and Chapleau Resources Limited, the BDO network firm in Brazil completed full scope
audit reporting to the group auditor. We determined our level of involvement in the components 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.
The remaining non-significant subsidiaries of the group were principally subject to analytical review procedures.
OTHER INFORMATION
The directors are responsible for the other information. The other information comprises the information included in the annual report, other than
the financial statements and our auditor’s report thereon. 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.
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion, based on the work undertaken and 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 set out on page 69, 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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 74
Independent Auditor‵s Report continued
To the members of Serabi Gold plc continued
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.
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.
Matt Crane (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London, UK
28 March 2019
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Serabi Gold plc // Report and Accounts 2018 75
Independent Auditor‵s Report
In respect of Canadian National Instrument 52-107
(Acceptable accounting principles and auditing standards)
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 2018 and 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 shareholder’s equity, the group and company cash flow statements 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 2018
and 31 December 2017 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.
MATERIAL UNCERTAINTY RELATED TO GOING CONCERN
We draw attention to note 1 to the financial statements, which explains that the group may require further funding to settle the deferred
consideration of $12m from the acquisition of the Coringa Gold Project, which is due to be paid on the earlier of first day of production or
22 December 2019.
The matters explained in note 1 indicate that a material uncertainty exists that may cast significant doubt on the group and parent company’s
ability to continue as a going concern. Our opinion is not modified in respect of this matter.
We considered going concern and working capital requirements to be a Key Audit Matter based on our assessment of the risk and the effect
on the audit.
We performed the following work in response to this key audit matter;
• A review of management’s assessment that going concern is an appropriate basis of preparation.
• Corroboration of management’s cash flow forecasts for the group, which include the twelve months from the date of approval of these financial
statements, to supporting information and historic data. In particular we corroborated the cash flow forecasts to the life of mine models for Palito
and São Chico to ensure forecast cash inflows from production were reasonable and in line with current performance;
• 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 and liabilities are included within the projections;
• Reviewing the terms of the group’s current debt facility including historical compliance and expected future compliance with covenants;
• Evaluating the adequacy of disclosures made in the financial statements in respect of going concern.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 76
Independent Auditor‵s Report continued
In respect of Canadian National Instrument 52-107
(Acceptable accounting principles and auditing standards)
KEY AUDIT MATTERS
In addition to the matter described in the material uncertainty related to going concern section, 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
How our audit addressed
the key audit matter
As at 31 December 2018, the Group’s mining properties and assets under construction totalled $43.04m
and details of these assets and the related critical judgements and estimates are disclosed in notes 1(x)
and 9.
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.
Our audit work included:
• Management carried out their impairment review and concluded there were no indicators of impairment
in line with the provisions of IAS 36. We have assessed the mining and exploration operations at Palito,
São Chico and Coringa with reference to the impairment indicators as documented in IAS 36. We did not
identify any indicators of impairment with reference to Palito, São Chico or Coringa.
• We visited the mine sites at Palito and São Chico to understand both the historic performance and future
developments and assess whether there are any clear indicators of impairment.
• We have reviewed operational data in the year and compared this to the prior year’s mine model and
operational data. We have noted that tonnes milled and ounces of gold produced in 2018 are in line with
the previous year’s model indicating the mines are operating as intended.
• We have reviewed the Departamento Nacional de Produção Mineral (DNPM) website and noted some
of the licences had expired or were expiring in the next 12 months. We have obtained the application
for renewal for the trial mining licence for the São Chico mine and ensured the applications for expired
exploration licences have been submitted. We have verified legal documentation to support that legal
title remains in the period under renewal
• We have made enquiries of solicitors in Brazil and noted no material litigation or dispute that would affect
mining and exploration operations.
• We enquired with management of any known breaches of laws and regulations in the year and none
were noted.
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.
Serabi Gold plc // Report and Accounts 2018 77
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, design and perform audit
procedures responsive to those risks, and obtain 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.
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 auditor’s report is Matt Crane.
BDO LLP
London, United Kingdom
28 March 2019
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 78
Statement of Comprehensive Income
For the year ended 31 December 2018
CONTINUING OPERATIONS
Revenue
Cost of sales
Release of/(provision for) impairment of inventory
Depreciation and amortisation charges
Total cost of sales
Gross profit
Administration expenses
Share-based payments
Gain on disposal of fixed asset
Operating loss
Foreign exchange loss
Finance expense
Finance income
Loss before taxation
Income tax expense
Loss for the period from continuing operations(1)
Other comprehensive income (net of tax)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations
Total comprehensive loss for the period(1)
Loss per ordinary share (basic)(1) (2)
Loss per ordinary share (diluted)(1) (2)
Group
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
Notes
43,261,743
(31,501,016)
400,000
(9,281,387)
48,449,868
(32,015,498)
(950,000)
(10,465,283)
11
(40,382,403)
(43,430,781)
2,879,340
(5,538,298)
(329,620)
276,976
(2,711,602)
(594,596)
(2,385,313)
861,430
5,019,087
(5,500,275)
(381,362)
170,591
(691,959)
(214,488)
(839,191)
135
(4,830,081)
(924,460)
(1,745,503)
(652,400)
(5,754,541)
(2,397,903)
3
4
4
5
(9,607,555)
(591,720)
(15,362,096)
(11.20c)
(11.20c)
7
7
(2,989,623)
(6.86c)
(6.86c)
(1) The Group has no non-controlling interests and all profits are attributable to the equity holders of the Parent Company.
(2) On 19 June 2018, the Group completed a capital reorganisation with every 20 existing shares being consolidated into one new share. The total number of existing ordinary
shares in issue immediately prior to the capital reorganisation was 1,175,281,440. The total number of ordinary shares in issue following the capital reorganisation was
58,764,072. For comparative purposes the weighted average ordinary shares in issue and the diluted ordinary shares in issue for the twelve-month period ended 31 December
2017 has been adjusted to reflect the share consolidation of 20 existing shares being consolidated into one new share.
Serabi Gold plc // Report and Accounts 2018
Group Balance Sheet
As at 31 December 2018
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
79
Group
2018
US$
2017
US$
Notes
8
9
12
5
11
12
13
14
15
17
22
18
15
16
22
17
20
27,707,795
42,342,102
1,555,170
2,162,180
23,898,819
48,980,381
1,474,062
2,939,634
73,767,247
77,292,896
8,511,474
758,209
4,166,916
9,216,048
6,934,438
1,277,142
3,237,412
4,093,866
22,652,647
15,542,858
6,273,321
4,302,798
10,997,757
390,976
372,327
5,347,964
2,845,712
5,000,000
709,255
614,198
22,337,179
14,517,129
315,468
1,025,729
74,082,715
78,318,625
955,521
1,543,811
–
2,473,096
2,753,409
2,047,131
9,997,961
2,749,412
4,972,428
17,547,913
69,110,287
60,770,712
8,882,803
21,752,430
1,363,367
4,763,819
(40,807,123)
73,154,991
5,540,960
1,722,222
1,425,024
4,015,369
(31,199,568)
79,266,705
69,110,287
60,770,712
The financial statements were approved and authorised for issue by the Board of Directors on 28 March 2019 and signed on its behalf by:
Clive Line
Finance Director
28 March 2019
Company Number 5131528
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
80
Company Balance Sheet
As at 31 December 2018
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 and prepaid taxes
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
Merger reserve
Option reserve
Retained surplus
Equity shareholders’ funds attributable to owners of the parent
Company
Notes
2018
US$
2017
US$
8
9
10
12
12
13
14
15
17
18
22
1,568,365
6,949,139
86,511,566
8,269,265
1,568,365
6,903,394
86,960,294
7,606,894
103,298,335 103,038,947
633,853
118,371
7,382,530
1,241,352
107,756
2,936,579
8,134,754
4,285,687
4,065,481
3,636,360
390,976
10,997,757
655,318
12,046,338
1,980,000
709,255
5,000,000
709,949
19,745,892
20,445,542
(11,611,138)
(16,159,855)
91,687,197
86,879,092
17
22
2,424,246
–
2,500,000
9,997,961
2,424,246
12,497,961
89,262,951
74,381,131
20
8,882,803
21,752,430
361,461
1,363,367
56,902,890
5,540,960
1,722,222
361,461
1,425,024
65,331,464
89,262,951
74,381,131
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 2018 was US$8,819,851 (2017: US$5,055,881).
