Serabi Gold plc
Annual Report
2021
COMPANY NUMBER – 5131528
We are Serabi Gold plc:
The leading developer of gold
production in Brazil
We are a gold exploration and production company involved in the
evaluation and development of gold deposits in Brazil. The
Company’s primary interests are its 100 per cent owned Palito Complex
and the Coringa gold project where initial mine development
commenced during 2021 and which the Group plans to have in
production during 2023. Both interests are located in the Tapajos
region of Brazil.
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 has 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
Potential
The Tapajos region is the
world’s third largest
alluvial gold field with
reported historic gold
production from artisanal
activity of up to 30 million
ounces
Only 7 million ounces of
hard rock resource has
been discovered all around
historic artisanal mines.
The region is attracting the
interest of major mining
companies who are
attracted by the potential
for large scale porphyry
style deposits.
Exploration
Engagement
Serabi has pursued a
systematic approach to its
exploration using geophysics
to screen large areas of its
tenements for potential
sulphide bodies that would
host gold mineralisation.
Anomalous areas are subject
to further surface and near
surface exploration before
being prioritised for
exploration drilling.
Serabi has built strong
relationships with local
communities who are
supportive of the Group’s
further growth recognising
the economic, environmental
and social benefits that are
generated by having a
responsible, international
mining group active in the
region.
Access rights for exploration
are negotiated with local
landowners on commercial
terms.
Read more on pages 7 to 8
Read more on pages 21 to 31
Read more on pages 82 to 85
Development
Serabi intends to
incorporate any new
discoveries into its existing
operations using the
resource growth to
enhance its production and
increase the life of its
operations.
Whilst anticipating that
new discoveries are likely
to be narrow vein deposits
similar to the Palito, São
Chico and Coringa
orebodies, management
will look at opportunities
for introducing open pit
mining to diversify
technical risk for new
developments.
1
Contents
Inside this report
Welcome to Serabi Gold
STRATEGIC REPORT
Chairman’s Statement
Business Model and Strategy
Our Mineral Assets
Group Mineral Reserves and
Resources
Financial Review
Principal Risks and
Uncertainties
Directors’ Section 172(1)
Statement
Principal Decisions by the
Board During the Period
CORPORATE
GOVERNANCE
Board of Directors and Senior
Management
Remuneration Committee
Report
Audit Committee Report
Environmental, Social and
Communities Report
Modern Slavery and Human
Trafficking Statement
Report on Corporate
Governance
Directors’ Report
1
3
5
7
32
35
44
52
59
61
64
75
82
86
88
93
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
98
107
108
109
110
112
113
158
160
Where we operate
We operate in the
Tapajos region of
Brazil, an area with
great potential and
historic mineral
discoveries
Read more on pages 7
to 8
Our mineral assets
We have long
standing sustainable
production at the
Palito Complex and
in 2021 we began
mine development at
Coringa.
Read more on pages 9
to 34
Building out
stronger
We have a clear
commitment to the
local economy and
community. We
believe in doing
things the right way.
Read more on pages
82 to 85
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Strategic Report
Chairman’s Statement
Dear Shareholders
In common with many other businesses, we have continued to face challenges and through 2021 we have sought to re-establish
our activities as quickly as possible in an environment that is still resetting itself following what we all hope are the worst effects
of the COVID-19 pandemic. As we return to normality, protecting the health of our employees, suppliers and communities
continues to be a priority, and the Company will maintain its full commitment to be a safe place in this difficult environment.
The development of our Coringa project remains our immediate growth priority and it is very pleasing to see the continued
progress that we are making. As we reported in the first quarter of 2022, the ramp development of the Serra orebody has
intersected the three known veins with grades significantly higher than we were expecting. All three veins have been intersected
on the 320m and 340m levels, with excellent results to date. Our plan is now to develop the two principal veins, V1 and V3 to the
north. We have also introduced ‘resue’ development mining, where the ore and waste can be blasted separately. The advantage
of this technique is that dilution of the ore coming out of the mine will be minimised and allow us to build a high-grade stockpile
over the coming months, in preparation for plant feed in 2023.
The current development operations at Coringa are being carried out under a trial mining licence (“GUIA”) that allows us to
undertake mining activities and perform some initial processing of the ore and further test work at the Palito Complex. We remain
optimistic regarding the award of the Installation Licence which is required before we can start construction of the plant and the
rest of the site infrastructure. Ongoing dialogue with the relevant agencies involved with issuing this licence, continues to be very
positive and has not highlighted any concerns with the project design. The agencies continue to follow the steps and processes set
down by the law to help expedite the issue of the licence. Both the National Mining Agency (the “ANM”) and the State
environmental agency (“SEMAS”) have together with Serabi, filed documents of protest with the relevant court authorities and
the court judge who is currently reviewing the need for any ongoing intervention given that all proper processes are being
followed. The key issue has been confirmation that the needs of the indigenous populations have been properly considered. In
all steps of the process Serabi, SEMAS and the ANM have observed their legal and moral obligations consulting with and
obtaining approval from FUNAI, the national agency that protects the rights of indigenous populations. A specific indigenous
study that goes beyond the requirements of the law is now expected to be completed during the second quarter of 2022 and is
intended to allay any further concerns regarding the impact of mining activity at Coringa. In the meantime, SEMAS have received
letters from the indigenous tribes confirming their support for the project. Discussions regarding the additional funding that will
be required for the longer term development of Coringa, including the construction of the plant and the necessary site
infrastructure, remain on-going with a variety of providers.
Brownfield exploration during 2021 brought some excellent mine-site discoveries, especially around the current Palito deposit,
which will allow us to expand the operation during the latter half of 2022. This growth is particularly important after the lower
than expected production in the fourth quarter of 2021 and the first quarter of 2022.
The last 12 months have been challenging and I believe that the post pandemic effects on Serabi have been more wide ranging
than we originally anticipated. Whilst in 2020, it was the pandemic itself that hampered operations, 2021 was a year when supply
chain delays became prevalent, as businesses in Brazil accelerated output, but struggled to meet targets due to lack of critical
items. Since travel restrictions for non-nationals travelling to Brazil were eased in the latter part 2021, Serabi’s executive
management have spent a lot of time in country, making a number of management changes and implementing numerous
operational actions.
At the Palito operation, whilst 2021 was a better year than 2020, we still faced a number of challenges, and the final quarter of 2021
as well as the first quarter of 2022 saw lower than anticipated levels of production. The reasons for this are twofold. In the Palito
orebody, ongoing delays in the delivery of critical new mining fleet have hampered mine development and therefore the speed
at which new areas at Palito can be prepared for mining. The brownfield exploration has brought some excellent results over the
past six months but accessing these resources and translating them into reserves and production has not been possible due to fleet
shortage, which we have been waiting on since mid 2021. In the meantime, we have been reliant upon an aging fleet that, with
increasing maintenance downtime, is unable to provide the required capacity. As a consequence of this delay, we have been
somewhat restricted in our production options and have, in the short-term, needed to mine and process the ore that is in
immediately accessible blocks, including those with lower grades. This has resulted in lower than anticipated production in the
fourth quarter of 2021 and the first quarter of 2022. Nevertheless, we are confident the already identified new vein structures will
allow us to increase production from the deposit during the remainder of 2022 and in 2023. All new items of fleet have been or
are expected to be delivered during the second quarter of 2022.
Secondly, we have also experienced lower than expected production from the São Chico orebody. During the second half of 2021,
we commenced production on the Julia Vein. Up until then, most São Chico production has come from the Main Vein, where
mechanised long hole open stoping has proved to be an efficient and effective mining method. During the second and third
3
Strategic Report
Chairman’s Statement
quarters of 2021, the Julia Vein was developed with the intention to again use mechanised long hole open stoping. However, as
we progressed through the fourth quarter, it became clear that the levels of dilution from stoping were far higher than forecast as
a consequence of the presence of multiple cross cutting faults and intrusive dykes, which post-date the ore. These faults were not
easily identified in the initial drilling into the vein Through the latter part of the fourth quarter of 2021 and the first quarter of this
year we installed significant amounts of ground support such as cable bolts and leaving ground pillars to help minimise dilution.
This made some marginal improvements, but production rates were nevertheless greatly reduced, with the drilling equipment
and manpower being utilised just as much for ground support activity as they have been for production. During February 2022,
the decision was made to stop the long hole method on the Julia Vein, and introduce selective open stoping, with air-legs, as used
in most areas of the Palito orebody. This will bring improved grades by minimising dilution through greater selectivity. However,
this is not an overnight change. It is slower, and therefore needs preparation time, but continuing with long hole mining is not a
viable option. A consequence is that 1,000 ounces of production scheduled from São Chico in February by long hole, was delayed
and will now be mined selectively during both the second quarter and over the rest of the year.
This decision to move away from long hole to selective mining methods means the reliance on production ounces will, in the near
term, move away from the São Chico orebody to the Palito orebody, with operations at São Chico focusing far more on mine
development with a view to a return to normal production in 2023. In parallel to this, during the second half of 2022, we will be
increasing production from the Palito orebody. As a result, it is unlikely that we will be able to maintain quarterly production at
a level of around 9,000 ounces, and we will focus on producing profitable ounces and maximising operational cashflow rather
than production growth for the rest of the year. This has required us to lower our production guidance for 2022 to be in the region
of 30,000 ounces but expect a return to previous levels once access has been gained to the new working areas.
I am pleased to say that these decisions are beginning to bear fruit with some much-improved grades and daily production in
March and April. We will make every effort to exceed the revised guidance and have already taken and implemented the decision
to bring in 34 specialised selective miners to help accelerate the transition back to selective mining at São Chico and increase
production from Palito. There are multiple smaller, higher-grade areas in upper levels, that require minimal development and
access, but lend themselves to selective mining and these can provide additional ounces. This transition to the more selective
mining method going forward to emphasise quality over quantity, means an increased focus on reducing costs, moving less
volume and optimising the operation rather than just chasing scale. The real scale change will be driven by the successful start-
up of Coringa.
Exploration results from the Palito Mine have been very encouraging. The Ipe and Mogno veins in the Chica da Santa sector,
which was a key part of the Palito production during 2021, have demonstrated the depth potential and continued high grades of
the sector. Lateral extensions of the deposit comprising the Piaui sector to the southwest and Pele sector to the northeast also bode
well with both sectors expected to support resource replenishment, growth and future production at the Palito Mine while
ensuring a successful future for this long-life asset. The drilling into Piaui has really opened up the deposit to the southwest. The
Piaui sector hosts two veins, which have now been drilled over a strike length of 500m and 200m vertical depth. Plans are now
being finalised to cross cut to this sector from the Senna Vein later this year.
The potential of Palito both along strike, at depth and now laterally is very evident. From Pele in the east and Piaui in the west,
the deposit now comprises a series of veins within a 1,000m wide corridor. Over the next 12 months, we will be expanding the
Palito orebody considerably as we access these new sectors.
The reduction in revenues that we will experience in 2022 will impact the level of cash that can be generated and have necessitated
restricting discretionary expenditure including exploration activity. I hope that this will be temporary and that we can pick up
on some of exciting exploration opportunities with funding being provided by operational cash-flow as gold production grows.
Whilst the last two years have been tough operationally due to global supply chain issues and impacts of Covid, we are confident
in Serabi’s future. The Palito orebody remains the engine room to our production base but with a turnaround expected at São
Chico this year and the material growth from Coringa, our strategy remains to turn Serabi into a multi-asset gold miner with
production approaching 100koz within the next few years.
Nicolas Banãdos
Chairman
9 June 2022
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Strategic Report
Business Model and Strategy
How we create value
Our Strengths
At Serabi we have a particular set of
strengths that help drive the success
of our operations
Sustained presence
As a junior mining company seeking
to grow and develop, Serabi has
demonstrated an ability to operate in
a frontier, considered to be
challenging. Our success in the
Tapajos, has been rewarded by
overwhelming community support
and positions the Company well for
its next step, to develop and bring
Coringa into production.
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
For more information
Operational Review and KPIs
Financial Review and KPIs
Risks and uncertainties
Corporate Social Responsibility
9
35
44
82
Our Operating Strategy
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 focus
Our focus is to pursue gold mining opportunities appropriate to the Group’s
size and capabilities, working closely with governing bodies and communities
to produce successful and responsible returns
Identify high-quality opportunities
through exploration or acquisition
of existing gold exploration,
development or production projects
Plan, finance and build new mines
in a timely and cost-effective
manner
Seek continuous improvement to
maximise value and streamline the
production process across our
operations
Generate value for all stakeholders
(investors, government and
communities) to encourage the
continuation of the cycle
Evaluate
Develop
Operate
Return
5
Strategic Report
Business Model and Strategy
Our value proposition
Our objective is to continue steady, sustainable production from our Palito project, and to
develop and build the Coringa project to be in production during 2023 which will place the
Group on the path to realising annual production of 100,000 ounces per annum. In tandem,
management would like to grow the mineral resource base of the Group to in excess of two
million ounces through a structured and continuing programme of exploration across all its
large land tenements.
Experience in the region
Serabi has been present in the Tapajos for 20
years and remains the only hard-rock
operating mining company in the region. It
therefore maintains first mover advantages
and strong relationships with all the relevant
government bodies and agencies with
oversight of mining in the area.
Local reputation
Serabi provides financial, educational,
infrastructure and health support to the
immediate communities. 39 per cent of the
workforce live in the nearby communities with
a total of 79 per cent living in the State of Para.
The strength of local support was illustrated
by the positive outcome of the public hearing
for the Coringa project held in February 2020.
Mine performance
Production from the Palito Complex has been
steady over the past years but more recently
has been impacted by COVID-19 which has
delayed management’s planned production
growth for 2020 and 2021. Management
expects that, following the completion of the
planned mine development to recover lost
activity due to COVID-19 and successful
restoration of the São Chico deposit to
production following the issues encountered
with the Julia Vein, growth plans will be
restored, and the benefits realised.
Exploration potential
The Tapajos region represents one of the
world’s largest undeveloped alluvial gold
fields.
Serabi has a number of exciting exploration
targets successful results from which could
significantly enhance the resource
inventory of the Group.
Serabi’s objective is to increase mineral
resources to over 2 million ounces.
Mine life
The Serabi mineral deposits, being sub-
vertical vein systems, exhibit significant
potential for resource growth. Palito and
Coringa especially are open along strike
and depth, and can be explored relatively
simply by surface and shallow
underground drilling. Sao Chico appears
to be more limited, but exhibits growth
potential with newly discovered parallel
vein sets. Drilling depth extensions of
known veins can realistically only be done
from underground and this is part of the
normal operational business.
Strong macro-economic environment
The COVID-19 pandemic and recent war
between Russia and Ukraine have created
an economic enviroment in which gold
prices have improved by approximately 25
per cent since the end of 2019 and with
continued market uncertainties are
expected to remain at or around current
levels for some time.
6
Creating value for stakeholders
Shareholders
Deliver capital appreciation through
investment of cash flow in accretive
growth to increase long-term cash
generation which can also support
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
the local populations
Employees
Generate a stable and secure work
environment in which employees learn,
are mentored and can progress to
develop their careers
Our management process
Risk management
There are many risks inherent in mining
operations which to a greater or lesser
degree, can be anticipated. Serabi has an
active risk management programme
seeking to assess and instigate actions to
minimise risk in all areas of the business
Working with 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
Commitment to regulations and
responsible practice
Serabi is committed to ensuring that its
operations have minimal adverse impact
on communities and the environment. It
seeks to bring positive benefit to the
neighbouring communities, through
providing assistance with infrastructure,
education, healthcare and other
improvements to living conditions
Strategic Report
Our Mineral Assets
The Tapajos – a region with great promise and potential
Overview
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.
30 m
ounces reported
to have been
recovered from
artisanal
operations
7 m
ounces of hard
rock resources
identified to date
Our mission
Our focus
Our Strategy
Our objective is to become a pre-eminent
junior gold mining company, securing
future growth through expansion of our
existing operations and projects and
taking advantage of our position as an
existing gold producer with first mover
advantage in the region, to become
involved with and successfully develop
other carefully selected opportunities.
We strive to operate efficiently and
effectively with specific focus on quality
and sustainability.
• Evaluate and develop the near-mine
discoveries and exploration potential of
the Palito Complex
Whilst we seek to maximise the long-term
value for our shareholders, we also aim to
bring benefits to all stakeholders working
closely with neighbouring communities to
ensure that they derive financial and social
benefit from our operations and activities
• Develop and bring into production the
Coringa gold project
• Evaluate and develop the longer-term
growth potential of the Group’s tenements
in the Tapajos district
• Identify and acquire accretive gold
opportunities
7
Strategic Report
Our Mineral Assets
The Tapajos – a region with great promise and potential
The Tapajos region has experienced a period of more than 40 years of intense exploitation of alluvial, colluvial and eluvial gold
deposits. Whilst artisanal mining continues, the number of active “garimpeiros” has reduced in recent years. The near surface
deposits, which have been relatively easy to explore and mine with simple, basic processes, are becoming exhausted. It is however
the secondary deposits, which are often related to the primary occurrences exploited by the garimpeiros, that are of interest to
established mining and exploration companies. Both high-grade vein hosted, and low-grade disseminated or “sheeted vein” style
deposits have been discovered in recent years. These deposits are usually related to structural dislocation and shear zones, and
often show an association with andesite or mafic dykes.
The first recorded discovery of gold dates back to 1958 and whilst official gold production is reported as having been seven to ten
million ounces, unofficial reports indicate figures up to between 20 million and 30 million ounces. This level of production places
the region as the world’s third largest alluvial goldfield, however, the mineral province covers an area of approximately
90,000km2, similar to the size of Portugal, and much of it remains unexplored.
Figure 1- The Tapajos region
Rio Tinto carried out systematic exploration over the wider region during the 1990s, however in the last 20 years, exploration has
been primarily undertaken by junior mining companies. Eldorado Gold acquired the two million ounce Tocantinzinho project in
2010, becoming the only larger mining company with a significant historical presence in the area. This is starting to change and
in the last two to three years and following the discovery of porphyry style deposits in the Alta Floresta belt to the south, some of
the major mining groups, in particular Anglo American and NEXA Resources, have been establishing land holdings and carrying
out regional reconnaissance programmes looking for similar style opportunities in the geologically similar Tapajos. During 2021,
Eldorado Gold completed the sale of the Tocantinzinho project to G Mining Ventures Corp. (“G Mining”), a Canadian mining
group run by a management team with significant experience in mine builds including four successful developments in South
America. G Mining expect to make a construction decision later this year with full construction targeted to commence in the third
quarter of 2022. This recent increase in interest starts to pave the way for a new era of exploration, discovery and development in
the Tapajos and Serabi is well positioned to benefit from, and be at the centre of this.
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Strategic Report
Our Mineral Assets
The Palito Complex– a proven production base
The Palito Complex 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. Management has plans to achieve a sustainable production rate of around 45,000 to 50,000 ounces per annum.
The operation is currently exploiting two orebodies but encompasses a 61,563 hectare tenement area with multiple instances of
historic artisanal operations and a number of other areas that are highly prospective for identifying significant additional gold
occurrences.
The Palito orebody has a NI 43-101 compliant mineral resources of 191,954 measured and indicated resource ounces, with an
additional 141,800 inferred ounces. These resources are hosted in approximately 30 veins, of which eight are in the short-term
mine plans. The veins are typically less than one metre wide and mining is principally by shrink stoping though the Group has
used long hole open stoping in selected areas where conditions allow.
The São Chico orebody is a satellite deposit providing supplementary feed to a central processing plant located close to the Palito
orebody. From 2016-2020, Sao Chico production came almost exclusively from the Main Vein, where the greater orebody widths
allowed mechanised long hole sublevel stoping to be employed, with levels spaced at approximately 15 vertical metres.
During the second half of 2021, development focus moved to the Julia vein in the far west of the deposit, a relatively distant ore
zone located away from the core of the Sao Chico deposit. The vein appeared to be amenable to mechanised sublevel open stoping,
as used successfully on the Main Vein. However, as development progressed, the narrower nature of the vein and a far greater
concentration of cross faulting, presented challenges. During the final quarter of 2021, the mining method was adjusted to
incorporate more cable bolting and providing more pillar support. However, during Q1 2022, management concluded production
by long hole mining on the Julia vein was inappropriate. Mining is being returned to highly selective air-leg mining, which creates
far less dilution, but productivity is lower. The Company does not have a large inventory of additional blocks to be mined, so this
means there will be a requirement to focus on mine development at Sao Chico with a view to a return to normal production in
2023. Production for the Palito orebody will be increased during the second half of 2022 to partly offset the lost São Chico gold
production, and this is already underway. The Company has reported a NI 43-101 compliant total mineral resource of
approximately 141,000 ounces at Sao Chico as at 31 December 2021. This estimation was made prior to the issues relating to the
Julia Vein being understood. Of the total mineral resource of 141,000 ounces approximately 27,000 ounces related to the Julia Vein
of which 6,700 ounces were classified as reserves and had been expected to be mined during 2022. The Company expects that the
majority of the remaining mineral resource estimated for the Julia Vein, will continue to be available to be mined using selective
mining techniques. The Company engaged an independent consultant to support management’s opinion that the geological
setting of Julia was confined only to this part of the Sao Chico deposit. The consultant also reported that in his opinion the effect
on the mineral resource estimation for Sao Chico was less than 10%.
The Julia Vein lies to the west of all of the other vein structure that comprise the Sao Chico orebody and the intrusive dykes that
have been identified here have not previously been encountered in any other parts of the ore body during the seven year
production history of Sao Chico. For this reason, management do not anticipate a similar issue disrupting future production from
the current mineral resource of the rest of the orebody although they may be encountered in any future discoveries of westerly
extensions of the other veins.
9
Strategic Report
Our Mineral Assets
The Palito Complex– a proven production base
Figure 2- The Palito Complex
Figure 3- plan view of the São Chico deposit showing location of the Julia Vein relative to other veins of the São Chico ore body and the
underground development of São Chico.
Management had initially expected that 2022 would yield an increase in production compared with 2021, but with the need to
focus more on development, particularly at São Chico following the issues encountered with the Julia Vein, production levels
from the Palito Complex mining operations are now projected at approximately 30,000 ounces. The benefit of this re-set will be
that by year end, multiple areas will have been prepared to restore production levels to those seen previously.
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Strategic Report
Our Mineral Assets
The Palito Complex– a proven production base
The process plant incorporates a standard three stage crushing circuit with crushed ore being fed into three ball mills and includes
circuits for gold recovery through a combination of flotation, gravity and carbon in pulp. The process plant has milling capacity
of approximately 500 tonnes per day (“tpd”). An ore sorter was added to the plant configuration at the beginning of 2020 so that
waste rock, which is unavoidably mined in development activities, can be screened out of the ore being fed to the mills, liberating
capacity in the plant, and concurrently increasing the head grade of the ore being received into the milling circuit. This liberated
plant capacity can be utilised for processing of additional mined ore. By generating additional ore feed from mining, gold
production can be increased without costly upgrades to plant capacity and at the same time minimising the generation of mine
tailings, maintaining the small environmental footprint, and continuing to minimise any potential environmental impact.
Figure 4- The Palito Complex process plant
The Palito Complex is located just 30 kilometres from the main north south federal highway, the BR163, which is an important
transport link in particular bringing the soya harvests from the state of Mato Grosso to the south to the grain storage and export
facilities located in the state of Para. The road is therefore of significant economic benefit to the country and well maintained. The
Palito site also benefits from access to grid-power with back up from diesel powered generators.
Serabi is focused on maximising the positive impact of its presence in the region. The Company procures 42 per cent of goods
from within 100 kilometres of Palito and over 60 per cent from the State of Para. In addition, the Company sources 39 per cent of
the total workforce from the immediate communities surrounding Palito and close to 80 per cent from the State of Para.
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Strategic Report
Our Mineral Assets
The Palito Complex– a proven production base
Production results 2021
Gold production for 2021 of 33,848 ounces was in line with guidance and represented a seven per cent improvement compared
with 2020. One of the key improvements achieved during the year was the 17 per cent year-on-year improvement in grade with
plant feed grade averaging 6.61g/t compared with 5.62g/t for 2020.
Much of the grade improvement was the contribution from the established lodes, Ipe and Mogno located within the Chico da
Santa sector (“CDS”), that have been the cornerstone of the Palito Complex production during 2021. The CDS sector is located in
the eastern part of the Palito deposit. The Ipe and Mogno veins have been worked top down from level 178mRL to current
development levels -60mRL, with current production on levels -20mRL and -40mRL. Successful exploration with step-out and
step-down drilling around the CDS zones during the second half of 2021 targeted and identified strike extensions of these same
veins well beyond the current mine limits, both along strike and at depth, and represent a positive indication for future grades
and payability. It is expected that Ipe and Mogno will continue to be significant sources of ore during 2022 but it is also planned
to re-enter and develop the G3 vein where exploration has identified new strike extensions of this vein to the south. The G3 vein
was a strong contributor to production in previous years and management is hopeful that these strike extensions will once again
allow it to make a strong contribution going forward.
2021 saw Sao Chico ore increasingly coming from the development and production of Julia vein. This ore has been accessed by
an independent western ramp, separate from the principal ramp at Sao Chico. With the production challenges encountered with
the mining of the Julia vein during the fourth quarter of 2021 and the first quarter of 2022, production at São Chico going forward
will adopt the more selective mining methodology for the remainder of 2022. This means production will be slower with reduced
output. To offset this in part, focus has shifted to accelerating the evaluation and development of other parts of the São Chico
orebody including the depth extensions of the Main Vein and the Gabi and Lagoa Veins which sit parallel to the south and north
of the Main Vein respectively.
Currently the Main Vein is being developed on the -94mRL, with the main ramp deepening to the next level, -124mRL. The Gabi
Vein has been steadily evolving during the year as past drilling results have been re-evaluated. Initial results are very exciting
and clearly illustrate the lateral potential that exists at São Chico. With multiple payable drill hole intercepts into the vein covering
a strike length of over 1,000 metres and depth of 400 metres, it demonstrates potential to add significant additional mineral
resources from this new ore zone, which also appears amenable to selective mining. With the Gabi Vein just 70 metres south of
current mine development, access is simple and further confirmatory infill drilling will be conducted which will hopefully support
a decision to start development of this area for mining.
SUMMARY PRODUCTION STATISTICS FOR 2021 AND 2020
Qtr 1
Qtr 2
Qtr 3
Qtr 4
Full Yr Qtr 1
Qtr 2
Qtr 3
Qtr 4
Full Yr
2021
2021
2021
2021
2021
2020
2020
2020
2020
2020
Gold production
(1)(2)
Ounces
8,087
9,048
9,035
7,678
33,848
9,020
8,504
6,790
6,898
31,212
Mined ore – Total Tonnes
40,371
43,051
42,240
44,599
170,261
42,036
43,519
44,097
46,275
175,928
Gold
grade
(g/t)
6.27
7.12
7.18
5.81
6.59
6.54
5.85
4.84
5.24
5.59
Milled ore
Tonnes
41,462
43,679
41,995
43,663
170,799
40,465
44,235
46,135
43,440
174,276
Gold
grade
(g/t)
6.27
7.09
7.20
5.90
6.61
6.66
5.91
4.75
5.27
5.62
Horizontal
development
Total
–
Metres
3,573
2,961
2,842
3,318
12,694
2,878
3,004
3,037
3,353
12,272
i. The table may not sum due to rounding.
ii. Production numbers are subject to change pending final assay analysis from refineries.
12
Strategic Report
Our Mineral Assets
The Palito Complex– a proven production base
Whilst horizontal development rates have remained solid, they were below budget, a consequence of low levels of fleet availability
and long lead times on the acquisition of new equipment due to the impact of COVID-19 To maintain production rates, some
equipment had to be rebuilt rather than be replaced, a costly and time-consuming exercise. These supply chain issues are easing,
and the Group has embarked on a significant capital programme to upgrade certain key items of its fleet and in particular the
purchase of additional underground trucks to transport ore from the mines.
The process plant has continued to operate efficiently through the year with no unforeseen issues and maintaining gold recovery
rates at an average of 92 per cent across both ore sources. Work has been ongoing and will continue during 2022 to introduce new
leaching tanks and decommission the old units. However, this work will not impact on day-to-day gold production activities.
The ore sorter has continued to operate very well and during the year received 30,905 tonnes of low-grade ore (2.01g/t) that might
otherwise have been stockpiled for future use. The ore sorter produced 4,951 tonnes of mill geed at a grade of 10.71g/t and a
waste product of 26,954 tonnes with a grade of 0.63g/t. This result represents a 525 per cent reduction in volume whilst
beneficiating the grade fed to the mills by a factor of 430 per cent. At the current time only ore from the Palito deposit is being
passed through the ore sorter. Ore sorting works best when ore and waste rock have a strong contrast in their physical properties,
such as density or colour. Test work on the São Chico ore is ongoing but to date the contrast has not been sufficient to allow most
of the São Chico ore to be sorted. However, in the areas of São Chico where the mineralisation is slightly narrower and
consequently higher levels of dilution with the host rock, the benefits may increase.
The immediate impact of the COVID-19 pandemic affected operations during 2020 with reduced staffing levels at site including
the suspension of all contractor crews for surface and underground drilling units. 2021 was always considered to be a period of
consolidation and potential recovery and whilst staffing levels at site returned to pre-pandemic levels at the end of 2020, supply
chain issues including the long lead times of certain equipment have restricted the Group’s ability to significantly increase the
levels of mine development that were needed to claw back the lost development of 2020. For the years preceding the pandemic,
quarterly levels of gold production were very consistent for a number of years and, as figure 5 below illustrates, quarterly gold
production had, with only two exceptions, been maintained at between 9,200 and 10,300 ounces per quarter in the preceding four
year period.
10.3k
9.8k 9.9k
9.9k
9.4k
9.7k
9.3k 9.2k
9.6k
8.1k
8.1k
10.3k10.2k
10.2k10.2k
9.5k
9.0k
8.5k
9.0k 9.0k
8.1k
7.7k
6.8k 6.9k
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2016
2017
2018
2019
2020
2021
Figure 5- Quarterly gold production
At the same time, and as shown in figure 6 below, the quarterly levels of mined tonnage and the average grades have, with the
exception of 2020, also shown relatively strong consistency. Average gold grades prior to 2020 were generally in the range of
6.5g/t and 8.25g/t., and except for Q4 2021 when grades were adversely impacted by the dilution problems coming from the Julia
vein in São Chico, the last 12 months have otherwise seen a recovery back towards these levels.
13
Strategic Report
Our Mineral Assets
The Palito Complex– a proven production base
Mined tonnage and grade (kt and g/t)
49.0kt
44.6kt
43.1kt
41.7kt41.3kt
37.5kt
33.6kt
36.9kt
39.7kt
36.1kt
44.3kt
42.7kt
42.6kt
44.8kt44.8kt44.1kt
43.5kt44.1kt
42.0kt
46.3kt
43.1kt42.2kt
44.6kt
40.4kt
11.0
8.9
9.6
9.6 10.1
9.8
7.8
8.3
7.5
8.1
6.2
7.5
7.5
6.7
7.1
6.7
6.5
5.9
4.8
5.2
6.3
7.1
7.2
5.8
Q1
Q2 Q3 Q4
Q1 Q2 Q3 Q4
Q1 Q2 Q3
Q4 Q1 Q2 Q3
Q4 Q1 Q2
Q3 Q4 Q1 Q2
Q3 Q4
2016
2017
2018
2019
2020
2021
Figure 6- Quarterly mined tonnage and grade statistics
Whilst 2021 saw an improvement in gold production compared with 2020, the reduced availability of underground fleet and the
long lead times on replacement parts and equipment restricted the ability to accelerate underground development rates, year-on-
year, in the way that management had planned. As a consequence, the ability to open up new areas was limited and, for the first
time, 2021 was a year when the operation become somewhat mine rather than plant constrained. The new fleet, however, is either
already at site or due to arrive within the first half of 2022, which will enhance productivity for the latter part of the current year.
The need to re-focus efforts at São Chico on mine development does mean that gold production for 2022 is unlikely to show an
increase compared with 2021, although management expects average processed ore grades will improve.