The financial statements were approved and authorised for issue by the Board of Directors on 28 March 2019 and signed on its behalf by:
Clive Line
Finance Director
28 March 2019
Serabi Gold plc // Report and Accounts 2018
Statements of Changes in Shareholders‵ Equity
For the year ended at 31 December 2018
81
Group
Share
capital
US$
Share
premium
US$
Share
option
reserve
US$
Other Translation
reserve
US$
reserves
US$
losses)/
retained
surplus
US$
Total
equity
US$
(Accumulated
Equity shareholders’ funds at 31 December 2016
5,540,960
1,722,222
1,338,652
3,051,862 (30,607,848) 82,333,125 63,378,973
Foreign currency adjustments
Loss for year
Total comprehensive income for the year
Transfer to taxation reserve
Share options lapsed in period
Share option expense
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(591,720)
–
–
(2,397,903)
(591,720)
(2,397,903)
–
–
(294,990)
381,362
–
963,507
–
–
(591,720)
–
–
–
(2,397,903)
(963,507)
294,990
–
(2,989,623)
–
–
381,362
Equity shareholders’ funds at 31 December 2017
5,540,960
1,722,222
1,425,024
4,015,369 (31,199,568) 79,266,705 60,770,712
Foreign currency adjustments
Loss for year
Total comprehensive income for the year
Transfer to taxation reserve
Shares issued in period
Share options lapsed in period
Share option expense
–
–
–
–
–
–
–
–
(9,607,555)
–
–
(5,754,541)
(9,607,555)
(5,754,541)
–
–
–
–
3,341,843 20,030,208
–
–
–
–
–
–
–
(391,277)
329,620
–
748,450
–
–
–
(9,607,555)
–
–
–
–
(748,450)
(5,754,541) (15,362,096)
–
– 23,372,051
–
329,620
391,277
–
Equity shareholders’ funds at 31 December 2018
8,882,803 21,752,430
1,363,367
4,763,819 (40,807,123) 73,154,991 69,110,287
Other reserves comprise a merger reserve of US$361,461 and a taxation reserve of US$4,402,358 (2017: merger reserve of US$361,461
and taxation reserve of US$3,653,908).
The following is a description of each of the reserve accounts that comprise equity shareholders’ funds
Share capital
The share capital comprises the issued ordinary shares of the Company at par.
Share premium
The share premium comprises the excess value recognised from the issue of ordinary shares at par.
Share option reserve
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
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.
Translation reserve
Cumulative gains and losses on translating the net assets of overseas operations to the presentation currency.
Retained surplus
Retained surplus/(accumulated losses) comprise the Group’s cumulative accounting profits and losses
since inception.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
82
Statements of Changes in Shareholders‵ Equity continued
For the year ended at 31 December 2018
Company
Share
capital
US$
Share
premium
US$
Merger
reserve
US$
Share
option
reserve
US$
(Accumulated
losses)/
retained
surplus
US$
Total
equity
US$
Equity shareholders’ funds at 31 December 2016
5,540,960
1,722,222
361,461
1,338,652
70,092,355
79,055,650
Loss for the year
Comprehensive loss for year
Share options lapsed in period
Share option expense
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,055,881)
(5,055,881)
–
(294,990)
381,362
(5,055,881)
294,990
–
(5,055,881)
–
381,362
Equity shareholders’ funds at 31 December 2017
5,540,960
1,722,222
361,461
1,425,024
65,331,464
74,381,131
Loss for the year
Comprehensive loss for year
Shares issued in period
Share options lapsed in period
Share option expense
–
–
–
3,341,843
–
–
–
20,030,208
–
–
–
–
–
–
–
–
(8,819,851)
(8,819,851)
–
–
(391,277)
329,620
(8,819,851)
–
391,277
–
(8,819,851)
23,372,051
–
329,620
Equity shareholders’ funds at 31 December 2018
8,882,803
21,752,430
361,461
1,363,367
56,902,890
89,262,951
Serabi Gold plc // Report and Accounts 2018
Cash Flow Statements
For the year ended at 31 December 2018
83
Group
Company
For the
year ended
For the
year ended
For the
year ended
31 December 31 December 31 December 31 December
2017
US$
For the
year ended
2017
US$
2018
US$
2018
US$
Cash outflows from operating activities
Operating profit/(loss)
Net financial expense
Depreciation – plant, equipment and mining properties
Inventory impairment expense
Other provisions
Taxation expense
Share-based payments
Interest paid
Foreign exchange
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
(5,754,541)
1,938,479
9,281,387
(400,000)
–
924,460
509,620
(770,100)
(155,484)
(2,397,903)
1,053,544
10,465,283
950,000
156,404
652,400
381,362
(747,072)
(178,753)
(8,819,851)
2,562,765
532,046
–
–
–
509,620
(727,983)
(379,383)
(2,520,338)
(1,425,384)
(20,870)
–
(287,898)
(1,968,858)
165,249
–
–
600,536
(181,761)
(57,037)
(5,055,880)
514,811
526,465
–
–
–
381,362
(273,636)
(75,889)
–
(168,909)
(79,711)
5,562,619
Net cash flow from operations
1,607,229
8,243,758
(5,961,048)
1,331,232
Investing activities
Acquisition payment for subsidiary net of cash acquired
Purchase of property, plant, equipment and projects in construction
Mine development expenditure
Geological exploration expenditure
Pre-operational project costs
Proceeds from sale of assets
Loans to subsidiaries
Interest received and other finance income
(4,740,928)
(4,048,391)
(4,090,860)
(4,610,450)
(2,274,133)
301,480
–
4,780
(4,994,665)
(2,144,753)
(4,362,192)
(2,487)
–
214,566
–
135
(4,740,928)
–
(577,791)
–
–
–
(8,269,265)
4,780
(5,000,000)
–
(660,181)
–
–
–
–
135
Net cash outflow on investing activities
(19,458,502)
(11,289,396)
(13,583,204)
(5,660,046)
Financing activities
Issue of ordinary share capital
Costs associated with issue of ordinary shares
Draw-down of short term loan facility
Repayment of short term secured loan
Payment of finance lease liabilities
23,807,346
(615,295)
3,000,000
(1,939,394)
(797,945)
–
–
3,628,511
–
(644,340)
23,807,346
(615,295)
3,000,000
(1,939,394)
–
–
–
3,628,511
–
–
Net cash (outflow)/inflow from financing activities
23,454,712
2,984,171
24,252,657
3,628,511
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Exchange difference on cash
5,603,439
4,093,866
(481,257)
(61,467)
4,160,923
(5,590)
4,708,405
2,936,579
(262,454)
(700,303)
3,612,495
24,387
Cash and cash equivalents at end of period
9,216,048
4,093,866
7,382,530
2,936,579
See note 19 for further information on the analysis of net debt.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
84
Notes to the Financial Statements
For the year ended at 31 December 2018
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 68.
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, amendments and interpretations effective in 2018
A number of new and amended standards and interpretations issued by IASB have become effective for the first time for financial periods
beginning on (or after) 1 January 2018 and have been applied by the Group in these financial statements. None of these new and amended
standards and interpretations had a significant effect on the Group because they are either not relevant to the Group’s activities or require
accounting which is consistent with the Group’s current accounting policies.
The following new standards and interpretations have been adopted by the Group:
•
•
IFRS 15 has replaced IAS 18 Revenue and IAS 11 Construction Contracts as well as various interpretations previously issued by the IFRS
Interpretations Committee. The Group’s accounting policies have remained unchanged from those previously disclosed in the 2017 annual
financial statements. Under IAS 18, the timing of revenue recognition from the sale of goods was based primarily on the transfer of risks and
rewards, whereas IFRS 15 focuses instead on when control of those goods has transferred to the customer. This different approach has not
resulted in a change of timing for revenue recognition for the Group.
IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement. The Group’s principal financial assets comprise long and short
term loans, cash and short term deposits, restricted cash as well as trade and other receivables. All of these financial assets continue to be
classified and measured at amortised cost. The Group’s principal financial liabilities comprise trade and other payables, loans and borrowings,
convertible loans and finance leases and derivative gold call options. With the exception of the gold call options, all of these financial liabilities
continue to be classified and measured at amortised cost. The gold call options are classified and measured at fair value through profit or loss.
There are no material financial assets subject to the expected credit loss model defined within IFRS 9, except for cash. The level of credit risk that
the Group is exposed to has not given rise to material allowances within the expected credit loss model. Management’s assessment of the impact
of IFRS 9 of the Company has focused on the change in IFRS 9 around expected credit losses on intercompany balances.
There are a number of standards, amendments to standards, and interpretations which have been issued by the IASB that are effective in future
accounting periods and which have not been adopted early. None of these are expected to have a significant effect on the Group, in particular:
•
IFRS 16 Leases (effective for periods beginning on or after 1 January 2019) requires lessees to recognise all lease assets and liabilities on the
balance sheet for both finance leases and operating leases. Management have completed an assessment of existing operating contracts and do
not anticipate the adoption of IFRS 16 to have a significant impact on the Group’s financial statements as the operating leases held by the Group
are of low value and the majority of the existing contracts either relate to service agreements or otherwise do not result in right of use assets or
lease liabilities.
Going concern and availability of finance
As at 31 December 2018 the Group had cash in hand of $9.2 million and net assets of $69.1 million. The Directors have prepared a cash flow
forecast for the period to 31 March 2020. Based on this forecast, which includes planned capital and exploration programmes, the Group may not
be able to generate sufficient cash flows to settle, in full, the deferred consideration of US$12 million payable for the acquisition of Coringa which
falls due in December 2019.
The Directors believe there is a reasonable prospect of the Group securing further funds as and when required in order that the Group can meet
all liabilities including the deferred consideration payable for the acquisition of Coringa as and when they fall due in the next 12 months and have
prepared the financial statements on a going concern basis.