Total ore tonnage available for the plant during 2021 was 170,261 tonnes, a reduction of approximately 5,700 tonnes compared
with the preceding year but with a 18 per cent increase in average grades from 5.59g/t to 6.59g/t comparable with 2019 when the
average grade was 7.00g/t.
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, each month, mine development rates are maintained ahead of production. Notwithstanding the issues presented by
COVID-19 on operations, the Group achieved the highest annual total of horizontal mine development since operations
commenced in 2014.
Mined ore (tonnes)
Annual mine development completed (metres)
2021
2020
2019
2018
2017
2016
2015
170,261
175,928
176,243
162,722
168,876
158,864
135,827
2021
2020
2019
2018
2017
2016
2015
12,694
12,272
9,628
10,371
9,864
11,209
9,600
0
50,000
100,000
150,000
200,000
0
5,000
10,000
15,000
14
Strategic Report
Our Mineral Assets
The Palito Complex– a proven production base
Plant throughput (tonnes)
Mined Grade (g/t)
170,799
174,276
177,335
168,252
172,565
158,966
130,299
2021
2020
2019
2018
2017
2016
2015
6.59
5.59
7.00
7.29
8.92
9.74
9.80
0
50,000
100,000
150,000
200,000
0.00
2.00
4.00
6.00
8.00
10.00
Annual Gold Production (ounces)
Plant Recovery
33,848
31,212
40,101
37,108
37,004
39,390
32,629
2021
2020
2019
2018
2017
2016
2015
92.30%
88.80%
90.40%
92.60%
92.60%
91.30%
90.40%
0
10,000
20,000
30,000
40,000
50,000
70.00% 75.00% 80.00% 85.00% 90.00% 95.00%
2021
2020
2019
2018
2017
2016
2015
2021
2020
2019
2018
2017
2016
2015
15
Strategic Report
Our Mineral Assets
Coringa – doubling of production with a low capital, low risk project
Located only 200 kilometres to the south of Serabi’s Palito operation and linked by paved highway, Coringa hosts a total geological
resource of 195,000 indicated ounces of gold and 346,000 inferred ounces of gold. Past gold discoveries at Coringa include the Mae
de Leite, Come Quieto, Demetrio and Valdette veins.
Coringa represents a carbon copy of Serabi’s existing Palito Complex operations and therefore management consider that the
Company is well placed to develop the project.
• Management has many years of experience of operating in the region.
• The project location in reasonably close proximity to the existing Palito Complex which provides opportunities to
share resources, infrastructure, management and administration.
• Local and regional government are familiar with the Group and supportive of its objectives and plans to develop
mining operations in the region.
The preliminary economic analysis of the Coringa project (the ”Coringa PEA”) issued in October 2019, projected a mine life of
approximately nine years and total Life of Mine (“LOM”) gold production of 288,000 ounces at an average mined grade of
8.34g/t to be produced by underground open stoping, similar to the mining undertaken at Palito.
Typical annual production, once the project is in full operation, is expected to average 38,000 ounces per year. 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.
Figure 7- The Coringa mine portal
16
Strategic Report
Our Mineral Assets
Coringa – doubling of production with a low capital, low risk project
Figure 8- Initial ramp development at Coringa
Following its purchase of the Coringa project in December 2017 and further exploration drilling, Serabi commissioned Global
Resource Engineering of Denver, Colorado (“GRE”) to prepare the Coringa PEA, which was subsequently published in October
2019. Key results of the study were as follows:
The Base Case project payback is estimated to occur within 2.25 years of first gold production.
Average All-In Sustaining Cost (“AISC”) over the Life of Mine of US$8521 per ounce including royalties and refining
costs using the Base Case gold price.
Average gold grade of 8.34g/t gold producing a total gold production of 288,000 ounces.
Typical annual production once the project is in full operation averages 38,000 ounces per year2.
Initial capital requirement of US$24.7 million prior to sustained positive cash flow.
Sustaining capital expenditures of US$9.2 million to be funded from project cash flow.
Indicated mineral resource inventory of 125,000 ounces of gold, supported by a further Inferred Resources of 178,000
ounces of gold from a total geological resource of 195,000 indicated ounces of gold and 346,000 inferred ounces of
gold, to be produced by underground open stoping using a cut-off grade of 6.00g/t gold.
Total Life of Mine of approximately nine years.
The Base Case includes a 20 per cent contingency on both operating and capital costs.
1 Calculated when the Project has achieved sustained positive cash flow and excludes the initial capital requirements.
2 For the first five full years of production.
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Strategic Report
Our Mineral Assets
Coringa – doubling of production with a low capital, low risk project
Project economics
The Base Case prepared by GRE was calculated using the three year trailing average gold price which approximates to
US$1,275 per ounce and generated the following economic projections.
Gold Price (per ounce)
Pre tax NPV (5%)
Pre tax NPV (10%)
Post tax NPV (5%)
Post tax NPV (10%)
Post tax IRR
Project after tax cash flow
Average annual free cash flow
Average gross revenue
Units
US$m
US$m
US$m
US$m
%
US$m
US$m
US$m
BASE CASE
$1,275
$1,350
$1,450
$55.7
$37.2
$47.3
$30.7
31%
$71.6
$11.5
$43.4
$71.3
$49.4
$61.3
$41.7
37%
$90.1
$13.7
$46.0
$92.2
$65.8
$79.6
$56.1
46%
$114.0
$16.6
$49.4
Since that time the gold price has risen to current levels of approximately US$1,850 per ounce and the Brazilian Real has devalued
from an assumed rate of BrR$3.80 to US$1.00 used for the purposes of the PEA to current levels of approximately BrR$4.85 to
US$1.00. Notwithstanding the effects of cost inflation since the study was prepared, management expect that these changes in key
underlying economic assumption strengthen the project economics.
The relatively low capital cost is in part because the process plant that is required for the project, including two ball mills, was
already purchased by previous owners and included in the project acquisition price. The acquired process plant, which was
previously in use at a similar size of operation in Brazil, is therefore already in-country and being refurbished by Serabi prior to re-
assembly.
Following the award of the Preliminary Licence (“LP”) in October 2020, progress has continued to be made on the completion of
all the studies and reports required to secure the Licença de Instalação (“Installation Licence” or “LI”) and in line with previous
announcements is expected to be issued mid-2022. These were all submitted to the relevant authorities in September 2021 and it is
normal to expect a period of approximately six months for them to complete their evaluation and request and review any further
information during this evaluation period. The LI allows the construction of the plant and other site infrastructure, assuming
compliance with all conditions imposed by the LP.
Management has continued to maintain a steady dialogue with, and the support of various 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.
Serabi holds a GUIA or trial mining licence which enabled the Company to start initial mine development during July 2021. By
January 2022 the ramp development on the 320mRL intersected the first of the three vein structures that form the Serra orebody.
Whilst this initial area will form the ramp pillar, and was therefore deliberately positioned to be in an anticipated area of lower
grade, the sampled vein recorded assays of 2.94 g/t over 3.63 metres including 12.44g/t over 0.86 metres, using results from Serabi’s
in-house laboratory. This initial intercept is therefore highly encouraging.
The detailed engineering design of the Coringa process plant is advancing well with Brazilian engineering consultants, Icone
Technology & Engineering, expecting to compete their work during the second quarter of 2022.
18
Strategic Report
Our Mineral Assets
Coringa – doubling of production with a low capital, low risk project
Figure 9- Cross-section showing Serra ramp, three Serra veins and historic drill hole traces
Any ore recovered from the current mine development will allow the Group to establish ore stockpiles in advance of plant
construction, which, subject to securing the LI and appropriate debt financing, is planned to commence in the second half of 2022,
and undertake testing of bulk samples for amenability to ore sorting. Management consider that the Coringa ore has characteristics
that will mean ore sorting could be successfully utilised with the benefits of reducing plant throughput and therefore power
consumption, and the volume of mine tailings generated. All understanding of the orebody to date has been derived from surface
drilling and exposure of the orebody through on-lode development will provide management with important information on the
precise geometry and continuity of the orebody which will assist with optimisation studies and in particular the proposed mining
methodology.
With the recent issues encountered at the Sao Chico deposit and with reduced levels of mine production expected from the Palito
Complex overall during 2022, management has begun to transport some of the higher-grade ore being recovered from Coringa to
the Palito process plant. This will allow the Group to conduct the bulk test work for ore sorting, but also generate additional gold
production and revenue, which with lower cash flow being generated by the Palito Complex operations will provide some
supplementary income that the Group will use to maintain the Coringa mine development and help offset some of the mine
development costs that the Group will be incurring. Any production generated from Coringa during 2022 will be incremental to
the Group’s current production guidance for the year.
Although the Group intends in the near term to process of some of the ore recovered from the planned development of the Coringa
mine at the Palito complex, the longer-term development plan is to construct a gold processing plant at Coringa. Additional
funding will be required for this development of Coringa including the plant installation and construction of the other site
infrastructure and facilities. Management envisage that this funding may be generated from a variety of sources which could
include a combination of bank debt, royalty, streaming of gold and copper revenues, new equity capital and cash flow from the
current operations.
Serabi’s management considers Coringa will prove to be a long-term sustainable gold operation with significant exploration
potential within the wider tenement. The area is host to a number of historic artisanal operations and the current mineral resource
underlies just one and a half kilometres of artisanal workings within an eight kilometre artisanal trend, which in turn is hosted
within a 30 kilometre-long gold in soil anomaly.
The potential is evidenced by:
Depth – the drillholes that comprise the resource are shallow and do not test depth potential beyond a maximum of 250
vertical metres.
19
Strategic Report
Our Mineral Assets
Coringa – doubling of production with a low capital, low risk project
Along strike – with only 1.5 kilometres of 8 kilometres of artisanal workings tested
The other artisanal areas within the 30 kilometre gold anomaly have not been tested at all.
In the northern part of the Coringa licences, the Mata Velho prospect contains at least four parallel vein structures within a broad
three kilometre striking gold in soil anomaly. With only 13 drill holes completed historically, Serabi anticipates moving this
prospect into a resource category in the coming years.
Conscious of recent concerns in Brazil following the Samarco and Brumadinho dam failures and notwithstanding the relatively
small process volumes that will be involved, Serabi has incorporated dry stack tailings disposal into the process design as opposed
to conventional wet tailings storage ponds or dams.. In addition, and despite not being legally obligated, Serabi has commissioned
the well-respected Brazilian consultancy, Brandt, to undertake a specific study to confirm the lack of any impact of the project on
indigenous populations that live in the region. The nearest indigenous village is located approximately 45 kilometres from the
mine site and therefore well beyond the 10 kilometres normally considered as an appropriate buffer zone. This study, expected to
be completed before the end of the second quarter of 2022, is over and above those undertaken as part of the LP process which
involved a full public consultation attended by representatives of these indigenous tribes.
Excellent progress has been made advancing the mine since the
initial development began in July 2021. The ramp is a four metre
high and four metre wide gallery, which has intersected the first
of three veins which comprise the Serra Zone. The ramp has
traversed the lode, perpendicular to strike. This development
lies on the 320 metre level, approximately 50 vertical metres
below the portal entrance. The ramp will continue to advance
on the 320m level to the second and third lodes in the Serra
Zone. As each lode is intersected, smaller three metre high and
three metre wide
‘on-lode’ development will advance,
following the veins along strike, allowing regular sampling and
consequently significantly enhancing the understanding of the
orebody.
A smaller ramp has commenced off the main Serra ramp, rising
up to the 340 metre level, where once the veins are again
intersected, a similar development design on each of the three
lodes is planned. Over the next months the Company plans to
undertake sufficient ramp and ore development at the Serra
Zone to assist with optimising the mine methodology and
securing a bulk sample.
Figure 10 - Intersection of Vein 3 in the Serra ramp showing strong
contrast between the mineralised quartz sulphide veining and the
pink granite country rock suggesting the deposit should be amenable
to ore sorting
20
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
The importance of exploration
The Tapajos region has only recently started to be the subject of systematic exploration and therefore the artisanal miners provide
a valuable exploration tool with a significant portion of the 7 million ounces of hard rock resource identified to date close to
and/or underlying historic artisanal operations. However, there is much that the artisanal miners will miss as they seek out the
“low-hanging fruit” where ease of access and topography suited to the needs of hydraulic mining are important. Structures that
do not outcrop at surface will be missed but may be identified by Serabi’s extensive exploration approach, presenting a significant
opportunity for the Company.
Process
The gold occurrences identified in the region to date have all been associated with sulphide mineralisation. Serabi has therefore
undertaken airborne electro-magnetic surveys (“EM”) which identify areas of potential sulphide mineralisation and facilitate
screening of large areas of its tenement. As much of the surface area of the tenement is given over to pasture or other vegetation,
visible indicators which might occur in more arid regions are not present in this part of Brazil.
Not all sulphide bodies will necessarily host gold in commercial quantities, and it is for this reason that a geological data set
needs to be built up before any exploration drilling is undertaken. Serabi’s geological team will conduct follow up ground studies
using a variety of tools including induced polarisation (“IP”) to measure the relative conductivity and resistivity of the area,
taking stream and surface soil and rock chip samples looking for anomalous levels of gold and other indicator minerals and
mapping, trenching and augur drilling to extract samples a few metres below the surface. Where a number of these coincident
mineralisation indicators overlap, then a decision and priority can be established for a specific area of interest.
Figure 11 - The Palito Complex tenement showing coincident areas of geophysics, geochemistry and artisanal mining
21
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
Over the past two years, Serabi’s systematic exploration approach has been rewarded with a number of significant opportunities,
which management is keen and excited to progress. With a focus on opportunities which are generally within 10 to 20 kilometres
of existing operations, this brings substantial benefit to stakeholders. The Group can leverage off its infrastructure to maximise
the pace of exploration advancement and, more importantly, is in the position to quickly translate exploration success into
production ounces.
Serabi’s exploration opportunities are analysed between brownfield (near-mine) and greenfield, with the former being targeted
at resource growth to support and grow the existing operations, whilst the greenfield is focused on longer-term opportunities
and potentially the identification of lower grade bulk mineable opportunities that management believe exist in its tenement area.
Brownfield exploration
Palito near-mine
The current Palito deposit lies within a one kilometre strike length and approximately 800 metre lateral width of nested, parallel
structures and incorporates approximately 30 veins of varying widths and strike. The G3 vein has been traced for approximately
1.5 kilometres whilst management considers that exploration results, including diamond drilling, support the existence of an
eight-kilometre mineralised corridor running from the Copper Hill area to the north west and extending to the Rio Novo area to
the south east.
Figure 12- Cross-section and plan view of the Palito veins and main sectors
22
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
During 2021, the Company completed 9,878 metres of mine-site exploration drilling, which targeted known and newly
discovered sectors beyond the mining limits, including:
a.
b.
c.
the southern extension of the Palito Main Zone towards the Currutela Prospect.
the Chico da Santa sector, north and south.
the newly discovered Pele zone, east of the mine.
Figure 13- Plan view of the Palito deposit showing on-strike and lateral extension potential
Drilling into Chico da Santa, and most notably the Ipe and Mogno veins confirmed depth extensions in excess of 100 metres
below the lowest mined level. Furthermore, step-out drilling indicates additional payable ore shoots up to 600 metres along strike
in both directions. The Ipe and Mogno lodes through the year increasingly contributed to the Palito Mine ore feed due to their
relative shallow depth and high grades. Both these veins were being mined less than 200 metres from surface so are easily
accessed and with the main ramp already deepened to over 350 metres from surface, both Ipe and Mogno do not require much
capital development to bring them into production.
23
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
Figure 14- Plan of Palito Mine showing developed veins and mine development, geophysics and lateral
extensions of the Pele and Piaui sectors
These veins are extremely rich in both gold and copper with grades similar to the G3 vein which was a major contributing vein
to Palito production in previous years. The ongoing underground development of the Ipe/Mogno veins during 2021 provided
the opportunity to drill long exploration holes laterally. Some holes drilled to the west have intersected extensions of the Jatoba
vein. Whilst the Jatoba structure was mined three years ago, there was, at that time, insufficient geological data to support further
development. These new holes have cut the Jatoba vein well to the south of the original mine workings, with hole PDD0558,
located 400 metres south of the Jatoba mine workings, recording 33.76g/t Au over 2.0 metres, suggesting very good strike
potential for identifying additional resources.
Underground drilling to the east of Ipe and Mogno has resulted in identifying the Pele sector, another new area at Palito. The
Pele sector hosts the veins Bebeto, Romario and the Pele vein itself and the early results again highlight this is a sector of excellent
potential. This drilling is now being supplemented by surface exploration.
São Chico near-mine
The current São Chico mineral resource extends over a 600 metre strike. Production to date has been derived primarily from the
Main Vein with the Julia Vein only contributing to mine production during the latter part of 2021 and early in 2022.
Adjacent, and lying to the north and south of the Main Vein, drilling has identified the Gabi, Highway, Crossroads, Cicada, and
Lagoa veins, with the West Vein also located west of the main Sao Chico deposit. All of these veins will be evaluated going
forward and if viable, could be easily accessed by cross cuts from the existing mine workings.
24
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
Figure 15- Plan view of the São Chico veins
Exploration activity at São Chico started on a very positive note with a focus on the western extension of the São Chico veins,
particularly the Julia orebody. Following surface and underground drilling success on Julia, the vein was quickly developed in
2021, with a view to it being the principal contributor to production in 2022. In fact, the Julia vein was identified when the mine
initially opened in 2015, in the central part of the mine, and at that time, results were not particularly encouraging. As a
consequence, the mine development continued to focus on the Main Vein. The evaluation of the Main Vein to the west, beyond
the mine limits, intersected the Julia Zone again, this time demonstrating mineable widths and grades, albeit narrower. The Julia
Zone is a parallel zone to the western projection of the Main Vein, but does lie someway west of all the other Sao Chico veins.
The initial understanding of the Julia Vein by drill holes was that the mineralisation had been truncated to the west by post-ore,
dacitic intrusions, which fault and displace the vein. At this time, the vein was limited to what were referred to as zones 1 and 2.
However, drilling to the west of this area found the continuation of the intrusive structures, with apparently good vein widths
and grades. These intersections were in the zone 3 block, immediately west of the current mine limit. Zone 3 is itself bounded to
the west by another dacite dyke, and additional step-out drilling intersected the further continuation of Julia west of this dyke.
One issue that has become apparent with the benefit of mine development as the Julia vein was prepared for production was that
late stage faulting dacitic intrusive dykes were often ‘missed’ by the drilling as often they were perpendicular to the Julia vein
and often parallel to the direction of drilling, it has only been with underground exposure a fuller picture of the geology and the
negative impact these dykes had on the % of the mineral resource that would ultimately be mineable. The Julia Vein is located
in the extreme west of the deposit, a previously undeveloped area. This level of faulting appears to be unique to the Julia Vein,
as nothing similar has been encountered in the seven years that the São Chico deposit has been mined.
During 2021 brownfield exploration drilling totalled 8,328 metres, focused on the extension of veins beyond the western limit of
the mine, namely the Main/West vein, towards the Cicada geophysical anomaly and the undeveloped Gabi vein, that lies
immediately to the south of the current mine limits.
Further to the west lie the Abelha, Besoura and Cicada anomalies where the results of IP have highlighted potential for sulphide
mineralisation and where there is evidence of past artisanal activity. Drilling of the western extension of the São Chico deposit
has already confirmed a mineralised extension for approximately 375 metres and management considers that there is evidence
to suggest that the mineralised zone will extend to the Cicada target establishing a corridor extending to at least two kilometres
and potentially further towards the more westerly Abelha and Besoura targets.
25
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
The 2021 drilling results also led to a substantial review of some historic São Chico drill core and assay results with encouraging
results, notably the identification of the Gabi Vein. Located 70 metres south of the Main Vein, it was intersected in the 2013, 2015,
2019 and 2021 drilling campaigns, though each campaign was targeting the Main Vein and not Gabi. In 2015, a cross-cut on level
186mRL was driven to investigate the structure, but results were disappointing and further investigation was postponed, with
priority given to continued exploration and evaluation of the wider Main Vein. Nevertheless, drillholes designed to intersect the
adjacent Main Vein have continued to cut the Gabi Vein, and this catalysed a second review.
More recent underground holes have helped define the presence and geometry of the Gabi Vein and prompted a reanalysis of
146 previously unsampled historical holes that had targeted the Main Vein. The result of this re-interpretation involved a major
re-logging, sampling and assaying campaign on many historical cores. Whilst some of these holes did not show significant
mineralisation, many demonstrated excellent intersections with very mineable widths and grades, and strong grade and width
continuity. Information gaps still remain but there are now multiple payable drill hole intercepts into the Gabi Vein and it has
been incorporated in the mineral resource.
Figure 16- Long section of the Gabi Vein
There are a number of indications that the Main, Julia and Highway Veins are not an isolated structural occurrence and the São
Chico area may host parallel fertile structures (similar to the Palito mineralisation model). Scout drilling in 2019 intersected
mineralised structures at Lagoa, Lagoa Extension and Crossroads, potentially indicating a series of parallel vein sets.
In addition to this plethora of step-out targets, the Company is completing a number of deeper holes to test the depth continuity
of the Main Vein.
Greenfield exploration
Exploration activity undertaken to date has highlighted seven key areas of particular interest.
São Domingos tenements
In the latter part of 2020, Serabi acquired two additional tenement holdings located to the west of São Chico and collectively
referred to as the São Domingos tenements. These tenements host many extremely rich, historic and currently active artisanal
pits. Limited systematic exploration had been completed by previous holders of the licence area and therefore Serabi set about
establishing the baseline geological data to properly evaluate the land package. This work programme included mapping and
soil sampling and in late 2021, an airborne geophysical survey. This survey completes the coverage over the entire Palito tenement
block, adding to the initial survey undertaken in 2018 that identified the Mata Cobra corridor, a 14km long, broadly east-west
trending magnetic high. This magnetic high is bounded by both north and south interpreted fault structures
26
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
Figure 17- The Palito Complex showing the location of key exploration targets
Along these bounding faults, the geophysical survey delineated a series of electromagnetic (EM) conductors. Subsequent regional
geochemistry sampling and mapping targeting these conductors has, to date, defined coincident gold and copper anomalies
associated with altered and/or sheared granites at the contact of the magnetic mafic unit and assisted in identifying the priority
exploration targets. The airborne survey over the São Domingos tenements is expected to provide the same excellent targeting
information and clearly demonstrate the continuation of the Mato Cobra trend through the São Domingos tenement area.
The initial area of interest comprises three artisanal pits, Raimundo, Toucano and Grota da Sangue, that have been worked
covering a 600-metre-long structure (the Toucano trend). There are also several fertile structural trends in the São Domingos
tenements that host mineralisation similar to the Toucano trend, including the Mario Dio, Atacadao and Messias trends. These
are parallel northeast to southwest trends spaced broadly 500-800 metres north-south throughout the tenements.
Many of these trends host historic pits extending to depths of approximately 30 metres and with mineralisation at Palito and São
Chico continuing to be open at depth there is every expectation that the São Domingos tenements could yield new high-grade
satellite deposits that would provide supplementary high-grade ore to the Group’s existing operations.
During the year, a total of 4,156 metres of exploration drilling was completed on these brownfield targets with the main target
areas being the Toucano and Atacado prospects.
27
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
Initial drilling results undertaken during 2021 have been very
encouraging with visible gold encountered in hole 21-SD-010
@ 175.40m down hole depth. This particular hole returned a
number of intersections including 7.15 metres at 258.24
grammes per tonne (“g/t”) of gold. Drilling on the Toucano
trend at São Domingos has intersected three mineralised
structures, all hosted within a mineralised alteration zone
with a true width of 50 metres. Mineralisation has been
confirmed along at least a 400 metre strike length and
remains open at depth and along strike.
With the success of drilling in 2021 and the additional
information provided by the geophysical survey, further
follow-up drilling is planned.
Figure 18- Visible gold from 21-SD-010 @ 175.40m down hole depth
Figure 19- Plan view of the Toucano prospect with drill location and results
Drilling beneath the Raimundo pit confirms the continuity of mineralisation along strike and has also identified parallel
mineralised structures that warrant further follow-up.
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Strategic Report
Our Mineral Assets
Exploration – the key to future growth
In addition, regional soil geochemistry on the São Chico/São Domingos trend has recorded multiple significant gold and multi-
element anomalies within this highly prospective mineralised corridor including the confirmation of the strike extension of
known gold occurrences at the Fofoca prospect on the São Chico/ São Domingos trend.
Atacadao
Another prospect at São Domingos is the Atacadao property. Artisanal mining is still ongoing and a surface sampling programme
comprising 69 rock chip samples with an average grade of 8.33g/t Au over an area of 1.5km x 1.5km and a maximum result of
204.77g/t Au, reflects the prospectivity of the area. Significantly, 36% of the samples returned over 3g/t Au with an average of
grade of 22.5g/t Au.
Figure 20- Drill results from Toucano and Atacadao
Matilda
The Matilda target is a four kilometre by four kilometre geochemical anomaly within which lies a two kilometre by two kilometre
gold, copper, molybdenum, and tungsten (“Au-Cu-Mo-W”) core. This geochemical anomaly is coincident with anomalous high
magnetic susceptibility associated with magnetite alteration. Mapping has identified granites with potassic, propylitic and
sericite-chlorite alteration, dacite porphyry and quartz-sulphide veins, all of which bodes well for a bulk target. Further, Matilda
sits on a topographic high, with extensive artisanal workings in surrounding rivers and drainages. Follow-up mapping and initial
drilling has been undertaken in 2022. The initial drill holes were scout holes positioned to test the central portions of the anomaly.
All three holes intersected porphyritic material containing significant sulphides including chalcopyrite and molybdenite. Logging
of the holes is ongoing, and samples have been sent to an external laboratory for multi-element analysis.
29
Strategic Report
Our Mineral Assets
Exploration – the key to future growth
Figure 21 - Plan view and cross-section of the Matilda prospect highlighting areas of anomalous soil sgeochemistry
Cinderella
Located to the east and south east of São Chico, the Cinderella prospect is a five kilometre south west to north east trending IP
and EM anomalous area with elevated gold in soil grades and artisanal workings in some of the streams that are fed from this
topographical high.
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Strategic Report
Our Mineral Assets
Exploration – the key to future growth
Calico
Located just five kilometres from the Palito operation and processing plant, Serabi’s exploration teams have identified significant
geochemical gold in soil anomalies at Calico, Juca and Forquilha, of which Calico is now significant, covering a two kilometre by
two kilometre area. Soil samples returning values as high as 0.8g/t gold have been recorded, better than have been seen in any
soils over the Palito orebody. A terrestrial geophysics survey using Induced Polarisation (“IP”) covering the Calico soil anomaly
has identified multiple chargeability anomalies. These results are very comparable in terms of scale and signature to the Palito
orebody, which is a 600,000 ounce gold mineral resource. The Calico prospect and neighbouring Forquila and Juca prospects
were initially identified from the interpretation of an airborne electromagnetic survey completed in 2018. These areas were
initially selected where multiple electromagnetic anomalies (typically indicators of massive sulphides in the Tapajos), coincided
with
regional
structure, known as Mato Cobra, a structure
displaying strong magnetic and radiometric
anomalism. Reconnaissance field mapping
identified alteration (potassic, haematitic and
silicic) and evidence of weathered and primary
sulphides in limited outcrop associated with
felsic intrusive and volcanic rocks. Systematic
grid soil sampling subsequently identified a
number
multi-element
cohesive
geochemical anomalies of which the most
significant was the Calico prospect.
an ESE-WNW
trending
of
The Calico prospect is highlighted by a central
potassically altered dacite porphyry intrusive
with coincident higher
temperature soil
geochemistry multi-element signature of Mo-
Bi-As-Te-W-Sn.
porphyry
intruding into a monzogranite was bounded by
a broad two kilometre by two kilometre high
gold/low antimony halo to the north west and
anomalous copper wrapping around
the
southern part of the intrusive core.
dacite
This
The 50 metre by 200 metre grid soil sampling
defined a broadly arcuate shaped
two
kilometre by two kilometre gold in soil
anomaly defined by 1,532 soil samples, with a
maximum of 0.8g/t Au, with 260 samples
reporting analytical results between 0.03g/t
and 0.8g/t Au. This gold anomaly is supported by a suite of multi-elements suggesting an intrusion related mineralising system
(porphyry or intrusion related gold system model).
Figure 22- Detailed image of Calico showing local geology, gold and copper
geochemistry as well as terrestrial geophysics - IP anomalies
In 2020 Serabi completed a 44.5 line kilometre IP survey covering the gold in soil anomaly at Calico. The survey was completed
on 200 metre spaced, north south orientated traverses, with an array designed to penetrate to at least 250 metres vertical depth.
The result of this survey has further refined the interpretation of the Calico prospect. The IP highlighted a series of NW-SE
anomalies, as seen at Palito. These IP anomalies bound the gold soil anomaly and are adjacent to the dacite porphyry intrusive.
Between these structures a series of transverse (NE-SW) and NNW-SSE structures (second and third order faults) have been
identified which correlate with the peaks of the gold in soil assays.
Other targets
In addition to those listed above, the Company has identified three other priority targets, namely Ganso, Forquilha and Juca,
each of which present coincident geochemical and geophysical anomalies, including EM anomalies indicating the possible
presence of sulphide bodies. Further mapping, sampling and ultimately drilling are planned for 2022.
31
Strategic Report
Our Mineral Assets
Group Mineral Reserves and Resources
The Company completes in-house mineral resource and reserve estimates on a regular basis and at least annually and discloses
mineral reserves and resources using the definitions adopted by the Canadian Institute of Mining, Metallurgy and Petroleum,
and in accordance with NI 43-101. The scientific and technical information pertaining to the Palito and São Chico gold deposits
has been reviewed and approved by Michael Hodgson BSc, MSc FIMMM, who is a qualified person under National Instrument
43-101 – Standards of Disclosure for Mineral Projects ("NI 43-101") and who has acted as the qualified person under the AIM Rules
(“Qualified Person”). The Qualified Person has verified the information disclosed herein, including the sampling, preparation,
security and analytical procedures underlying the information or opinions contained in this announcement in accordance with
standards appropriate to their qualifications.
Whilst the Company takes all reasonable care in the preparation and verification of the mineral reserve and resource figures, the
figures are estimates based in part on forward-looking information.
Estimates are based on management’s knowledge, mining experience, analysis of drilling results, the quality of available data and
management’s best judgement. They are, however, imprecise by nature, may change over time, and include many variables and
assumptions including geological interpretation, commodity prices and currency exchange rates, recovery rates, and operating
and capital costs.
There is no assurance that the indicated levels of metal will be produced, and the Company may have to re-estimate the mineral
reserves based on actual production experience. Changes in the metal price, production costs or recovery rates could make it
unprofitable to operate or develop a particular deposit for a period of time.
The most recent estimate was completed effective of 31 December 2021 and is summarised below. The mineral resource estimate
for the Palito Mine considers all available core drilling, underground chip sampling and other geological sampling by Serabi
generated during the period mid-2002 to December 2021. For the São Chico Mine, the mineral resource estimate, also prepared
by Serabi, considers core drilling chip sampling and other sampling by Serabi and previous operators during the period September
2011 to December 2021.
The Mineral Resource Statements presented herein were prepared in house by Serabi’s mining planning and mine geology
personnel and audited by Mr Michael Hodgson CEO of Serabi Gold plc, who is a Qualified Person under NI 43-101.
Table 1- Mineral Resource Statement, Palito Mine, Para State, Brazil, as of 31 December 2021
Classification
Measured
Indicated
Measured and Indicated
Inferred
Notes to Table 1:
Quantity
(t)
39,203
1,093,178
1,132,380
882,083
Grade Au
(g/t)
6.63
5.22
5.27
5.00
Contained
Metal Au
(oz)
8,360
183,594
191,954
141,798
Mineral Resources are not Mineral Reserves and have not demonstrated economic viability.
Mineral Resources are reported inclusive of Mineral Reserves.
Figures are rounded to reflect the relative accuracy of the estimates.