As at the date of this report the outcome of raising further funds remains uncertain and this represents a material uncertainty surrounding going
concern. If the Group fails to raise the necessary funds the Group may be unable to realise its assets and discharge its liabilities in the normal
course of business. The matters explained indicate that a material uncertainty exists that may cast significant doubt on the Group and Parent’s
ability to continue as a going concern. These financial statements do not show the adjustments to the assets and liabilities of the Group or the
Parent company if this was to occur.
Serabi Gold plc // Report and Accounts 2018 85
1 SIGNIFICANT ACCOUNTING POLICIES CONTD.
(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 a business or the acquisition of assets.
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”), the investment in
which was calculated at fair value and the difference between the value of the shares issued and their fair value has been credited directly to
a merger reserve.
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 for which the US Dollar is not the 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 2018 was 1.3328 (2017: 1.3579). The Brazilian Real/US Dollar exchange rate at
31 December 2018 was 3.8742 (2017: 3.3074).
(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 Projects 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 amortisation 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.
(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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 86
Notes to the Financial Statements continued
For the year ended at 31 December 2018
1 SIGNIFICANT ACCOUNTING POLICIES CONTD.
(d) Property, plant and equipment contd.
(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)).
The Group recognises a loss allowance for expected credit losses (“ECL”) on financial assets that are measured at amortised cost which comprise
mainly trade receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument.
The Group always recognises lifetime ECL on trade receivables. The expected credit losses on these financial assets are estimated using a
provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic
conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of
money where appropriate.
(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 2018 87
1 SIGNIFICANT ACCOUNTING POLICIES CONTD.
(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 10 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 cost 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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 88
Notes to the Financial Statements continued
For the year ended at 31 December 2018
1 SIGNIFICANT ACCOUNTING POLICIES CONTD.
(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.
• 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.
• Employment provision
Provision for employment claims is made where sums are claimed by employees or employees by third parties contracted by the Group,
based on management’s best estimate of the potential value of any settlement that could arise based on legal opinion.
• Derivative provisions
Provisions for liabilities in respect of derivative instruments are calculated at the same time as the instrument is granted. Fair value is determined by
reference to quoted mid-market prices at each balance sheet date of such derivative instruments. The fair value of the derivatives currently issued
by the Group have been measured using level 1 inputs.
(m) 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.
(n) 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 2018 89
1 SIGNIFICANT ACCOUNTING POLICIES CONTD.
(p) Revenue
IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue
recognition guidance, including IAS 18 Revenue. IFRS 15 is effective for annual periods beginning on or after 1 January 2018, with early adoption
permitted. The Company has elected to early adopt IFRS 15, with effect from 1 January 2018. IFRS 15 had no impact on prior year results.
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.
Revenues are recognised in full using contractual pricing terms ruling at the date of sale with adjustments in respect of final contractual pricing
terms 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 gold price at that balance sheet date. 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. Under the terms
of the sales contracts, the Company’s performance obligation is considered to be the delivery of gold and copper/gold concentrate meeting
agreed criteria.
The Company recognises 100% of the revenue on transfer of title where it is considered highly probable there will be no reversals, having
consideration of quality tests performed upon delivery of shipment.
The performance obligation and associated revenue from customers is recorded when the title for a shipment is transferred to the customer in
accordance with the contract terms. On transfer of title, control is considered to have passed to the customer with the Company having right to
payment, but no ongoing physical possession or involvement with the concentrate, legal title and insurance risk having transferred.
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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 90
Notes to the Financial Statements continued
For the year ended at 31 December 2018
1 SIGNIFICANT ACCOUNTING POLICIES CONTD.
(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.
Investments in subsidiaries
(t)
Investments in subsidiaries are recognised at cost, less any provision for impairment.
(u) Financial instruments
Financial assets and financial liabilities are recognised in the Group statement of financial position when the Group becomes a party to the
contractual provisions of the instrument. Financial assets and financial liabilities are only offset and the net amount reported in the consolidated
statement of financial position and statement of comprehensive income when there is a currently enforceable legal right to offset the recognised
amounts and the Group intends to settle on a net basis or realise the asset and liability simultaneously.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of
financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted
from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.
Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales
are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the
marketplace.
All recognised financial assets are measured subsequently in their entirety at either amortised cost or fair value, depending on the classification
of the financial assets.
a) Classification of financial assets
Financial assets that meet the following conditions are measured subsequently at amortised cost using effective interest rate method:
• The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and,
• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest
on the principal amount outstanding.
The Group does not hold any financial assets that meet conditions for subsequent recognition at fair value through other comprehensive
income (“FVTOCI”).
All other financial assets are measured subsequently at fair value through profit or loss (“FVTPL”).
Impairment of financial assets
b)
The Group recognises a loss allowance for expected credit losses (“ECL”) on financial assets that are measured at amortised cost which comprise
mainly trade receivables. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial
recognition of the respective financial instrument.
The Group always recognises lifetime ECL on trade receivables. The expected credit losses on these financial assets are estimated using a
provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic
conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of
money where appropriate.
The Company recognises lifetime ECL on intercompany loans, based on management’s assessment and understanding of the credit risk attaching
to each loan, changes in the level of credit risk between periods and assessment of the scenarios under which management expect the loan to be
repaid. Any credit loss will be calculated as the net present value of the difference between the contractual and expected cash flows and the ECL
will represent the weighted average of those credit losses based on the respective risks of each scenario. Further details of the reviews undertaking
during the year are set out in note 12.
c) Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially
all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial
asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Serabi Gold plc // Report and Accounts 2018 91
1 SIGNIFICANT ACCOUNTING POLICIES CONTD.
(u) Financial instruments contd.
Financial liabilities
The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued
and its characteristics.
All purchases of financial liabilities are recorded on trade date, being the date on which the Group becomes party to the contractual requirements
of the financial liability. Unless otherwise indicated the carrying amounts of the Group’s financial liabilities approximate to their fair values.
The Group’s financial liabilities consist of financial liabilities measured at amortised cost and financial liabilities at fair value through profit or loss.
Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held-for-trading, or (iii) designated as at
FVTPL, are measured subsequently at amortised cost using the effective interest method. The Group’s financial liabilities measured at amortised
cost comprise loans and other borrowings, equipment loans, finance leases, and other payables and accruals. The effective interest method is
a method of calculating the amortised cost of a financial asset/liability and of allocating interest income/expense over the relevant period. The
effective interest rate is the rate that discounts estimated future cash receipts/payments through the expected life of the financial asset/liability or,
where appropriate, a shorter period.
(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 for the purpose 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 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.
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, and any change in the underlying factors under which the economic
assessment was made may give rise to management making a judgement as to the continuing economic viability of such Mineral Reserves and
how they should be used for the purpose 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 it incorporates into its
assessments.
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 stages of
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
sensitive to changes in estimates is the stockpile of mined ore, a prior impairment of which has been partially reversed during the year.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 92
Notes to the Financial Statements continued
For the year ended at 31 December 2018
1 SIGNIFICANT ACCOUNTING POLICIES CONTD.
(x) Critical accounting estimates and judgements contd.
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 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.
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.
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 considers that there
was no indicator of impairment identified in the year. 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.
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 commercially 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 Group’s 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 has determined that the debts are
recoverable and that no provision is required. The new standard IFRS 9 requires the Parent company to make assumptions when implementing the
forward-looking expected credit loss model.
Recoverability of investments in subsidiaries and inter-company debts
In making its judgements over the recoverability of any amounts invested into subsidiary companies by way of share capital or loans advanced
to subsidiaries the Company considers the expected future cash flows that can be generated by the underlying projects owned and operated by
these subsidiaries and the potential value of exploration and development projects owned and managed by these subsidiaries. As each of the
subsidiaries is 100% owned (directly or indirectly) by the Company the creditworthiness of the subsidiary is the same as the creditworthiness of the
Company subject only to any restrictions that may be imposed on the repatriation of capital and loans by the host government of the subsidiary.
Further details are set out in note (u) above and in note 21.