Mineral Resources are reported within classification domains inclusive of in situ dilution at cut-off grade of 3.10 g/t gold assuming an underground
•
•
•
•
extraction scenario, a gold price of US$1,500/oz, a 5.0:1 Brazilian Real to U.S. Dollar exchange rate and metallurgical recovery of 91%.
Polygonal techniques were used for Resources estimates.
•
•
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 NI 43-101, with an effective date of 31 December 2021, and audited and
approved by Mr. Michael Hodgson, CEO of Serabi Gold plc, who is a Qualified Person under NI 43-101.
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Strategic Report
Our Mineral Assets
Group Mineral Reserves and Resources
Table 2- Mineral Resource Statement, São Chico Mine, Para State, Brazil, as of 31 December 2021
Classification
Measured
Indicated
Measured and Indicated
Inferred
Notes to Table 2
Quantity
(t)
Grade Au
(g/t)
9,620
360,513
370,132
547,581
8.38
5.00
5.09
4.55
Contained
Metal Au
(oz)
2,590
57,950
60,540
80,131
Mineral Resources are not Mineral Reserves and have not demonstrated economic viability.
Mineral Resources are reported inclusive of Mineral Reserves.
Figures are rounded to reflect the relative accuracy of the estimates.
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 5.0:1 Brazilian Real to US Dollar exchange rate and metallurgical recovery of 95%.
Polygonal techniques were used for Resources estimates.
•
•
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 NI 43-101, with an effective date of 31 December 2021, and audited and
approved by Mr Michael Hodgson, CEO of Serabi Gold plc, who is a Qualified Person under NI 43-101.
The above estimation was made prior to the issues relating to the Julia Vein being understood. Of the total mineral resource of
141,000 ounces approximately 27,000 ounces related to the Julia Vein of which 6,700 ounces were classified as reserves and had
been expected to be mined during 2022. The Company expects that the remaining mineral resource estimated for the Julia Vein,
will continue to be available to be mined using selective mining techniques. The Company engaged an independent consultant
to support management’s opinion that the geological setting of Julia was confined only to this part of the Sao Chico deposit. The
consultant also reported that in his opinion the effect on the mineral resource estimation for Sao Chico was less than 10%.
The Mineral Reserve Statements presented herein were prepared in house by Serabi’s mining planning and mine geology
personnel and audited by Mr Michael Hodgson CEO of Serabi Gold plc, who is a Qualified Person under NI 43-101, based on the
Measured and Indicated mineral resource estimates presented herein.
Mineral resources are converted to mineral reserves using the assumptions, parameters and methods discussed elsewhere in this
report and using a methodology consistent with that used for the preparation of the Palito Mining Complex Technical Report.
Proven mineral reserves are reported within the Measured classification domain, and Probable mineral reserves are reported
within the Indicated classification domain.
Table 3- Mineral Reserve Statement, Palito Mine, Para State, Brazil, as of 31 December 2021
Classification
Proven
Probable
Total Reserves
Notes to Table 3
Quantity
(t)
Grade Au
(g/t)
Contained
Metal Au
(oz)
43,123
6.03
8,360
208,411
7.43
49,796
251,534
7.19
58,156
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$1,500/oz, a 5.0:1 Brazilian Real to US Dollar exchange rate, and metallurgical recovery of 91%.
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 NI 43-101, with an effective date of 31 December 2021, and audited and
approved by Mr Michael Hodgson, CEO of Serabi Gold plc, who is a Qualified Person under NI 43-101.
33
Strategic Report
Our Mineral Assets
Group Mineral Reserves and Resources
Table 4 - Mineral Reserve Statement, São Chico Mine, Para State, Brazil, as of 31 December 2021
Classification
Proven
Probable
Total Reserves
Notes to Table 4:
Quantity
(t)
Grade Au
(g/t)
Contained
Metal Au
(oz)
12,505
6.44
2,590
35,204
5.83
6,598
47,709
5.99
9,188
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$1,500/oz, a 5.0:1 Brazilian Real to US Dollar exchange rate, and metallurgical recovery of 95%.
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 NI 43-101, with an effective date of 31 December 2021, and audited and
approved by Mr Michael Hodgson, CEO of Serabi Gold plc, who is a Qualified Person under NI 43-101.
Table 5 - Mineral Resources Statement, Coringa Gold Project, Para State, Brazil, as of 31 August 2019.
The current Mineral Resource estimates for the Coringa Mine (Table 5) are based on data as at 30 June 2019.
Classification
Indicated Resources
Inferred Resources
Notes to Table 5:
Quantity
Grade
Contained Metal
000’t
735
1,645
Gold
g/t
8.24
6.54
Gold
000'oz
195
346
(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 31 August 2019 by Mr Kevin Gunesch and Dr Hamid Samari, who are both Qualified Persons under the Canadian National
Instrument 43-101.
34
Strategic Report
Finance Review
INCOME STATEMENT
The gross profit for the year was US$19.33 million in comparison with a gross profit of US$16.54 million for the year ended 31
December 2020. The comparison between the periods is set out in the table below.
Concentrate Sold (Ounces)
Bullion Sold (Ounces)
Total Ounces Sold
Average gold sales price achieved
Revenue from Ordinary Activity
Gold (in Concentrate)
Copper (in Concentrate)
Silver (in Concentrate)
Total Concentrate Revenue
Gold Bullion
Total Sales
Costs of sales
Operational costs
Provision for impairment of State taxes receivable
Shipping costs
Treatment charges
Royalties
Amortisation of mine property
Depreciation of plant & equipment
Total operating costs
Gross profit
Revenue
12 months ended
December 2021
13,658
20,731
34,389
12 months ended
December 2020
8,670
22,870
31,540
23,361,409
2,453,920
127,334
25,942,663
37,198,774
63,141,437
34,961,235
—
1,189,931
591,714
1,016,438
4,608,900
1,440,728
43,808,946
19,332,491
US$
14,433,316
1,236,957
92,318
15,762,591
40,067,487
55,830,078
30,987,776
1,038,083
764,368
454,901
920,603
3,635,028
1,493,867
39,294,626
16,535,452
Variance
4,988
(2,139)
2,849
8,928,093
1,216,963
35,016
10,180,072
(2,868,713)
7,311,359
3,973,459
(1,038,083)
425,563
136,813
95,835
973,872
(53,139)
4,514,320
2,797,039
For the year ended 31 December 2021, the Group generated US$25,942,663 (2020: US$15,762,591) in revenue through sales of an
estimated 13,658 ounces of gold sold in the form of a copper/gold concentrate (2020: 8,670 ounces) and 20,731 ounces of gold
bullion generating revenue of US$37,198,774 (2020: 22,870 ounces for revenue of US$40,067,487)
The average gold price received during 2021 was US$1,776 compared with a price of US$1,727 received during 2020.
Production of gold bullion for the year to 31 December 2021 was 19,675 ounces of gold compared with 22,690 ounces during the
same period of the previous year, a decrease of 13 per cent.
During the same 12 month period 1,357 wet tonnes of copper/gold concentrate, containing an estimated 14,173 ounces, was
produced (12 months to 31 December 2020: 863 wet tonnes of copper/gold concentrate, containing 8,522 ounces of gold). The
unsold material is held as inventory.
Variations in the blend of production between bullion and copper/gold concentrate reflect normal operational variances including
the mix of ore-feed from each of the São Chico and Palito deposits, the mineralogy of the Palito ore and particularly the levels of
copper which vary within the deposit, and general processing activities.
35
Strategic Report
Finance Review
Operating costs
Operational costs for the 12 months ended 31 December 2021 were US$34.96 million (2020: US$30.99 million). Operational costs
include mining costs at both the Palito and São Chico Mines, plant processing costs, as well as all general site costs on both mine
sites
Tonnes mined
Tonnes milled
Ounces produced
Ounces sold
Operating Costs
Labour
Mining consumables & maintenance
Plant consumables
General site
12 months ended
December 2021
170,262
170,800
33,848
34,389
12 months ended
December 2020
175,928
174,276
31,212
31,540
12 months ended
December 2021
US$’000
12 months ended
December 2020
US$’000
Variance
(5,666)
(3,475)
2,636
2,849
Variance %
(3%)
(2%)
8%
9%
Variance
US$’000
Variance
%
15,820
10,751
4,720
3,671
34,961
13,867
9,606
4,338
3,176
30,988
1,953
1,145
382
495
3,973
14%
12%
9%
16%
13%
During 2021 the average exchange rate was BrR$5.39 to US$1.00 compared with an average exchange rate of BrR$5.16 to US$1.00
during the same period of the previous year, a weakening of approximately five per cent.
Labour
The increase in labour costs of 14 per cent reflects the four per cent increase in the number of staff employed during the 12 month
period ended 31 December 2021. During the second quarter of 2020, although head count had increased reflecting planned
changes in shift patterns, the level of staff and numbers at site were restricted, as a result of social distancing measures
implemented due to the COVID19 pandemic, reducing the relative levels of overtime and similar costs. Additional mine
development crews have been recruited in 2021 to recover some of the development that could not be completed during 2020. In
addition, each Brazilian employee received a three per cent salary increase effective May 2021 as a result of the national collective
wage agreement in Brazil.
Mining consumables & maintenance
Mining consumables and maintenance for the 12 month period ended 31 December 2021 have increased by 12 per cent in
comparison to the same period of 2020. In part this reflects a return to normal levels of staffing and maintenance activity during
2021. However, the Group has also been undertaking an underground drilling project as well as a significant programme for the
redesign and continued improvement of its tailings management infrastructure. This work, which was completed in the fourth
quarter of 2021, necessitated the use of a third party earth moving fleet as well as additional workload on the Group’s own fleet
resulting in increased consumption of consumables, particularly diesel fuel and spare parts.
Plant consumables
Plant costs have increased by US$0.38 million, or nine per cent, for the 12 month period ended 31 December 2021 compared with
the same period in the previous year. The increase is primarily due to an increase in maintenance costs due to repair work carried
out on the crusher and milling circuit as well as an increase in power costs and also consumable costs, primarily replacement of
mill balls and increased levels of laboratory test work of samples of mined ore and concentrate production.
General site costs
General site costs for the 12 month period ended 31 December 2021 increased by 16 per cent compared with the same period in
the previous year. The Group incurred an increase in costs on PPE and other general site costs as a result of increased levels of
personnel on site and also implementing social distancing procedures.
36
Strategic Report
Finance Review
Provision for impairment of State taxes receivable
There was no adjustment made to the provision for impairment of State taxes. This provision has been calculated based on the
fair value of the expected recovery of ICMS by the Group in the foreseeable future. During the 12 month period ended 31
December 2020 there was an increase of US$1.04 million to the impairment provision increasing the value of the impairment
provision at 31 December 2020 to US$1.57 million (BrR$8.18 million). The provision at 31 December 2021 is unchanged at BrR$8.18
million but is US dollar terms has reduced to US$1.47 million as a result of exchange rate movements.
ICMS is a sales related tax, levied and collected by the State in which the enterprise carries out its activities. ICMS is charged on
consumable items used in production, packaging, transport costs for production consumables, electric power and plant and
equipment purchased for use in production. Enterprises will add ICMS tax to the selling price of the goods that they sell. At the
end of each reporting period the enterprise will account for and pay-over to the State the net amount of the ICMS that it has
collected on sales after deducting the ICMS that it has paid out on its purchases. Exporters, however, are not required to levy
ICMS on the sale of their goods and as a result generally find themselves being a net recipient of refunds of ICMS.
Whilst the laws governing ICMS are generally the same across Brazil, the manner in which they are implemented and adhered to
varies by State. The State of Para, unlike many richer states located in the south of Brazil, is not inclined to make regular refunds
of ICMS to businesses, although it will allow businesses to offset ICMS that is due to be paid over, against other ICMS liabilities
that an enterprise may have. The Company currently projects that it will continue in the near term to accumulate further balances
of ICMS that are legally recoverable although may not be repaid promptly. Current legal advice in Brazil is that the amount owed
is recoverable but without a clear timeline on when recoverability can be realised.
Schemes have been established and used whereby a party can sell (with the approval of the State tax authorities), their ICMS
credits to other companies or otherwise use these ICMS credits as part payment for goods. The provision that the Company has
established reflects the market conditions and future expenditure patterns that the Company anticipates.
Shipping costs
Variations in shipping costs reflect the relative levels of shipments made in the period. During the year, 1,340 tonnes of copper
gold concentrate were shipped compared with 860 tonnes for the same period of the previous year.
Treatment charges
Treatment charges have increased by US$0.14 million between 2020 and 2021. This results from the higher volume of material
sold in the period although there has been a lower level of penalties incurred for impurities. The occurrence and level of impurities
varies according to the mineralogy of the particular veins being mined.
Royalties
Royalty payments of US$1.02 million have increased by 10 per cent in comparison to the same period of the previous year (US$0.92
million) and comprise statutory levies payable in Brazil and royalties payable to prior owners of the São Chico deposit.
Government royalty rates are uniform across all mining operations with a rate of 1.5 per cent being applied to gold production
and the royalty on copper production being 2.0 per cent. The increase in royalty payments reflects the increased revenues for 2021.
The average gold price achieved during 2021 of US$1,774 was at a similar level to the average price achieved during 2020 of
US$1,770.
Amortisation
Charges for the amortisation of mine property are calculated by reference to the depletion, during each quarter, of the total
estimated mineable resource at each of the Palito and São Chico orebodies. The base carrying cost of the asset is adjusted to include
a provision for future mine development costs for each of these orebodies. The Group reviews, on an annual basis, the expected
future life of the mine based on the mineral resources and the mine development costs that will be capitalised to achieve this
estimated life-of-mine plan. During the second half of 2020 the Group increased its assessment of mineable mineral resource for
São Chico and at the same time recognised an increase in the level of future mine development costs required to access this
increased mineral inventory. The total amortisation charge relating to the Palito and São Chico orebodies for the 12 month period
ended 31 December 2021 is approximately US$4.6 million compared with US$3.64 million for the same period of the previous
year. The increase is due to the increased level of mined ounces extracted from the mine during the 12 month period ended 31
December 2021 in comparison to the same period of the previous year.
37
Strategic Report
Finance Review
Depreciation
A depreciation charge of US$1.44 million was recorded for the year to 31 December 2021 on plant and equipment used in mining
and processing (2020: US$1.49 million).
Operating profit
The Group has recognised an operating profit before interest and other income of US$13.08 million (2020: operating profit of
US$10.39 million) reflecting the increase in gross profit year-on-year.
Administration costs of US$5.83 million for the year ended 31 December 2021 are at similar levels to the costs for the same period
in 2020 (US$5.86 million).
The Company recorded a foreign exchange loss of US$0.04 million for the year ended 31 December 2021 which compares with a
foreign exchange loss of US$0.21 million recorded for the year ended 31 December 2020. 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 finance income for the year to 31 December 2021 was US$0.32 million compared with an expense of US$1.69 million for the
same period of 2020. An analysis of the composition of these charges is set out in the table below:
Interest expense on secured loan
Interest expense on property acquisition payment
Interest expense on convertible loan
Recognition of variation in effective interest rate of secured loan
Variation on discount on rehabilitation provision
Loss in respect of non-substantial modification
Amortisation of arrangement fee for convertible loan
Total finance expense
Gain in respect of non-substantial modification
Warrants gain
Variation on discount on rehabilitation provision
Gain on revaluation of derivatives
Interest income
Total finance income
Net finance income/(expense)
12 months ended
December 2021
US$
—
(23,854)
(47,502)
—
—
(40,469)
(150,000)
(261,825)
—
168,441
417,399
—
—
585,840
324,015
12 months ended
December 2020
US$
(203,127)
(1,035,904)
(152,943)
(79,800)
(141,466)
—
(150,000)
(1,763,240)
40,469
—
—
33,023
911
74,403
(1,688,837)
The interest on the secured loan of US$0.2 million for 2020 was the cost of six months of interest on loan funds advanced under
the credit agreement with Sprott Resource Lending Partnership. This loan was fully repaid on 30 June 2020, so there was no
similar charge during 2021.
The interest on the convertible loan of US$47,502 (2020: US$152,943) is the interest cost on funds advanced under the US$12
million convertible loan note facility subscribed for by Greenstone. During 2020 the Group had drawn down four equal
instalments of US$0.5 million each, on 30 April 2020, 29 May 2020, 30 June 2020 and 31 July 2020. The convertible loan notes and
all associated fees and interest were redeemed on 19 March 2021.
The interest expense of US$23,854 million on the property acquisition payment is the interest accrued on the outstanding purchase
price obligation for the Coringa gold project (2020: US$1,035,904). Interest charges incurred were paid at the same time that the
final payment was made in respect of the mineral property acquisition. At 31 December 2019 the purchase obligation was US$12
million and during the 12 month period ended 31 December 2020 payments totalling US$6.5 million were made. The balance
outstanding on the original purchase obligation of US$5.5 million as well as all accrued interest charges was completed during
2021, with the final payment being made on 29 April 2021.
38
Strategic Report
Finance Review
At the start of the second quarter of 2020, the Group agreed revised repayment terms for this mineral property acquisition allowing
for a series of staged payments replacing the single lump sum payment that was otherwise then due. In accordance with IFRS 9,
the Group was required to recognise the effect of a non-substantial modification to the previous payment arrangement.
Accordingly, the Group recognised a benefit arising from the modification totalling US$40,469 during 2020. Upon completion of
the repayment of the loan the Group has recognised an expense arising from this modification for US$40,469.
The derivative in 2020 represents the value of the conversion rights attaching to the US$2.0 million of convertible loan notes that
had been issued at 31 December 2020. The Group calculated separately for each drawdown the value of the conversion options
associated with each drawdown instalment. The aggregate value of the derivatives on initial recognition was US$336,317. Each
derivative was then revalued at 31 December 2020 giving rise a reduction in the value of the derivative of US$33,023. With the
convertible loan notes having been repaid in March 2021, there is no corresponding income or expense in 2021.
The Group incurred an arrangement fee of US$300,000 in respect of the convertible loan note facility which was payable to
Greenstone. The arrangement fee was being amortised over the 16 month life of the loan resulting in a charge incurred during
2020 of US$150,000. With the convertible loans repaid in March 2021, the balance of the arrangement fee of US$150,000 was
amortised in the year to 31 December 2021.
The expense incurred during the year to 31 December 2020, described as “Recognition of variation in effective interest rate of
secured loan”, represented the amortisation of a non-substantial modification under IFRS 9 relating to a secured loan. This loan
was fully repaid on 30 June 2020.
On 27 May 2021, the Group issued 4,003,527 warrants at a price of £0.06 giving the buyers the rights to purchase shares at £0.9375
at any time over the next two years. Subscription proceeds from the sale of the warrants totalled US$333,936. Whilst the warrants
are convertible into a fixed number of shares, as the Group’s functional currency is US Dollars and the exercise price denominated
in Pounds Sterling, the future exercise of the warrants would result in a variable amount of US Dollars. The warrants are therefore
required to be classified as a financial liability. The Group has fair valued the warrants upon initial recognition and subsequently
revalued the liability at 31 December 2021, recognising a net decrease in the fair value of US$168,441 compared with the
subscription proceeds received.
The gain on the unwinding of the discount of US$417,399 on the rehabilitation provision is as a result of updates for current
inflation and interest rate assumptions which have given to variation in the net present value of the rehabilitation provision. In
2020 there was a loss on the unwinding of the discount of the rehabilitation provision of US$141,466.
BALANCE SHEET
Non-current assets
On 31 December 2021, the Group’s non-current assets amounted to US$66.9 million, which compares to US$59.2 million as
reported at 31 December 2020.
Non current assets
Deferred exploration costs
Property, plant and equipment
Right of use assets
Taxes receivable
Deferred taxation
Total current assets
December 2021
US$
December 2020
US$
34,857,905
27,575,335
2,600,631
605,125
1,224,360
66,863,356
27,778,354
26,235,551
2,573,738
696,077
1,879,158
59,162,878
Variance
US$
7,079,551
1,339,784
26,893
(90,952)
(654,798)
7,700,478
Deferred exploration costs have increased by US$7.1 million during 2021. Exploration activities in 2020 were suspended during
the second quarter of 2020, in reaction to the immediate effects of the COVID19 pandemic, and resumed during the fourth quarter
of 2020. Exploration expenditure of US$4.1 million during 2021 represents a 69 per cent period on period increase.
39
Strategic Report
Finance Review
Activity at the Company’s Coringa project was limited during 2020 to basic care and maintenance. However, following the award
on the Preliminary Licence in October 2020, expenditure increased from US$1.3 million in 2020 to US$4.4 million in 2021. Initial
mine development commenced in late July 2021 involving dedicated mining crews to expose the rock face and preparatory works
to establish and secure the mine portal. The expenditure has also included studies required as part of the application process for
the Installation Licence which was submitted during the third quarter of 2021.
Capital expenditure on the existing Palito Complex operations during 2021 was US$9.5 million which includes US$5.4 million of
capitalised mine development expenditure, with work on upgrade and improvements to the leaching circuit of the process plant
costing a further US$1.6 million. In addition, a further US$0.5 million of mobile mining fleet was acquired under leasing
arrangements.
The Group has a long-term receivable in respect of State taxes due in Brazil of US$0.6 million (31 December 2020: US$0.70 million).
The overall level of State taxes owed has increased from US$2.81 million to US$3.1 million before provisions. The Group has
established a provision against the future recoverability of this debt totalling US$1.47 million.
The Group has estimated that it has a deferred tax asset amounting to US$1.22 million (2020: US$1.88 million) representing the
timing differences on the recognition of exchange rate losses.
Working capital
The Group had a positive working capital position of US$17.50 million at 31 December 2021 compared to a positive working
capital position of US$0.82 million at 31 December 2020.
Current assets
Inventories
Trade and other receivables
Prepayments
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Acquisition payment due
Secured loan
Leases and unsecured loan
Derivative financial liabilities
Accruals
Total current liabilities
December 2021
US$
December 2020
US$
6,973,207
2,307,458
2,316,669
12,217,751
23,815,085
5,624,511
–
–
290,060
–
397,400
6,311,971
6,979,438
1,936,044
1,554,991
6,603,620
17,074,093
6,846,202
6,495,435
2,029,464
201,403
390,456
292,089
16,255,049
Variance
US$
(6,231)
371,414
761,678
5,614,131
6,740,992
(1,221,691)
(6,495,435)
(2,029,464)
88,657
(390,456)
105,311
(9,943,078)
Working capital
17,503,114
819,044
16,684,070
Non-current liabilities
Trade and other payables
Provisions
Secured loan
Warrants Provision
Leases
Total non-current liabilities
427,663
2,581,431
861,430
165,495
444,950
4,480,969
91,916
1,467,032
324,519
–
350,931
2,234,398
335,747
1,114,399
536,911
165,495
94,019
2,246,571
During 2021 the Group raised new capital from an issue of new equity of approximately US$16.56 million (net of costs) and a
further US$333,936 was generated from the issue of the warrants. The Company has settled during 2021 all of its outstanding
interest-bearing debt obligations with the exception of some equipment leasing arrangements.
40
Strategic Report
Finance Review
Current assets
Inventory
Inventory on hand at the end of the period was valued at US$6.97 million similar to the level of U$6.98 million at 31 December
2020. An increase in holdings of consumable items acquired in anticipation of the commencement for development activities at
Coringa, is offset by lower levels of process inventory.
Stockpile of mined ore
Finished goods awaiting sale
Other material in process
Consumables
Total inventory
31 December
2021
US$
31 December
2020
US$
266,214
1,920,136
1,094,405
3,280,755
3,692,452
6,973,207
349,024
2,225,835
1,233,291
3,808,150
3,171,288
6,979,438
Variance
US$
(82,810)
(305,699)
(138,886)
(527,395)
521,164
(6,231)
Trade and other receivables.
Trade and other receivables representing outstanding sums for the sales of bullion and concentrate of US2.31 million have
increased by US$0.37 million since 31 December 2020, a normal operational variance.
Prepayments and accrued income
Prepayments and accrued income primarily comprise prepaid taxes and deposit payments paid to suppliers. The total value of
US$2.32 million compared with US$1.55 million at 31 December 2020 has increased by US$0.76 million comprising US0.27 million
in increased deposits and the balance in an increased level of taxes recoverable.
Cash at bank
Between 31 December 2020 and 31 December 2021, cash balances have increased by approximately US$5.61 million. During 2021
the Group raised new capital from an issue of new equity of approximately US$16.56 million (net of costs). A further US$333,936
(net of costs) was raised from the issue of the warrants.
The Group repaid a total of US$5.5 million for the purchase of Coringa from Anfield Gold plus an additional US$1.06 million in
interest during the first five months of 2021, as well as repaying Greenstone the US$2.0 million convertible loan plus interest of
US$200k and an arrangement fee of US$300k.
Current liabilities
Trade and other payables
Trade and other payables at 31 December 2021 of US$5.62 million have decreased from US$6.85 million at 31 December 2020.
Trade creditors of US$3.20 million are US$0.42 million lower than at 31 December 2020, whilst other payables of US$1.55 million
have decreased by US$0.03 million and Sales and State tax liabilities of US$0.88 million have decreased by US$0.77 million.
Interest-bearing liabilities
Following settlement during March and April 2021 of the outstanding convertible loan notes and the outstanding purchase
consideration for the Coringa project the only interest-bearing liabilities comprise lease obligations for mobile mining fleet
comprising two underground loaders and a jumbo drill rig.
Non-current liabilities
Derivative financial liabilities
As part of the issue of new equity undertaken in March 2021, the Company also issued approximately 4 million share purchase
warrants exercisable at a price of £0.9375. The warrants were issued on 27 May and are exercisable at any time for a period of two
years from that date. As the parent company’s functional currency is US Dollars and the exercise price denominated in Pounds
Sterling, the future exercise of these warrants would result in a variable amount of US Dollar-denominated cash on exercise. They
are therefore classified as a financial liability and the liability at 31 December 2021 represents the estimated fair value of the
warrants at that date.
41
Strategic Report
Finance Review
Provisions
Provisions of US$2.58 million represent the estimated fair value of the future liability for closure of costs of the Company’s current
operations. Movements since 31 December 2020 reflect the changes in cost estimates, inflation and discount rate assumptions and
exchange rate variations.
Exchange rate
The Brazilian Real weakened by five per cent from 31 December 2020 when the exchange rate was BrR$5.20 to US$1.00 to the rate
of BrR$5.44 to US$1.00 at 31 December 2021.
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.
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. The measures are intended to provide additional information and should not be considered in
isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Total Cash Cost and All-In Sustaining Cost
The following table provides a reconciliation between non-IFRS Cash Cost and non-IFRS All-In Sustaining Cost to production
costs included in cost of sales as disclosed in the consolidated statement of comprehensive income.
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
Cash Cost and All-In Sustaining Cost (“AISC”)
Gold production for Cash Cost and AISC purposes
Total Cash Cost of production (per ounce)
Total AISC of production (per ounce)
42
12 months
ended 31
December
2021
(US$)
37,759,318
918,722
982,546
(2,777,566)
36,883,021
5,825,654
270,631
5,400,933
48,380,239
12 months
ended 31
December
2020
(US$)
33,127,648
1,358,920
570,653
(1,505,160)
33,552,061
5,856,760
533,264
2,952,943
42,895,028
12 months to
31 December
2021
33,848 ozs
12 months to
31 December
2020
31,212 ozs
US$1,090
US$1,429
US$1,075
US$1,374
Strategic Report
Finance Review
43
Strategic Report
Principal Risks and Uncertainties
There are many risks inherent with mining operations which to a greater or lesser degree companies can anticipate, plan for and
seek to mitigate. These risks may impact on a company only in the short-term or may have longer-term implications for the
success and development of the enterprise and its mining projects.
The Board is responsible for putting in place a system to manage risk and implement internal controls. The Board has considered
mechanisms by which the business and financial risks facing the Group are managed and reported to the Board. The principal
business and financial risks have been identified and control procedures implemented. The Board acknowledges it has
responsibility for reviewing the effectiveness of the systems that are in place to manage risk.
The Board has delegated certain authorities of risk management to the Audit Committee, which has its own formal terms of
reference. The Audit Committee meets at least four times during a year and in these meetings will consider and discuss with the
auditors, the audit approach and key areas of risk for reporting the annual financial results, review and approve the annual
financial statements and all interim financial statements and will during 2022 receive reports from the Company’s Internal Audit
department. The Audit Committee is chaired by T Sean Harvey who has recent and relevant financial and business experience.
All of the members of the Committee are non-executive.
The Audit Committee is responsible, inter alia, for:
Reviewing the Company’s risk management framework at least annually in order to satisfy itself that the framework continues to
be sound and to determine whether there have been any changes in the material business risks the Company faces.
Ensuring that the material business risks do not exceed the risk appetite determined by the Board.
Overseeing the Company’s risk management systems, practices and procedures to ensure effective risk identification and
management, and compliance with internal guidelines and external requirements.
The Company has an established framework of internal financial controls, the effectiveness of which is regularly reviewed by the
senior management team, the Audit Committee and the Board in light of ongoing assessments of the significant risks facing the
Company.
The Board is responsible for reviewing and approving overall Company strategy, budgets and plans. Monthly results and
variances from plans and forecasts are reported to the Board.
The Audit Committee assists the Board in discharging its duties regarding the financial statements, accounting policies and the
maintenance of proper internal business, and operational and financial controls.
There are procedures for budgeting and planning, for monitoring and reporting to the Board business performance against those
budgets and plans, and for forecasting expected performance over the remainder of the financial period. These cover cash flows,
capital expenditures and balance sheets.
The Audit Committee reviews the adequacy of accounting and financial controls together with the implementation of any
associated recommendations of the external auditor.
a. Internal controls
The Board is responsible for ensuring that a sound system of internal control exists in order to safeguard shareholders’ interests
and the Company’s assets. In conjunction with the Audit Committee it is responsible for the regular review of the effectiveness of
the systems of internal control. Internal controls are necessarily designed to manage risk rather than eliminate it. The key features
of the system that operated during the period are:
•
•
•
•
•
•
Regular Board meetings to consider the schedule of matters reserved for Directors’ consideration;
A risk management process;
An established organisation with clearly defined lines of responsibility and delegation of authority;
Appointment of staff of the necessary calibre to fulfil their allotted responsibilities;
Comprehensive budgets, forecasts and business plans, approved by the Board, reviewed on a regular basis, with
performance monitored against them and explanations obtained for material variances;
Documented whistle-blowing policies and procedures.
As described in the Audit Committee Report on page 80, during 2021, an investigation into certain unsubstantiated cash
withdrawals was commissioned by the Board and by the Audit Committee and was completed. The value of the irregularities
relating to the payment of travel advances and expense claims incurred during 2021 was US$116,000 with further transaction
totalling US$29,000 identified as being improperly documented. Over the review period from January 2015 to March 2021 it was
identified that the total of unsupported cash withdrawals was approximately US$340,000 with irregularities relating to the
44
Strategic Report
Principal Risks and Uncertainties
payment of travel advances and expense claims totalling approximately US$1,414,000. Based on the findings of this report, the
Board has concluded that there was a breakdown in the Group’s internal control in relation to the authorisation of certain banking
transactions and the payment and approval for travel advances and reimbursement of expenses. The Board has implemented a
number of measures to strengthen the Company’s internal control systems including establishing an internal audit function based
in Brazil and reporting directly to the Audit Committee.
b. Risk management policy
The Board determines the Company’s “risk profile” and is responsible for overseeing and approving risk management strategy
and policies, internal compliance and internal control.
The Board has delegated to the Audit Committee responsibility for implementing the risk management system.
The responsibility for undertaking and assessing risk management and internal control effectiveness is delegated to management.
Management is required to assess risk management and associated internal compliance and control procedures and report back
to the Audit Committee at least annually. The Board reviews assessments of the effectiveness of risk management and internal
compliance and control at least annually.