Serabi Gold plc // Report and Accounts 2018 93
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
Intra-group sales
Operating expenses
Release of/(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
2018
2017
Brazil
US$
UK
US$
Total
US$
Brazil
US$
UK
US$
Total
US$
33,792,406
7,406,175
(26,330,700)
400,000
(8,749,340)
6,518,541
(2,844,011)
–
276,976
3,951,506
77,680
–
–
9,469,337
(7,406,175)
(5,170,316)
–
(532,047)
(3,639,201)
(2,694,287)
(329,620)
–
(6,663,108)
(672,276)
(2,385,313)
861,430
43,261,743
–
(31,501,016)
400,000
(9,281,387)
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)
48,449,868
–
(32,015,498)
(950,000)
(10,465,283)
2,879,340
(5,538,298)
(329,620)
276,976
(2,711,602)
(594,596)
(2,385,313)
861,430
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
5,019,087
(5,500,275)
(381,362)
170,591
(691,959)
(214,488)
(839,191)
135
4,029,186
(924,460)
(8,859,267)
–
(4,830,081)
(924,460)
3,694,971
(652,400)
(5,440,474)
–
(1,745,503)
(652,400)
Profit/ (loss) for the period
3,104,726
(8,859,267)
(5,754,541)
3,042,571
(5,440,474)
(2,397,903)
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 31 December
2017
US$
2018
US$
42,342,102
27,707,795
1,555,170
2,162,180
48,980,381
23,898,819
1,474,062
2,939,634
73,767,247
–
77,292,896
–
73,767,247
77,292,896
Total assets
31 December 31 December
2017
US$
2018
US$
88,285,140
8,134,754
83,090,310
9,745,444
96,419,894
92,835,754
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
94
Notes to the Financial Statements continued
For the year ended at 31 December 2018
2 SEGMENTAL ANALYSIS CONTD.
During the year, the following amounts incurred by project location were capitalised as deferred exploration costs:
Group
Brazil
4,610,450
2,487
During the year, the following amounts were capitalised as land and buildings, mine assets, property, plant, equipment and projects in construction
(see note 9):
Group
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
Brazil
8,695,674
7,712,624
Revenue
All of the Group’s revenue arises from its activities in Brazil.
An analysis of the revenue by reference to the domicile of the entity within the Group that concludes the sale is as follows:
Brazil
UK
Total
31 December 31 December
2017
US$
2018
US$
33,792,406
9,469,337
32,829,664
15,620,204
43,261,743
48,449,868
An analysis of major customers (accounting for more than 10 per cent of the Group’s revenues) is as follows:
Customer 1 – sale concluded from Brazil
Customer 2 – sale concluded from UK
Customer 3 – sale concluded from Brazil
Total
31 December 2018
31 December 2017
US$
%
US$
33,792,406
9,469,337
–
78.1%
21.9%
–
31,358,718
15,620,204
1,470,946
%
64.7%
32.3%
3.0%
43,261,743
100.0%
48,449,868
100.0%
Serabi Gold plc // Report and Accounts 2018
3 OPERATING PROFIT
a. Group operating (loss)/profit for the year is stated after charging the following:
95
Group
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
Staff costs
Depreciation (property, plant and equipment)
Amortisation of the mine asset
Operating lease charges
b. Auditor’s remuneration
12,553,426
3,100,652
6,180,735
137,894
13,816,406
2,678,117
7,787,166
191,109
Group
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
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
133,280
139,358
38,539
8,197
39,984
37,239
9,406
39,141
Group
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
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
Unwinding of discount on acquisition payment
Amortisation of fair value of derivative
Arrangement fee for secured loan
Interest payable
Release of fair value for call options granted
Unwinding of discount on rehabilitation provision
Finance income on short term deposits
Net finance expense
–
(180,000)
(685,517)
–
–
(999,796)
(520,000)
–
–
(189,255)
(314,732)
(335,204)
–
–
–
–
(2,385,313)
(839,191)
318,279
538,371
4,780
–
–
135
(1,523,883)
(839,056)
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
96
Notes to the Financial Statements continued
For the year ended at 31 December 2018
5 TAXATION
Current tax
UK tax
Foreign tax
Total current tax
Deferred tax
Release of deferred tax asset
Total deferred tax
Income tax charge/(benefit)
Group
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
–
556,164
–
376,917
556,164
376,917
368,296
275,483
368,296
275,483
924,460
652,400
The tax provision for the current period varies from the standard rate of corporation tax in the UK of 19.00% (2017: 19.25%).
The differences are explained as follows:
Group
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
Loss on ordinary activities before tax
Tax thereon at UK corporate tax rate of 19.00% (2017: 19.25%)
Factors affecting the tax charge:
expenses not deductible for tax purposes
timing differences (not recognised)
income not taxable
lower rate tax overseas
unrecognised tax losses carried forward
recognised tax losses used in the period
Tax charge/(benefit)
Unrecognised gross deferred tax position
Tax losses brought forward
Timing differences brought forward
Total unrecognised gross deferred tax position at start of period
Tax losses not recognised in the period
Movement in timing differences
Tax losses carried forward
Timing differences carried forward
Total unrecognised gross deferred tax position at end of period
(4,830,081)
(1,745,503)
(917,715)
(336,010)
624,590
951,402
(237,934)
(603,499)
1,109,212
(1,596)
211,794
251,880
(120,019)
(263,772)
633,044
275,483
924,460
652,400
US$
US$
45,014,328
876,207
39,948,068
515,733
45,890,535
6,705,731
(1,287,909)
40,463,801
5,066,261
360,474
51,720,059
(411,702)
45,014,329
876,207
51,308,357
45,890,535
Serabi Gold plc // Report and Accounts 2018
5 TAXATION CONTD.
Unrecognised deferred tax assets
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
97
Group
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
10,765,024
(62,784)
9,240,984
138,828
10,612,239
9,379,812
US$
US$
2,939,634
(368,296)
(409,158)
3,253,630
(275,483)
(38,513)
2,162,180
2,939,634
The deferred tax asset has been recognised in the financial statements only to the extent that the Group has reasonable certainty as to the level
and timing of future profits that might be generated and against which this asset may be recovered.
6 EMPLOYEE INFORMATION
The average number of persons, including Executive Directors, employed by the Group during the year was:
Group
Company
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
Social security costs
Termination costs
Pension contributions
Total
For the
year ended
For the
year ended
For the
year ended
31 December 31 December 31 December 31 December
2017
Number
For the
year ended
2018
Number
2018
Number
2017
Number
20
18
284
15
60
397
9
12
263
14
67
365
3
–
10
1
–
14
3
–
10
1
–
14
Group
Company
For the
year ended
For the
year ended
For the
year ended
31 December 31 December 31 December 31 December
2017
US$
For the
year ended
2017
US$
2018
US$
2018
US$
9,163,096
329,620
2,645,612
348,640
66,458
10,113,644
381,362
3,008,806
227,339
85,255
2,642,660
329,620
98,565
–
66,458
2,477,857
381,362
93,167
–
85,255
12,553,426
13,816,406
3,137,303
3,037,641
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, Chapleau Exploração Mineral Ltda and Gold Aura do Brasil Mineração Ltda all contribute via social security payments to the
state pension scheme which operates in Brazil and to which all its employees are entitled.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
98
Notes to the Financial Statements continued
For the year ended at 31 December 2018
6 EMPLOYEE INFORMATION CONTD.
Directors’ remuneration
The compensation of the Directors is:
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
Salary and other benefits
Post-employment benefits
Total
968,376
10,662
925,190
10,302
979,038
935,492
The remuneration of the highest paid Director during the year was US$466,813 (2017: US$463,313). The Company made cash contributions
to his money purchase pension scheme of US$10,662 (2017: US$10,302).
During the year ended 31 December 2018, two of the Directors (2017: two) were entitled to accrue retirement benefits under money
purchase schemes.
7 EARNINGS PER SHARE
For the
year ended
For the
year ended
31 December 31 December
2017
2018
(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)
(5,754,541)
(2,397,903)
51,396,253
(11.20)
34,935,088(1)
(6.86)
51,396,253(2) 34,935,088(2)
(6.86)
(11.20)
(1) On 19 June 2018, the Group completed a capital reorganisation with every 20 existing shares being consolidated into one new share. For comparative purposes the weighted
average ordinary shares in issue and the diluted ordinary shares in issue for the year ended 31 December 2017, has been adjusted to reflect the share consolidation of
20 existing shares being consolidated into one new share.
(2) As the effect of dilution is to reduce the loss per share, the diluted loss per share is considered to be the same as the basic loss per share.
8
INTANGIBLE ASSETS
Deferred exploration costs
Cost
Opening balance
Additions from acquisitions
Exploration and evaluation expenditure
Pre-operational project costs
Re-allocation from tangible assets
Foreign exchange movements
Total as at end of period
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2018
US$
2018
US$
2017
US$
23,898,819
–
4,610,450
2,274,133
136,276
(3,211,883)
9,990,789
14,030,112
2,487
–
–
(124,569)
1,568,365
–
–
–
–
–
1,568,365
–
–
–
–
–
27,707,795
23,898,819
1,568,365
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 2018
99
9 TANGIBLE ASSETS
Property, plant and equipment – Group
2018
Cost
Balance at 31 December 2017
Additions
Reallocation to deferred assets
Disposals
Foreign exchange movements
At 31 December 2018
Depreciation
Balance at 31 December 2017
Charge for period
Released on asset disposals
Foreign exchange movements
At 31 December 2018
Land and
buildings
– at cost
US$
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
Plant and
equipment
– at cost
US$
Total
US$
3,375,457
–
–
–
(493,833)
49,919,201
3,811,215
–
(478,023)
(6,644,479)
9,376,581
2,340,088
(136,276)
(44,613)
(1,154,908)
21,309,961
2,814,371
–
–
(2,756,713)
83,981,200
8,965,674
(136,276)
(522,636)
(11,049,933)
2,881,624
46,607,914
10,380,872
21,367,619
81,238,029
(1,641,036)
–
–
331,641
(21,504,984)
(6,098,269)
454,785
3,195,069
(1,309,395)
(23,953,399)
–
–
–
–
–
(11,854,799)
(3,243,332)
–
1,464,998
(35,000,819)
(9,341,601)
454,785
4,991,708
(13,633,133)
(38,895,927)
Net book value at 31 December 2018
1,572,229
22,654,515
10,380,872
7,734,486
42,342,102
Net book value at 31 December 2017
1,734,421
28,414,217
9,376,581
9,455,162
48,980,381
During the year ended 31 December 2018, the Group acquired assets under finance leases totalling US$426,541 (2017: US$358,658).