During the course of the work undertaken by the external auditor in their audit of the financial statements of the Company for
the year ended 31 December 2020, it was noted that senior management in Brazil have been able to override the control systems
resulting in the identification of unsupported cash withdrawals and, after further review, the identification of other potential
irregularities relating to expense claims and travel and other expense advances made to some Brazilian based members of staff
during the same period. Following the identification of these weaknesses, management undertook a further review and changed
a number of the internal processes to strengthen the internal control environment and has also now established an Internal Audit
department which is currently outsourced to Deloitte Touche Tohmatsu Consultores Ltda in Brazil (“Deloitte”).
UNCERTAINTIES CAUSED BY COVID-19
In response to the issues that COVID-19 places on the economy of Brazil, on 20 March 2020, the mining industry, through decree
number 10.282/20, was designated by the Brazilian government as an essential business sector and the Ministry of Mines and
Energy implemented actions aimed at guaranteeing the continuity of the supply chain, transport of materials required for
processing and the sale and transportation of mineral products.
During 2021 the Group remained operational throughout and, whilst operations were adversely affected by supply chain issues
and the need to recover certain mine development carried over from 2020, in many ways the operations had returned to pre-
pandemic norms. In the fourth quarter of 2021, the Brazilian authorities significantly reduced travel restriction on non-Brazilian
residents entering the country and management was able to increase the level of direct oversight of the activities in Brazil.
Management remains aware that there continues to be operational risks and the longer-term implications of the COVID-19 remain
difficult to predict given the continued evolution of variants and uncertainty regarding the long-term effectiveness of vaccines in
limiting the spread and the effects of the virus. The Board and management are regularly assessing the contingency planning that
the Group can invoke to mitigate future effects:
restrictions on the free movement of personnel and particularly between countries necessitates that executive Group
management are restricted in their ability to visit the Group’s operations with the regularity that they have been used to
and unable to undertake visits at short notice.
decision making is more reliant upon the accuracy of written reports rather than direct experience and evaluation.
supply chains may be affected in the future by restriction of the free movement of goods or the availability of goods.
finance required for the development of projects may be restricted as a result of the long-term global economic effects or
by increased perception of risk for countries and regions where the incidence and/or severity of COVID-19 remains
relatively high.
In addition to those matters set out above, the Board considers that the following risks are those which present the most significant
uncertainty for the Company at the current time and could have the most serious adverse effect on its performance and reputation.
Risk
Risk appetite
Change
year-on-year
Comment
Mitigation
Changes in
gold prices.
Medium
The profitability of the
is
Group’s operations
Management
monitors
closely
commodity
45
Strategic Report
Principal Risks and Uncertainties
Risk
Risk appetite
Change
year-on-year
Comment
Mitigation
Assay data
Medium
the
dependent upon
market price of gold.
fluctuate
Gold prices
widely and are affected
by numerous
factors
beyond the control of the
Group.
own
Reserve calculations and
life-of-mine plans using
lower
significantly
metal prices could result
in material write-downs
Group’s
of
the
in mining
investment
properties and increased
amortisation,
reclamation and closure
charges.
The Company operates
its
laboratory
which processes and
mine
analyses
production samples and
exploration samples for
the content of gold and
other minerals. Results
by
generated
the
laboratory
are used
among other things in
the calculation of gold
statistics,
production
sales
estimations
of
revenues
and
estimations of mineral
resources
Errors in assay data can
result in errors in gold
revenue
production,
estimates
and
estimations of mineral
resources which may
only be identified at a
future date if and when
independent assay data
is available.
prices and economic and
other events that may
commodity
influence
prices as part of
its
treasury planning.
The Board will use
hedging instruments if
and when it considers it
appropriate.
the
uses
The Company
industry
standard
quality assurance and
control
quality
(“QA/QC”) procedures.
These include the use of
control samples as part
regular daily
of
laboratory routine and
sending
duplicate
samples to independent
accredited
laboratories
verification
for
purposes. Results are
reconciled
and
anomalies investigated.
In this way management
seeks to minimise the
opportunity for error to
arise and to identify and
correct errors at
the
earliest opportunity.
Beginning in February
2022, the Company has
entered into a contract
with a new customer
that
and as part of
negotiation has been
introduce
able
to
levels
increased
of
procedures
sampling
when
the material
arrives at the refinery.
46
Strategic Report
Principal Risks and Uncertainties
Risk
Risk appetite
Change
year-on-year
Comment
Mitigation
Currency fluctuations
may affect the costs of
doing business and the
results of operations
High
Availability of working
capital
High
expenses
The Group’s major
products are traded in
prices denominated in
US Dollars. The Group
its
incurs most of
expenditures
in
Brazilian Reals although
it has a reasonable level
in US
of
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
any
repayment
requirements and
to
fund capital investment
and
exploration
programmes. It has no
overdraft or stand–by
credit facilities in place
the event of any
in
operational difficulties
or other events that may
reduce or delay revenue
in the short-
receipts
term.
No guarantee that the
Group’s applications for
Low
There is no guarantee
that any application for
47
of
Management expect that
this increased sampling
improve
regime will
correlation
final
results with those of its
own laboratory.
closely
Management
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
to
a modular plant
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
industry.
the
also
Management
the Group’s
manages
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
ongoing dialogue with
Strategic Report
Principal Risks and Uncertainties
Risk
Risk appetite
Change
year-on-year
Comment
Mitigation
exploration licences and
mining licences will be
granted
Existing exploration
licences may not be
renewed or approved or
converted into mining
licences
Title to any of the
Group’s mineral
properties may be
challenged or disputed
the ANM and the Para
Environmental
State
(“SEMAS”)
Authority
relevant
and
other
government
bodies
regarding its operations
such
to ensure
bodies are well informed
and also to help ensure
that
is
informed at an early
stage of any issues of
concern that such bodies
may have.
the Group
that
licences,
the
mining
renewal
existing
of
exploration licences or
the granting of new
exploration licences will
be approved by
the
Agencia Nacional do
Mineracao
(“ANM”).
The ANM can refuse any
Persons
application.
the
to
may
granting
any
exploration licence and
the ANM may take those
into
objections
consideration
when
making any decision on
whether or not to grant a
licence.
object
of
for
the
legislation
The Group employs staff
and consultants who are
experienced in Brazilian
to
mining
ensure that the Group is
in
compliance with
legislation at all times.
The process of making
the
application
renewal of
trial
mining licence is well
advanced and the Group
is not aware of any
reason that a renewal
would not be approved.
Provided
the
application is submitted
in the form and time
frame
set down by
Brazilian law, the Group
may continue to operate
under
existing
the
licence until such time as
a
is
approved (which may be
after the expiry of the
existing licence) or when
it
that a
renewal will not be
approved.
is notified
licence
new
that
and
and
The exploration licence
São Chico
for
the
in
expired
property
March 2014. The Group
applied for a full mining
the
licence
application
all
supporting information
and reports have been
accordance
made
with
prescribed
regulations. The Group
has
no
received
indications that the full
mining licence will not
be granted.
in
At
time
the current
mining operations at the
São Chico Mine are
carried out under a trial
licence which
mining
in
renewed
was
and
2020
February
expires in October 2022.
The
Group must
complete its request for
a renewal of the trial
mining licence prior to
August 2022.
If and when exploration
licences are granted,
they will be subject to
48
Strategic Report
Principal Risks and Uncertainties
Risk
Risk appetite
Change
year-on-year
Comment
Mitigation
Low
Other permits and
licences required to
conduct operations may
not be renewed or may
be revoked or suspended
limited
standard
various
including,
conditions
to,
but not
prescribed
licence
conditions. Any failure
to comply with
the
expenditure conditions
or with
any other
conditions, on which the
licences are held, can
licence
in
result
forfeiture.
The Group
is in the
process of applying for
an installation licence in
respect of the Coringa
gold project. There can
be no certainty that the
installation 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
49
Management maintains
ongoing dialogue with
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.
Strategic Report
Principal Risks and Uncertainties
Risk
Risk appetite
Change
year-on-year
Comment
Mitigation
Medium
The Coringa gold project
is an advanced stage
development project
requiring permitting and
construction before
production can
commence
impose additional
obligations on the
Group that had not
been imposed under
previous licences and
permits.
The Group acquired the
Coringa gold project in
December 2017.
Whilst the Group has
been awarded a trial
mining licence, an initial
operating licence, and in
2020, was
October
awarded the LP, it still
requires an Installation
Licence before plant
and
construction
of other
installation
site
necessary
infrastructure
can
The trial
commence.
mining licence and the
initial operating licence
which are valid
to
August 2022 allow the
Group to undertake all
current
mine
development activities.
As
the
noted
statement,
Chairman’s
remains
management
confident that
it will
receive the Installation
Licence and any other
ancillary permits and
permissions but 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.
in
Project construction is
subject to a number of
potential risks regarding
design, availability of
materials
and
unforeseen events that
may delay construction
or result in additional
costs.
50
The Group has been
operating in the region
for a number of years
and in general is dealing
same
the
with
government
agencies
and bodies that have
oversight
the
operations in the Palito
Mining Complex.
of
The Group considers
that it has developed
good
and
relations
understanding with the
government bodies and
agencies who oversee
the granting of these
licences and these same
bodies
been
have
supportive of Serabi’s
acquisition
the
project.
of
its
The
has
Group
employed the services of
consultants
with
experience in building
similar operations and
senior
many of
were
management
involved with
the
implementation of the
Complex
Palito
operations which are of
similar size and nature.
The Group
therefore
considers that it will be
minimising
the
greatest extent possible
in
the risks
but
construction
it
acknowledges
that
may not be able
to
foresee all eventualities.
involved
to
Strategic Report
Principal Risks and Uncertainties
Risk
Risk appetite
Change
year-on-year
Comment
Mitigation
of
The Group
employs
experienced and trained
ensure
to
personnel
day-to-day
effective
management
its
operations and seeks to
have contingency in its
operating plans to allow
unexpected events to be
not
managed,
affect
adversely
performance
a
material way.
and
in
with
The Company’s code of
corporate
governance
specifies the measures
the Company takes to
all
comply
applicable Anti Bribery
&
Corruption
legislation. The Board,
through
statutory
its
oversight commitment,
enforces adherence and
has
management
implemented
policies
and provided training to
staff who have
all
decision
making
responsibility and may
day-to-day
their
in
activities may
be
solicited to engage in
bribery or other corrupt
practices.
Mining and geological
risk
Medium
Bribery and corruption
Low
on
ore
The Group’s financial
performance
is
the
dependent
efficient operation of its
Complex
Palito
operations.
This
effective
requires
management of mining
operations to ensure cost
effective and efficient
at
of
delivery
and
planned grades
quantities
for
processing.
Any significant delay or
costs
additional
of
mining, ore
losses or
dilution could result in
working
additional
capital requirements or
operations
becoming
loss making.
The Company operates
in a jurisdiction that has
experienced a number of
well documented high
and low level cases of
bribery and corruption
and it is known that
certain
and
private sector officials
have been involved in
bribery or other corrupt
practices.
public
could
Any licence or permit
is
that the Company
awarded
be
rescinded in the event
that it was identified
that its award had been
directly or
indirectly
influenced by actions of
bribery or corruption.
By order of the Board
Clive Line
Company Secretary
9 June 2022
51
Strategic Report
Engagement with Stakeholders
Directors’ Section 172(1) Statement
Statement by the Directors in performance of their statutory duties in accordance with s.172(1) Companies Act 2006
The Board of Directors of Serabi considers that it has, individually and collectively, acted in the way it considers, in good
faith, would be most likely to promote the success of the Group for the benefit of its members and stakeholders in the
decisions that it has taken during the year ended 31 December 2021.
Promoting the success of the Company for stakeholders
The Directors endeavour to balance the needs and requirements of all stakeholders which, in addition to the Company’s
shareholders, include the Group’s employees, the communities in the areas where it operates, government agencies and the
Group’s suppliers and customers, all of whom have a vested interest in the long-term success of the Group. As all the activities of
the Group are currently undertaken in Brazil and managed by a single management team the Directors are not, at this time,
required to consider any potentially competing interests of different members of the Group.
The following disclosure describes how the Directors have had regard to the matters set out in section 172(1)(a) of the Companies
Act 2006 (the Act) and forms the Directors’ statement required under the Act. This reporting requirement is made in accordance
with the corporate governance requirements identified in The Companies (Miscellaneous Reporting) Regulations 2018, which
apply to company reporting on financial years starting on or after 1 January 2019. The matters set out in section 172(1) (a) to (f) of
the Act are that a director must act in the way they consider, in good faith, would be most likely to promote the success of the
Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:
a) the likely consequences of any decision in the long-term;
b) the interests of the company’s employees;
c) the need to foster the company’s business relationships with suppliers, customers and others;
d) the impact of the company’s operations on the community and the environment;
e) the desirability of the company maintaining a reputation for high standards of business conduct; and
f) the need to act fairly between members of the company.
In the above Strategic Report section of this Annual Report, the Company has set out its overall goal and its strategic priorities for
attaining it.
This statement addresses:
a) Stakeholder engagement, with information on stakeholders, issues and methods of engagement.
b) Principal decisions made by the Board, and how stakeholder considerations influenced the decision-making process.
a) Stakeholder engagement activities within the reporting period
The Company continuously interacts with a variety of stakeholders who are important to its success, including shareholders, debt
providers, staff, national, state and municipal government administrative and environmental bodies, NGOs, the local community,
and suppliers.
In its engagement with shareholders, Serabi always strives to attain an appropriate balance between open communication and
the confidentiality of potentially commercially or price sensitive information particularly where the outcomes or implications
remain uncertain.
The Group recognises that its current activities and proposed development of the Coringa project create potential impacts on, as
well as opportunities for, local people.
52
Strategic Report
Engagement with Stakeholders
Directors’ Section 172(1) Statement
Key stakeholder groups
Reasons to engage
Engagement method
Engagement outcome
Equity investors
All substantial shareholders
of which the Company is
aware that control more than
3% of the Company’s shares
are listed on page 93 within
the Directors’ Report.
The Company has two major
Fratelli
shareholders,
Investments Limited holding
25.5%
Greenstone
Resources
II LP holding
25.2%.
and
that
On 2 March 2021, the Group
announced
it had
concluded a placing of new
shares raising gross proceeds
of £12.5 million. The shares
were issued and admitted to
trading on AIM and listed on
the TSX on 9 March 2021.
Greenstone Resources II LP
subscribed for 4.195 million
in that placing to
shares
pro-rata
maintain
holding in the Company.
their
Existing and potential future
lenders and other potential
of non-equity
providers
finance
The Company
to
obtain debt finance to provide
additional capital required
for
the development and
construction of its Coringa
project.
intends
future
Potential
debt
providers include commercial
funds,
banks,
credit
financial
development
institutions, streaming and
royalty companies and off-
take financiers.
Access to capital is of vital
importance to the long-term
success of our business and
achieving
for
shareholders.
value
to
of
Engagement activities are
inform
designed
Serabi’s
shareholders
progress towards achieving
its strategic objectives and
develop an investor base that
will support the Company in
achieving those objectives.
Serabi expects to incur debt
from time to time to finance
capital
capital,
working
expenditure, investments or
acquisitions or
for other
purposes.
allow
the outcomes
To achieve
the Coringa
indicated for
the
project
and
to maintain
Company
adequate available working
existing
capital
further
operations, pursue
for
its
updates
The
We engaged with investors on
topics of strategy, governance,
and
project
performance.
CEO
provides regular interviews to
established investor forums and
is available
for one-to-one
meetings/conversations and the
Company presents at selected
investor roadshows.
The key mechanisms of
engagement included:
Substantial shareholders:
Both Fratelli and Greenstone
have the right to appoint up
to two Directors under the
respective
terms of
their
Relationship
Agreements
with the Company.
The other existing substantial
shareholders
held
periodic meetings with the
Chairman, CEO and CFO.
have
and
and
existing
roadshows
Prospective
investors:
The AGM and Annual and
Quarterly Reports.
Investor
presentations.
investor
One-on-one
meetings with the CEO and
CFO.
Access
to
brokers and advisers.
Regular news and project
updates.
Social media accounts.
the Company’s
Shareholders with queries
should direct their queries to
the Company, its brokers or
and public
its
relations consultants.
investor
One-to-one meetings with the
CEO, CFO and/or Business
Development Manager are
undertaken on a regular basis
with a range of potential debt
and other finance providers
the
for
Company’s activities and in
particular its Coringa project.
updates
on
53
The process
to select debt
providers to meet the upfront
the
capital requirements of
Coringa project is ongoing.