The net book value of assets acquired under finance leases at 31 December 2018 was US$2,349,363 (2017: US$2,370,102). Depreciation
charged on leased assets for the period was US$447,281 (2017: US$683,291).
The Group only leases underground mining equipment. As at 31 December 2018, the future minimum lease payments due in respect of
outstanding lease contracts for mining equipment was US$424,904. The net present value of these lease contracts is US$303,809.
Liabilities due in less than one year
Labilities due in more than one year
2017
Cost
Balance at 31 December 2016
Additions
Additions arising on 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
Future
minimum
lease
payments
US$
376,054
48,850
Net present
value of
future lease
payments
US$
265,089
38,720
424,904
303,809
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)
46,527,183
4,362,192
–
(235,808)
(734,366)
2,828,333
700,943
5,687,827
–
159,478
18,904,812
2,191,066
518,273
–
(304,220)
71,237,368
7,712,624
6,206,100
(235,808)
(939,084)
3,375,457
49,919,201
9,376,581
21,309,961
83,981,200
(1,649,735)
(25,845)
–
34,544
(14,737,325)
(7,403,395)
199,911
435,825
(1,641,036)
(21,504,984)
–
–
–
–
–
(9,454,168)
(2,580,383)
–
179,752
(25,841,228)
(10,009,623)
199,911
650,121
(11,854,799)
(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
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
100
Notes to the Financial Statements continued
For the year ended at 31 December 2018
9 TANGIBLE ASSETS CONTD.
Property, plant and equipment – Company
2018
Cost
Balance at 31 December 2017
Additions
At 31 December 2018
Depreciation
Balance at 31 December 2017
Charge for period
At 31 December 2018
Net book value at 31 December 2018
Net book value at 31 December 2017
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
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$
8,054,485
577,791
43,610
–
2,919,482
–
11,017,577
577,791
8,632,276
43,610
2,919,482
11,595,368
(1,700,411)
(112,717)
(1,813,128)
–
–
–
(2,413,772)
(419,329)
(4,114,183)
(532,046)
(2,833,101)
(4,646,229)
6,819,148
43,610
86,381
6,949,139
6,354,074
43,610
505,710
6,903,394
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
Plant and
equipment
– at cost
US$
Total
US$
7,394,304
660,181
43,610
–
2,919,482
–
10,357,396
660,181
8,054,485
43,610
2,919,482
11,017,577
(1,538,232)
(162,179)
(1,700,411)
–
–
–
(2,048,912)
(364,860)
(3,587,144)
(527,039)
(2,413,772)
(4,114,183)
6,354,074
43,610
505,710
6,903,394
5,856,072
43,610
870,570
6,770,252
The net book value of assets acquired under finance leases as at 31 December 2018 was US$ nil (2017: US$504,170). Depreciation charged
on leased assets for the period was US$419,329 (2017: US$364,286).
Serabi Gold plc // Report and Accounts 2018
101
10 INVESTMENTS HELD AS FIXED ASSETS
The Group consists of the following subsidiary undertakings:
Name
Incorporated
Registered Office Address
Activity
% holding
Serabi Mineração SA
Brazil
Kenai Resources Ltd
British Columbia, Canada
Gold Origin Limited
British Virgin Islands
Gold Aura do Brasil Mineração 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 Exploração Mineral Ltda
Brazil
(1) Indirectly held.
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)
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
102
Notes to the Financial Statements continued
For the year ended at 31 December 2018
10 INVESTMENTS HELD AS FIXED ASSETS CONTD.
Cost at start of period
Acquisition of subsidiary
Adjustment of acquisition price(1)
Cost at end of period
Impairment provision at start of period
Reallocation of impairment provision in period
Impairment provision at end of period
Net book value at end of period
Company
31 December 31 December
2017
US$
2018
US$
96,555,294
–
(259,072)
76,557,599
19,997,961
–
96,296,488
96,555,560
(9,595,266)
(189,656)
(9,595,266)
–
(9,784,922)
(9,595,266)
86,511,566
86,960,294
(1) As a result of a shortfall in the working capital position of Chapleau Resources Ltd as at the date of acquisition, the initial acquisition price was adjusted and the total purchase
price reduced by the working capital shortfall.
The value of these investments is dependent on the development of the Group’s mineral deposits in Brazil. The Company established an initial
impairment provision against the carrying value of its investments in subsidiary entities in 2008. Subsequent to that date the Company has made
further acquisitions and invested new capital into certain of its subsidiaries. At the end of 2018 the Company has made an assessment as to
whether there exists any indicators that could give rise to a potential impairment of or restriction on the future recoverability of the value of the
investments that it holds in subsidiary entities and in particular the investments made since 2008. The Board has determined that based on its
assessment, it is not aware of any indicators of further impairment.
11 INVENTORIES
Consumables
Stockpile of mined ore
Stockpile of flotation tails
Other material in process
Finished goods awaiting sale
Group
31 December 31 December
2017
US$
2018
US$
2,929,297
600,335
–
1,162,157
3,819,685
2,587,212
1,091,656
494,117
1,019,593
1,741,860
8,511,474
6,934,438
The Group has recorded, during 2018, a release of an impairment provision of US$400,000 in respect of stockpiled run of mine ore
(2017: established an impairment provision of US$950,000). Further details regarding the nature of the inventories and valuations are provided
in the Financial Review on pages 38 to 45.
Serabi Gold plc // Report and Accounts 2018
103
12 TRADE AND OTHER RECEIVABLES
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2017
US$
2018
US$
2018
US$
Current
Trade receivables
Other receivables
Trade and other receivables
Non-current
Taxes receivable
Amounts owed by subsidiaries
Impairment provision at start of period
Reallocation of impairment provision in period
Impairment prevision at end of period
620,818
137,391
1,230,614
46,528
623,115
10,738
1,230,614
10,738
758,209
1,277,142
633,853
1,241,352
1,555,170
–
1,474,062
–
–
16,660,987
–
16,188,272
1,555,170
1,474,062
16,660,987
16,188,272
–
–
–
–
–
–
(8,581,378)
189,656
(8,581,378)
–
(839,722)
(8,581,378)
Other receivables
1,555,170
1,474,062
8,269,265
7,606,894
The Group, in common with all businesses in Brazil, is 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 2018, 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 adoption of IFRS 9 has impacted the Company as a result of the existing incurred loss approach under IAS 39 being replaced by the forward
looking expected credit loss model approach of IFRS 9. The expected credit loss model is required to be applied to the intercompany loan
receivables which are classified as held at amortised cost.
There were no additional credit loss allowances as a result of the application of the expected credit loss model approach of IFRS 9 which requires
the parent to make an allowance for lifetime expected credit losses.
At 31 December 2018, Serabi Gold plc (SG plc) has two loans outstanding to subsidiaries that are not fully impaired.
These loans are owed by Serabi Mineração SA (“SMSA”)and Chapleau Exploração Mineral Ltda.(“CEML”). Both advances were made during the year
on an interest free loan basis and at the time of the initial and each subsequent advance the Company has determined that there was no significant
credit risk attaching to each of the loan advances being made.
In determining the credit risk attaching to each of the loans management has considered different scenarios through which the loans will be
recovered:
a) Loan to SMSA – Scenario 1 – the loan will be repaid from the cash flow generated by SMSA and/or by set off against amounts owed by SG
plc to SMSA for the purchase of copper/gold concentrate within the next 12 months. Scenario 2 – the loan will be repaid from the cash flow
generated by SMSA and/or by set off against amounts owed by SGplc to SMSA for the purchase of copper/gold concentrate but because of
unexpected adverse commodity price or exchange rate fluctuations the payment will be made within more than 12 months.
b) Loan to CEML – Scenario 1 – the loan is repaid within the next five years from the successful start up of the Coringa project.
Scenario 2 – the loan is repaid in less than 12 months from the sale of equipment and machinery.
Credit loss allowances for amounts owed from other subsidiary undertakings amount to US$8,391722.. Transactions between subsidiaries are
interest bearing and repayable over five years from the date of cash advanced. See note 1(u) for details.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
104
Notes to the Financial Statements continued
For the year ended at 31 December 2018
13 PREPAYMENTS AND PREPAID TAXES
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2018
US$
2018
US$
2017
US$
Recoverable state and federal taxes
Supplier down payments
Other prepayments and employee advances
Prepayments
14 CASH AND CASH EQUIVALENTS
2,530,816
1,133,018
503,082
2,414,336
480,910
342,166
–
–
118,371
–
–
107,756
4,166,916
3,237,412
118,371
107,756
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2018
US$
2018
US$
2017
US$
Cash and cash equivalents
9,216,048
4,093,866
7,382,530
2,936,579
15 TRADE AND OTHER PAYABLES
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2018
US$
2018
US$
2017
US$
Current
Trade payables
Property acquisition(1)
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
Trade and other payables
2,453,299
1,337,520
963,827
848,989
669,686
–
2,800,293
–
971,119
786,405
790,147
–
520,995
–
–
55,230
–
3,489,256
628,202
–
–
75,153
–
11,342,983
6,273,321
5,347,964
4,065,481
12,046,338
930,771
24,750
2,617,495
135,914
955,521
2,753,409
–
–
–
–
–
–
(1) The Group has entered into an agreement to acquire from Mr Waldimiro Morais Martins a 30 per cent net profits interest (the “NPI”) arising from production of gold and
base metals extracted from the São Chico mining concession which had been granted to Mr Martins under the terms of an agreement entered into by Gold Aura do
Brasil Mineração Ltda (“GOAB”) in October 2012.
Serabi Gold plc // Report and Accounts 2018
105
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2017
US$
2018
US$
2018
US$
29,330
–
(4,293)
25,037
28,946
–
384
29,330
–
–
–
–
–
–
–
–
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2017
US$
2018
US$
2018
US$
2,017,801
1,823,017
255,787
(538,371)
(216,443)
(101,324)
335,204
(39,096)
(499,027)
194,784
1,518,774
2,017,801
1,543,811
2,047,131
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
Total provided for in year
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 Mineração SA and Gold Aura do Brasil Mineração 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 Mineração SA and Gold Aura do Brasil Mineração 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.
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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
106
Notes to the Financial Statements continued
For the year ended at 31 December 2018
17 INTEREST-BEARING LIABILITIES CONTD.
Secured loan facility contd.
On 23 January 2018, the Company completed an amendment to its existing US$5 million loan (the “Existing Facility”) with Sprott to extend
the term of the facility. The facility is now repayable in 30 equal monthly instalments ending 30 June 2020. Sprott also extended an additional
US$3 million in credit to the Company (the “New Facility”). The New Facility was initially to be repaid in full on 30 September 2018 but on
14 September 2018 the Company exercised an extension option as a result of which the New Facility is repayable in equal monthly instalments
commencing 30 September 2018 with a final payment due 22 months later on 30 June 2020. The Existing Facility was, and continues to be,
secured against the assets of the Company, including the shares of its subsidiary companies at that time. These assets are now also security
for the New Facility and the shares of Chapleau Resources Ltd. (“Chapleau”) acquired on completion of the Acquisition have now also been
pledged to Sprott as security for both the Existing Facility and the New Facility.
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2018
US$
2018
US$
2017
US$
Current
Secured loan facility
Unsecured loan 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
3,636,360
290,834
376,054
1,980,000
–
865,712
3,636,360
–
–
1,980,000
–
–
4,302,798
2,845,712
3,636,360
1,980,000
2,424,246
48,850
2,500,000
249,412
2,164,246
–
2,500,000
–
2,473,096
2,749,412
2,164,246
2,500,000
Each finance lease is secured against the underlying assets that are the subject of that lease.
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2018
US$
2018
US$
2017
US$
Secured loan facility
Amount outstanding at beginning of period
Derecognition of substantial modified loan
– Repayment of principal
Recognition of new loan
Additional draw-down of short term loan
Initial fair value of derivative associated with loan
Amounts repaid during the year
Amortisation of fair value of derivative in period
4,480,000
1,371,489
4,480,000
1,371,489
(4,480,000)
5,000,000
3,000,000
–
(1,939,394)
–
–
–
3,628,511
(650,000)
–
130,000
(4,480,000)
5,000,000
3,000,000
–
(1,939,394)
–
–
–
3,628,511
(650,000)
–
130,000
Value of secured loan facility at 31 December 2018
6,060,606
4,480,000
6,060,606
4,480,000
The charge of US$130,000 incurred in 2017 represents an 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 financial statements.
On 19 January and at the same time as taking out an additional US$3 million loan with Sprott, a six month extension to the repayment terms for
this US$5 million loan was agreed. Under IFRS 9, this variation being more than 10 per cent of the future cash flows was considered a substantial
modification to the original US$5 million loan. Accordingly, the original loan under the terms of IFRS 9 was considered to be repaid and a new loan
for US$5 million taken out but with no derivative instrument attached to it. As a result, the outstanding fair value of the derivative attaching to the
original US$5 million loan was required to be amortised in full upon the deemed repayment of the original loan.
Serabi Gold plc // Report and Accounts 2018
107
18 PROVISION FOR DERIVATIVES
Gold Call Options
Group
Company
31 December 31 December 31 December 31 December
2017
2018
2018
2017
Fair value at start of period
(Decrease)/Increase in fair value during period
Fair value at end of period
709,225
(318,279)
650,000
59,255
709,225
(318,279)
650,000
59,255
390,976
709,225
390,976
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 LIABILITIES ARISING FROM FINANCIAL ACTIVITIES
Cash and cash equivalents
Finance leases and other unsecured facilities
Secured loan due within one year
Provision for derivatives
Secured loan due after one year
Total
20 SHARE CAPITAL
At
1 January
2018
4,093,866
(1,115,124)
(1,980,000)
(709,225)
(2,500,000)
Cash flows
5,603,439
797,945
(1,060,606)
–
–
At
Other 31 December
2018
changes
(481,257)
(398,559)
(595,758)
318,249
75,758
9,216,048
(715,738)
(3,636,360)
(390,976)
(2,424,246)
(2,210,483)
5,340,778
(1,081,567)
2,049,728
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. Each of the ordinary shares caries equal rights and entitles the holder with voting and
dividend rights and rights to participate in the profits of the Company and in the event of a return of capital equal rights the participate in any sum
being returned to the holders of the ordinary shares. There is no restriction, imposed by the Company, on the ability of the holder of any ordinary
share to transfer the ownership, or any of the benefits of ownership to any other party.
Allotted, called up and fully paid
Ordinary shares in issue at start of period
Shares issued in period before 19 June 2018
Share consolidation(1)
Shares in issue post consolidation
Shares issued in period after 19 June 2018
2018
2017
Number
$
Number
$
698,701,772
476,579,668
(1,116,517,368)
5,540,960 698,701,772
–
3,322,795
–
–
58,764,072
145,479
8,863,755 698,701,772
–
19,048
5,540,960
–
–
5,540,960
–
Ordinary shares in issue at end of period
58,909,551
8,882,803 698,701,772
5,540,960
(1) On 19 June 2018, the Group completed a capital reorganisation with every 20 existing shares with a par value of 0.5 pence being consolidated into one new share with
a 10 pence par value (the “Share Consolidation”). The total number of existing ordinary shares in issue immediately prior to the capital reorganisation was 1,175,281,440.
The total number of ordinary shares in issue following the capital reorganisation was 58,764,072.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
108
Notes to the Financial Statements continued
For the year ended at 31 December 2018
20 SHARE CAPITAL CONTD.
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 of which have now expired, 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 2018.
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 31 December 31 December 31 December
2017
WAEP UK£
2018
Number WAEP UK£
2017
Number
2018
Outstanding at the beginning of the period(1)
Granted during the period(1)
Expired during the period(1)
Outstanding at the end of the period(1)
Exercisable at end of the period(1)
2,401,750
1,700,000
(750,000)
1.284
0.750
1.100
2,409,250
782,500
(790,000)
3,351,750
1.050
2,401,750
1,957,587
1.240
1,619,250
1.290
1.000
1.100
1.284
1.260
(1) For comparative purpose the details of the options in issue prior to 19 June 2018 have been adjusted to reflect the Share Consolidation.
Options granted during 2018 have been valued using the Black Scholes method.
The following parameters were used to determine the total charge to be applied over the vesting period
Share price at date of grant
Option exercise price
Expected life of options
Expected volatility
Expected dividend yield
Risk free rate
Grant date
Fair value per share option
Exchange rate used
Total charge over the vesting period
£0.6150
£0.75
3 years
66%
0%
0.75%
2 July 2018
£0.1924
1.3200
US$431,830
Volatility was determined by a review of the Group’s share price performance over the two preceding years.
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 31 December 31 December 31 December
2017
WAEP UK£
2018
Number WAEP UK£
2017
Number
2018
Outstanding at the beginning of the period(1)
Expired during the period(1)
Outstanding at the end of the period(1)
Exercisable at end of the period(1)
85,000
–
85,000
85,000
3.000
–
3.000
3.000
85,000
–
85,000
85,000
3.000
–
3.000
3.000
(1) For comparative purpose the details of the options in issue prior to 19 June 2018, have been adjusted to reflect the Share Consolidation.
Serabi Gold plc // Report and Accounts 2018
109
20 SHARE CAPITAL CONTD.
Options to subscribe for ordinary shares contd.
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
02/07/18
07/04/17
16/05/16
28/01/11
28/01/11
21/12/09
Vesting
period
(years)
First
vesting
date
Expected
life
(years)
2
2
2
2
2
2
02/07/18
07/04/17
16/05/16
28/01/11
28/01/11
21/12/09
3
3
3
3-5
3-5
3-5
Risk
free
rate
0.75%
0.75%
0.75%
1.00%
1.00%
1.00%
Exercise
price
UK£0.75
UK£1.00
UK£1.00
UK£8.20
UK£7.40
UK£3.00
Volatility
of share
price
Fair
value
66% UK£0.192
66% UK£0.358
66% UK£0.394
50% UK£1.700
50% UK£1.880
50% UK£1.600
Options
vested
566,667
521,665
782,500
64,250
22,500
85,000
Options
granted
1,700,000
782,500
782,500
64,250
22,500
85,000
2,042,582
3,436,750
Expiry
01/07/21
08/04/20
15/05/19
27/01/21
27/01/21
20/12/19
During the year a charge of US$329,620 (2017: US$381,362) has been recorded in these financial statements in respect of these options of which
US$Nil (2017: US$Nil) has been capitalised as deferred exploration expenditures.
21 IMPAIRMENT
Impairment of Tangible Assets
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).
The Directors have considered each of the Group’s deferred exploration assets and production and development assets on a project-by-project
basis. They have considered that there are three potential cash generating units (“CGU”) for the purpose of their assessment.
Palito and São Chico are considered to be a single CGU 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. The Directors are satisfied that these mining activities are operating in line with expectations and having completed their
assessment for impairment indicators that there are no other indicators that might lead to a potential impairment of this CGU.
The second cash generating unit represents the Coringa gold project acquired by the Group in December 2017. The Company has undertaken
further evaluation of this project during 2018, resulting in an increase in the total mineral resource by 37 per cent to over 500,000 ounces of gold.
The Directors are satisfied that this project will be able to operate in line with management’s expectations and having completed their
assessment for impairment indicators that there are no other indicators that might lead to a potential impairment of this CGU.
The third 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. Having completed their
assessment for impairment indicators the Directors are satisfied that there is no indication of impairment across these projects.
22 ACQUISITION OF CHAPLEAU RESOURCES LIMITED
On 21 December 2017, Serabi completed the acquisition (“Closing”) of all the issued and outstanding common shares of Chapleau Resources
Limited (“Chapleau”) a wholly owned subsidiary of Anfield Gold Corp. (“Anfield”) (the “Transaction”). Chapleau through its wholly owned subsidiary
Chapleau Exploração Mineral Ltda, holds the Coringa gold project located in the Tapajos gold province in Para, Brazil.
Serabi made an initial payment to Anfield on Closing of US$5 million in cash (“Initial Consideration”) and a further US$5 million in cash was paid
in April 2018 in accordance with the contractual terms of the Transaction. 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, and represents the remaining “Deferred Consideration”. The total
proposed consideration for the acquisition amounts to US$22 million in aggregate.
The acquisition of Chapleau has been accounted for as an Asset Purchase and the assets and liabilities of Chapleau were 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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
110
Notes to the Financial Statements continued
For the year ended at 31 December 2018
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.
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 considers increases the potential of the Group to raise finance
through further issues of shares in the future. Management considers 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.
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$0.59 million (2017: US$0.21 million).
Operating lease commitments
The Group has commitments under non-cancellable operating leases in respect of office premises as follows:
Group
Company
31 December 31 December 31 December 31 December
2017
US$
2018
US$
2018
US$
2017
US$
Commitments falling due:
Within one year
Between one year and five years
Total
130,063
51,219
167,428
304,944
67,973
11,329
96,742
301,623
181,283
472,372
79,302
398,365
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 historically claims have been 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 although further
claims may arise at any time.
Serabi Gold plc // Report and Accounts 2018
111
25 RELATED PARTY TRANSACTIONS
During the period the Company has made loans to subsidiaries of US$8.27 million (2017: US$Nil). There were no loans converted into new shares
issued by subsidiaries during 2018 (2017: US$Nil).
The Company has loans receivable from subsidiaries totalling US$16,660,987 (2017: 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, 1,040 tonnes of copper/gold concentrate for a consideration
of US$7,406,175 (2017: 1,440 tonnes; US$12,028,870).
Key management remuneration
Key management comprises the Executive, Non-executive Directors, the COO and the Country Manager only. Their compensation is:
For the
year ended
For the
year ended
31 December 31 December
2017
US$
2018
US$
Short term employee benefits
Post-employment benefits
Share-based payments
Total
26 FINANCIAL RISK MANAGEMENT
1,239,806
10,662
304,180
1,195,684
10,302
332,968
1,554,648
1,538,953
The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes
for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout
these financial statements.
There have been no substantive changes in the Group's exposure to financial instrument risk nor its objectives, policies and processes for
managing those risks or the method used to measure them from the previous period unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises are as follows:
• Trade and other receivables
• Cash and cash equivalents
• Restricted cash
• Trade and other payables
• Loans and borrowings
• Finance leases and asset loans
• General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate
responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the
objectives and policies to the Group's finance function.
The Board receives regular information from the Group's management through which it reviews the effectiveness of the processes put in place
and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as
possible without unduly affecting the Group’s competitiveness and flexibility.
The Group is exposed to commodity price volatility, interest rate risks, credit risks, liquidity risks and currency risks arising from the financial
instruments it holds.
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:
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
112
Notes to the Financial Statements continued
For the year ended at 31 December 2018
26 FINANCIAL RISK MANAGEMENT CONTD.
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. The Group
has not, to date, entered into any long term arrangements designed to protect itself from changes in the prices of these commodities. The Group
does, however, closely monitor the prices of these commodities and the Board does regularly review the Group’s strategy towards hedging and the
nature and cost of the hedging products available to the Company.
Whilst not representing a financial instrument all inventory as at 31 December 2018, 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 2018 and 2017 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$8 million loan with Sprott, further details of which are set out in note 17 (Interest-bearing liabilities).
As at 31 December 2018, the amount of US$5.80 million (2017: US$4.48 million) was outstanding in respect of the Sprott loan.
Group
2018
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Derivatives
Interest-bearing liabilities
Total
Group
2017
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Derivatives
Interest-bearing liabilities
Total
Weighted
average effective Non-interest
bearing
US$
interest rate
%
Fixed interest maturity
Floating
US$
One year
or less
US$
Over one to
five years
US$
Total
US$
0.1%
–
–
758,209
9,216,048
–
758,209
9,216,048
–
–
–
–
–
–
9,216,048
758,209
9,974,257
–
–
9.62%
18,598,926
390,976
–
18,989,902
–
–
–
–
–
–
4,302,798
–
–
2,213,096
18,598,926
390,976
6,515,894
4,302,798
2,213,096
25,505,796
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
4,093,866
–
1,277,142
4,093,866
–
–
–
–
–
–
4,093,866
1,277,142
5,371,008
–
–
9.37%
24,422,787
709,225
–
25,132,012
–
–
–
–
–
–
2,845,712
–
–
2,749,414
24,422,787
709,225
5,595,126
2,845,712
2,749,414
30,727,138
Serabi Gold plc // Report and Accounts 2018
113
26 FINANCIAL RISK MANAGEMENT CONTD.
Interest rate risk contd.
Company
2018
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Derivatives
Interest-bearing liabilities
Total
Company
2017
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Derivatives
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%
–
–
13,240,886
7,382,530
–
13,240,886
7,382,530
–
–
–
–
–
–
7,382,530
13,240,886
20,623,416
–
–
10%
23,906,221
390,976
–
24,297,197
–
–
–
–
–
–
3,636,360
–
–
2,164,246
23,906,221
390,976
5,800,606
3,636,360
2,164,246
30,097,803
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
2,936,579
–
8,848,246
2,936,579
–
–
–
–
–
–
2,936,579
8,848,246
11,784,825
–
–
10%
28,463,503
709,225
–
29,172,728
–
–
–
–
–
–
1,980,000
–
–
2,500,000
28,463,503
709,225
4,480,000
1,980,000
2,500,000
33,652,728
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 and other recognised lenders. 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$8 million loan with Sprott, further details of which are set out in note 17 (Interest-bearing liabilities).
As at 31 December 2018, the amount of US$5.80 million (2017: US$4.48 million) was outstanding in respect of the Sprott loan.
As at 31 December 2018, in addition to the Sprott loan, the Company had obligations under fixed rate finance leases amounting to US$0.72 million
(2017: US$1.12 million) (see note 17).
The following table sets out the maturity profile of the financial liabilities as at 31 December 2018:
Due in less than one month
Due between one month and three months
Due between three months and one year
Total due within one year
Due more than one year
Total
2018
Group
US$
Company
US$
2017
Group
US$
1,590,640
3,115,764
17,630,775
2,586,481
4,565,503
20,390,597
1,174,801
7,051,493
6,290,835
Company
US$
2,121,776
8,605,740
9,718,026
22,337,179
3,168,617
27,542,581
2,164,246
14,517,129
15,500,782
20,445,542
12,497,961
25,505,796
29,706,827
30,017,911
32,943,503
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018
114
Notes to the Financial Statements continued
For the year ended at 31 December 2018
26 FINANCIAL RISK MANAGEMENT CONTD.
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 an issue of Special Warrants undertaken in December 2010 and an issue of new
Ordinary Shares and Warrants on 30 March 201, 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 31 December
2017
US$
2018
US$
3,798,585
57,953
3,460,533
11,199
57,070
1,830,708
2,635,299
44,578
126,198
28,101
105,977
1,153,713
9,216,048
4,093,866
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 $
Total
31 December 31 December 31 December 31 December
2018
US$
2018
US$
2018
US$
2018
US$
–
–
–
–
(1,225,811)
4,384,192
689
12,966
–
–
–
–
(12,686,554)
57,953
2,228,990
11,199
57,257
–
(12,685,865)
70,919
2,228,990
11,199
(1,168,554)
4,384,192
3,158,381
13,655
(10,331,155)
(7,159,119)
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 2018
26 FINANCIAL RISK MANAGEMENT CONTD.
Currency risk contd.
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
115
Against Sterling
US$
148,603
(127,000)
Against Euro
US$
(139,186)
139,186
The Group’s main subsidiaries operate in Brazil with their expenditure being principally in Brazilian Real and their 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$15,696,343
(2017: US$10,082,482). It is the Group’s policy to only deposit surplus cash with financial institutions that hold acceptable credit ratings.
The Group currently sells nearly all of its gold bullion to a single customer. The Group seeks to receive full settlement by bank transfer on delivery
of its product to the purchaser to minimise its exposure to any credit risk on that customer.
The Group currently sells all of its copper/gold concentrate production to a single customer, a publicly quoted trading group located in Japan.
Settlement terms are in accordance with industry norms. The customer has a strong reputation within the industry and has a good credit risk
history. As at the balance sheet date there were no amounts owed to the Group that were overdue (2017: amount overdue: US$Nil).
The Company’s exposure to credit risk amounted to US$16,404,019 (2017: US$11,892,581). Of this amount US$ (2017: US$7,606,894) is
due from subsidiary companies, US$7,382,530 represents cash holdings (2017: US$2,936,579) and a significant portion of the remainder is
represented by trade debtors for the sale of copper/gold concentrate.
Since the inception of its operations the Group has incurred no credit losses nor at any time has the Group been required to consider any
impairment of any financial asset. The Group makes its selection of its preferred customers and other credit risk counterparties having given
appropriate consideration to their creditworthiness and reputation. On this basis it considers that the credit risk associated with its cash and
cash equivalents and in respect of its trade and other receivables to be low. At no time has any customer or credit counterparty been in default of
contractual payment terms or sought to vary such terms. The Group would consider a customer to be in default of their obligations in the event
that they failed to make payment on the due date without prior notification and agreement or having sought a variation of payment terms failed to
make settlement by the revised date. The Group would consider any other credit risk counterparty to be in default of their obligations in the event
that they failed to make payment promptly in accordance with contractual arrangements.
In the event that the Group considered that an event had occurred which might indicate that there was no reasonable expectation of recovery,
the Group would recognise an impairment at that time. At this time and given publicly available knowledge of its counterparties and their affairs
the Group does not consider that it will incur any credit losses in the next 12 month period not does it consider that any of its credit risk as at
31 December 2018 has been impaired subsequent to the end of the year.
The Company is exposed to credit risk through amounts due from its subsidiary undertakings. Refer to note 1 and note 12 for details on the credit
loss allowance made.
27 ULTIMATE CONTROLLING PARTY
Fratelli Investments Ltd owns 19,318,786 ordinary shares representing 32.8 per cent of the voting shares in issue and Greenstone Resources II LP
owns 14,887,970 ordinary shares representing 25.3 per cent of the voting shares. Both shareholders are completely independent and neither is
therefore considered to be a controlling party.
28 POST BALANCE SHEET EVENTS
Subsequent to 31 December 2018, 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.
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116
Glossary
“Ag”
“AISC”
“Au”
“assay”
“CIM”
means silver.
means All-In Sustaining Cost – a non IFRS performance measurement established by the World Gold Council.
means gold.
in economic geology, means to analyse the proportions of metal in a rock or overburden sample; to test an ore
or mineral for composition, purity, weight or other properties of commercial interest.
means the Canadian Institute of Mining, Metallurgy and Petroleum.
“CIP” or “Carbon in Pulp”
means a process used in gold extraction by addition of cyanide.
“chalcopyrite”
is a sulphide of copper and iron.
“Cu”
“cut-off grade”
“deposit”
means copper.
the lowest grade of mineralised material that qualifies as ore in a given deposit; rock of the lowest assay
included in an ore estimate.
is a mineralised body which has been physically delineated by sufficient drilling, trenching, and/or underground
work, and found to contain a sufficient average grade of metal or metals to warrant further exploration and/
or development expenditures; such a deposit does not qualify as a commercially mineable ore body or as
containing ore reserves, until final legal, technical, and economic factors have been resolved.
“DNPM”
means the Departamento Nacional de Producao Mineral.
“electromagnetics”
is a geophysical technique tool measuring the magnetic field generated by subjecting the sub-surface to
electrical currents.
“garimpeiro”
“geochemical”
“geophysical”
“geophysical techniques”
is a local artisanal miner.
refers to geological information using measurements derived from chemical analysis.
refers to geological information using measurements derived from the use of magnetic and electrical readings.
include the exploration of an area by exploiting differences in physical properties of different rock types.
Geophysical methods include seismic, magnetic, gravity, induced polarisation and other techniques;
geophysical surveys can be undertaken from the ground or from the air.
“gold equivalent”
refers to quantities of materials other than gold stated in units of gold by reference to relative product values
at prevailing market prices.
“gossan”
“grade”
“g/t”
is an iron-bearing weathered product that overlies a sulphide deposit.
is the concentration of mineral within the host rock typically quoted as grams per tonne (g/t), parts per million
(ppm) or parts per billion (ppb).
means grams per tonne.
“hectare” or a “ha”
is a unit of measurement equal to 10,000 square metres.
“indicated mineral resource”
“inferred mineral resource”
is that part of a mineral resource for which quantity, grade or quality, densities, shape and physical
characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of
technical and economic parameters, to support mine planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable exploration and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are
spaced closely enough for geological and grade continuity to be reasonably assumed.
is that part of a mineral resource for which quantity and grade or quality can be estimated on the basis of
geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade
continuity. The estimate is based on limited information and sampling gathered through appropriate techniques
from locations such as outcrops, trenches, pits, workings and drill holes.
“IP”
refers to induced polarisation, a geophysical technique whereby an electric current is induced into the
sub-surface and the conductivity of the sub-surface is recorded.
“measured mineral resource”
is that part of a mineral resource for which quantity, grade or quality, densities, shape, and physical
characteristics are so well established that they can be estimated with confidence sufficient to allow the
appropriate application of technical and economic parameters, to support production planning and evaluation
of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling
and testing information gathered through appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
Serabi Gold plc // Report and Accounts 2018 117
“mineralisation”
the concentration of metals and their chemical compounds within a body of rock.
“mineralised”
refers to rock which contains minerals e.g. iron, copper, gold.
“mineral reserve”
“mineral resource”
“mt”
“NI 43-101”
“ore”
“oxides”
“ppm”
“saprolite”
“sulphide”
“tailings”
“tpd”
“vein”
“VTEM”
is the economically mineable part of a measured or indicated mineral resource demonstrated by at least a
preliminary feasibility study. This study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting, that economic extraction can
be justified. A mineral reserve includes diluting materials and allowances for losses that may occur when the
material is mined.
is a concentration or occurrence of diamonds, natural solid inorganic material or natural fossilised organic
material including base and precious metals, coal, and industrial minerals in or on the Earth’s crust in such
form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The
location, quantity, grade, geological characteristics and continuity of a mineral resource are known, estimated
or interpreted from specific geological evidence and knowledge.
means million tonnes.
means Canadian Securities Administrators’ National Instrument 43-101 – Standards of Disclosure for Mineral
Projects.
means a metal or mineral or a combination of these of sufficient value as to quality and quantity to enable it
to be mined at a profit.
are near surface bed-rock which has been weathered and oxidised by long term exposure to the effects
of water and air.
means parts per million.
is a weathered or decomposed clay-rich rock.
refers to minerals consisting of a chemical combination of sulphur with a metal.
are the residual waste material that 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.
Management Discussion and AnalysisCommunity and Social ResponsibilityCorporate GovernanceFinancial StatementsStrategic ReportSerabi Gold plc // Report and Accounts 2018 118
Shareholder Information
COMPANY
Serabi Gold plc
UK Office
2nd Floor
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 Bañados – 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
10th Floor
30 Crown Place
London EC2A 4EB
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
18 King Street East, Suite 902
Toronto,
Ontario M5C 1C4
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 2018
Design and Production
www.carrkamasa.co.uk
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