Strategic Report
Engagement with Stakeholders
Directors’ Section 172(1) Statement
Key stakeholder groups
Reasons to engage
Engagement method
Engagement outcome
other
activity
and
exploration
growth
pursue
opportunities should
they
become available, external
funding will be necessary to
capital
up-front
finance
requirements to construct the
mine, processing plant and
general project infrastructure.
It is expected that the finance
will be derived primarily
using debt instruments.
Workforce
The Company’s workforce is
almost entirely located and
performing their duties in
Brazil with only a small UK
based management team.
The Company’s long-term
success depends to a large
degree on the expertise,
loyalty and commitment to
its values of its workforce.
The Board recognises that the
Company is reliant on some
key personnel
the
The Board recognises
importance
of Company
culture and of establishing
employee alignment on issues
and health,
like
business
and
sustainable development.
integrity
safety
Serabi seeks to maintain an
open line of communication
between its employees, senior
management and Board.
The Company monitors HSE
obligations
reports
performance against these.
and
to
The CEO and CFO report
regularly
the Board,
including the provision of
Board
information. Key
members of the finance and
senior management team are
invited to some of the Board
and
Committee
meetings.
Audit
The Company has an absolute
commitment
safe
operations and the principle
of ‘do no harm’.
to
The Company has formalised
corporate governance policies
and procedures and all
employees working at the
Company’s
mining
operations are required to
undertake a period of formal
induction and safety training
and be accompanied by a
mentor during their initial
period of employment.
Serabi’s HR department in
Brazil has staff located at the
to
Company’s operations
support senior management
and to assist and promote
engagement
its
employees through one-on-
staff meetings,
one and
with
54
for
The Company has, during the
year, made significant efforts to
improve conditions
its
employees with a particular
focus on enhancing safety and
levels of health
improving
awareness and
in particular
mental health.
runs
to
Additional
safety managers
have been recruited and the HR
department
regular
promote
campaigns
awareness of common medical
issues with the involvement of
the Company’s medical staff
and external specialists.
The Company has actively
supported the regional health
authority with the COVID-19
programme,
vaccination
transport,
providing
other
accommodation
to allow
logistics
medical
to
administer vaccinations to staff
as well as to the residents of the
surrounding local communities.
professionals
support,
and
Strategic Report
Engagement with Stakeholders
Directors’ Section 172(1) Statement
Key stakeholder groups
Reasons to engage
Engagement method
Engagement outcome
Governmental
bodies
The Company engages with
local (Municipal), regional
(State)and national (Federal)
government in Brazil.
existing
The Company’s
operations are subject to a
number of permits and
licences which are subject to
regular review and reporting
requirements.
Legal
particularly
obligations
regarding
environmental,
safety and labour matters are
always subject to change, and
it is necessary to maintain a
dialogue with all of
the
relevant government and
quasi government groups
that oversee these matters to
ensure that the Company
operates in full compliance
with its obligations at all
times.
The Company will only be
commence
to
able
development
and
construction of the site and
processing facilities required
for its Coringa project once it
receives the relevant licences
and permits from all levels of
government.
events, project
employee
updates, etc.
The Company has a weekly
communication
internal
programme
that provides
information to staff.
The Company engages with
the relevant departments
of the Brazilian governments
to both maintain, obtain
issue of new
renewal or
operational and other licences
as and when required.
to
open,
statutory
In addition
the Company
reporting
the
updates
regularly
government
departments,
and the Company believes
continuous
that
key
is
engagement
to
developing
successful
a
permitting regime. Brazilian
the
management
Company’s Brazilian based
legal
report
advisers
regularly to the Board on
obtaining
progress with
licences and permits.
and
The Group has had a presence
in Brazil for over 20 years and
is committed to continuing to
develop its activities in the
country
sustainable
manner.
in a
for
2020,
2 October
the
On
Company was awarded the
Preliminary Licence
its
Coringa project following a
Public Hearing held in February
2020.
documents
The
supporting
the Company’s
application for the LP included
Environmental
Social
in
impact reports prepared
accordance with
Brazilian
legislation.
and
September
2021
completed
of
the
In
the
Company
submission
all
documentation required under
Brazilian legislation to support
an
its
Installation Licence
the
Coringa project.
application
for
for
Impact
September
the
In
2021
Company also entered
into
discussion with SEMAS and
FUNAI for the preparation of a
Indigenous
separate
Populations
Study
which whilst not prescribed by
considered
legislation was
prudent in the interest of good
practice and in light of general
public concerns around this
issue. This study is underway
and expected to be completed
during the second quarter of
2022.
Management is aware of public
concerns regarding mining and
the ease with which inaccurate
or misleading information can
be
By
maintaining regular and open
dialogue the Company is able to
disseminated.
55
Strategic Report
Engagement with Stakeholders
Directors’ Section 172(1) Statement
Key stakeholder groups
Reasons to engage
Engagement method
Engagement outcome
Community
The near-mine communities
residing in Jardim do Ouro,
and São Chico, towns of Novo
and Moraes
Progresso
the wider
d’Almeida and
municipalities of Itaituba and
Altamira.
Establishing and maintaining
good relations with the local
community throughout the
development, operation and,
at some time in the future, the
of
ultimate
the
closure
Company’s
mining
operations is vital for the
Company’s social licence to
operate.
the Company
Principally
its
needs to engage with
affected communities in order
to build trust. Developing this
will increase the likelihood
that any fears raised can be
assuaged and the Company’s
plans and strategies are more
likely to be accepted.
Community engagement will
inform
decision
better
making, particularly during
project planning stages. The
social and economic impact
on the local community and
surrounding
areas will
expand over time particularly
as new projects are advanced
and
developed.
Dissemination of accurate
information regarding both
the Company’s existing and
future projects, and the early
and ongoing engagement
with
leaders,
form a cornerstone of the
Company’s ESG policies.
community
The immediate communities
of São Chico and Jardim do
Ouro are a base for a number
of the Company’s employees
now and in the future, with
of
maintain the confidence and
governmental
support
authorities and avoid any
unnecessary action that could
otherwise arise from inaccurate
or misleading information that
might be published.
the
The Company under
direction of HSE management
employ community relations
staff who have
regular
dialogue with community
leaders working with them to
understand ways in which
the Company can assist the
improve
communities
quality of life and at the same
time receive
feedback on
concerns or issues regarding
the impact the Company’s
operations are having on
those communities.
to
The public hearing to consider
the Company’s application for
the LP for its Coringa project
was attended by approximately
600 people including some of
the indigenous populations that
reside in the wider area. The
authorities in their decision to
award the LP were satisfied that
there was public support for the
project and any concerns raised
in that forum were not of
to
sufficient
warrant refusal to issue the
licence.
importance
to
The Company continues
neighbouring
its
support
communities
by providing
financial and logistical support
for educational, health and
infrastructure projects. Further
details are set out in the ESG
section of this Annual Report.
This information is fed-back
to management and where
appropriate the Board so that
prompt and positive action
can be taken.
retain
As and when appropriate the
Company will
the
services of specialist advisers
to assist with the organisation
and advertising of public
meetings to ensure that all
members of the community
have opportunities to provide
input into some of the key
decisions that the Company’s
and
management
are
government
required to take.
bodies
programme
In Brazil the Company has an
of
active
through
communication
social media channels
to
maintain
open
communication, promote its
activities
inform
and
communities of any short-
term matters that may affect
56
Strategic Report
Engagement with Stakeholders
Directors’ Section 172(1) Statement
Key stakeholder groups
Reasons to engage
Engagement method
Engagement outcome
others living and travelling
larger towns of
from the
Novo Progresso and Moraes
d’Almeida
the
Company also sources many
of the support services upon
which its operations do and
will rely.
where
the
than 70% of
More
Company’s workforce reside
within the State of Para.
Our
are
suppliers
fundamental to ensuring that
the Company run its current
operations in a cost-efficient
manner and will be able to
source
and
operational requirements for
its future development on a
timely basis as and when
required.
capital
and
Suppliers are vetted to ensure
in a
they operate
that
sustainable
ethical
manner and can meet the high
standards of performance
that the Company sets for
itself and the partners with
whom it works.
The Relationship Agreements
seek to ensure that the Board
and management can operate
the Company in a manner
that whilst being aware of any
specific
or
each of
expectations of
Fratelli
Greenstone
allows the Company to be run
in
all
the
shareholders.
interests of
objectives
and
Suppliers
The Company works closely
its suppliers which
with
range
large
from
multinationals to small local
engineering,
providers of
other
maintenance
and
services
as
consumables and catering
supplies.
well
as
Brazilian
and
Where practical the Company
uses
sourced
service
equipment
providers and Para based
suppliers where goods are of
equivalent quality and price.
Partners
In March 2018 the Company
entered
into Relationship
Agreements with each of
Fratelli
and Greenstone
(individually a “Partner”) as
its
strategic
key
two
shareholders.
them as a result of
Company’s operations.
the
The Company has a dedicated
procurement department and
a formal process for adding
its
new suppliers on
approved list.
to
Key supply contracts are only
awarded after a formal tender
process and the value and
nature of the tender will
determine
of
the
engagement
senior
management in that process.
level
of
The Company’s desire to use
local
suppliers wherever
possible is part of its objective to
provide reward and return
those stakeholders
value
most
the
Company’s operations.
impacted
by
to
the
Both Greenstone and Fratelli
following rights
have
under
respective
their
Relationship Agreements:
• for as long as a Partner
holds an interest of 23% or
more in the share capital of
the Company, that Partner
has the right to appoint two
directors to the Board and, for
so long as it holds an interest
of 15% or more but less than
23% of the share capital of the
Company,
to
the
appoint one director to the
Board.
• each Partner shall have, for
as long as it holds an interest
right
Both Greenstone and Fratelli
remain supportive of the Board
and management’s objectives
and strategy for the Company
the
have permitted
and
Company to operate in a way
which management and the
independent Directors consider
to be in the best interests of all
shareholders.
important
In April 2020, Greenstone
provided a Convertible Loan
Facility to the Company which
was
in providing
management with additional
the
certainty
financial
beginning of the COVID-19
the
pandemic,
allowing
at
57
Strategic Report
Engagement with Stakeholders
Directors’ Section 172(1) Statement
Key stakeholder groups
Reasons to engage
Engagement method
Engagement outcome
to
to complete
Company to properly assess
the evolving
and react
situation and providing the
foundation
the
acquisition of
the Coringa
project.
Greenstone used the proceeds it
received from the repayment of
the convertible loan in 2021 to
pro-rata
its
maintain
shareholding in the Company
in the share placing that was
announced on 2 March 2021.
regarding
information
the
of 15% or more in the share
capital of the Company:
-
certain
rights
Company’s business; and
anti-dilution rights
-
such that they will have the
right, but not the obligation,
to participate in new placings
of ordinary shares (including
placings in connection with
an acquisition or for non-cash
consideration)
in order to
retain their ownership per
centage. Where a Partner
elects to exercise this anti-
dilution right:
if the new placing is
(i)
for cash, the Partner will
participate on substantially
the same terms as any other
participant
the new
in
placing; or
(ii)
if the new placing is
for non-cash consideration,
the Partner will have the right
to subscribe for such number
of shares as are required to
maintain their current per
centage holdings at a price
per ordinary share equal to
the VWAP of the Company's
ordinary shares for the five
day period ending on the date
ending two business days
prior to the announcement of
that new placing.
Maintenance of standards of business conduct
The Board places significant emphasis on operating to the highest ethical standards, whether this be in relation to government,
suppliers, shareholders or employees. The Board in its decision-making process has, during the year, made all reasonable enquiry
and maintained procedures to ensure compliance with the code of conduct that the Group is required to follow.
Further details are set out in the Report on Corporate Governance on pages 88 to 92.
58
Strategic Report
Principal Decisions by the Board During the Period
We define principal decisions as those which potentially have a long-term strategic impact and are material to the Group, and/or
are significant to our key stakeholder groups. In making the following principal decisions, the Board considered how they would
affect its stakeholders, the need to maintain a reputation for high standards of business conduct, the impact on the environment
and the need to act fairly between the members of the Company:
1) Approval of operational plans and financial forecasts
The Board considers management’s operational plans and proposed exploration and development proposals on an
annual basis and any updates or variations that are submitted for approval during the course of the year. The evaluation
process includes detailed discussions with management, and due consideration of the operational risks, economic
assumptions and the reasonableness of other estimates or judgements made by management. The Board will require
management to submit revised plans and forecast if, during the period, it is appropriate to consider that any
assumptions, estimates or judgements may no longer be reasonable, or matters have arisen that impact on the ability to
achieve the plans or the outcomes expected.
2) Equity financing and repayment of outstanding loans and other interest-bearing liabilities
On 2 March 2021, the Company announced the placing of 16,650,000 new ordinary shares at a placing price of £0.75 per
share, raising gross proceeds of £12.5 million, and a placing of 4,003,527 warrants at a price of £0.06 (C$0.11) per warrant
to raise gross proceeds of US$0.3 million (£0.2 million/C$0.4 million). The proceeds from these issues of securities in the
Company were to be used to:
Part fund the construction of the Coringa gold project;
Undertake further regional exploration;
Redeem the outstanding convertible loan notes held by Greenstone Resources II LP; and
Pay the remaining portion of the acquisition price for the Coringa project.
3) Commence the Coringa mine development
In July 2021, the Company commenced work to establish the mine portal for the Serra Vein which forms part of the
Coringa mineral resource and thereafter has continued to establish an access ramp to intersect this vein prior to
commencing on-lode development.
4) Actions following the identification, during the course of the audit of the financial statements for the year ended 31
December 2020, of unsubstantiated cash withdrawals and irregularities relating to the payment of travel advances
and expenses
The Company initially engaged its legal advisers in Brazil (“FFA”) to undertake enquiries into these transactions and
following the presentation of their initial findings subsequently engaged the services of the Forensic Investigations
group of Deloitte Touche Tohmatsu Consultores Ltda in Brazil (“Deloitte”). Deloitte were retained to review, analyse
and substantiate the initial findings of FFA and also to conduct a more comprehensive investigation to identify any other
potential matters that may not have been identified in the initial review by FFA. Based on the findings of these enquiries,
the Board has concluded that there was a breakdown in the Group’s internal control in relation to the authorisation of
certain banking transactions and the payment and approval for travel advances and reimbursement of expenses. The
Board has introduced a number of measures to strengthen the Company’s internal control systems which have been
implemented, including the services of Deloitte to establish and initially operate an internal audit function in Brazil for
the Company.
5) Adjustment of 2022 annual production guidance in light of operational issues identified at the São Chico mine
At São Chico, dilution in the Julia Vein from mechanised long hole open stoping was higher than expected as a
consequence of the presence of parallel and cross cutting faults and intrusive dykes which post-date the ore. This level
of faulting appears to be unique to the Julia Vein. The Board supported management’s decision to adjust the mining
method on the Julia Vein and introduce selective open stoping, the method used successfully on the Palito orebody.
Over time this change is expected to improve grades by minimising dilution through greater selectivity in the mining.
1,000 ounces of production which had been scheduled from São Chico in February by long hole, will now be mined
selectively during the second quarter and over the rest of the year. The decision to mine selectively on the Julia Vein
does however mean the reliance on production ounces will, in the near term, focus on the Palito orebody, with operations
at São Chico focusing more on mine development with a view to a return to planned production levels later in the year
and into 2023. In the short term the Company will be focusing on producing profitable ounces and maximising
operational cashflow rather than production growth for the rest of the year. The Board therefore approved a revision
59
Strategic Report
Principal Decisions by the Board During the Period
to the Company’s production guidance to be in the region of 30,000 ounces for 2022 from 36,000-39,000 as previously
stated for the full year.
60
Corporate Governance
Board of Directors and Senior Management
Nicolas Bañados,
Non-Executive Chairman
Nicolas is Managing Partner of Galgo Capital, a private equity firm based in Latin America. Formerly, he held the position of
Managing Director of Private Equity and Venture Capital at Megeve Investments and Fratelli Investments. He has more than 20
years of experience investing in Latin America and serves as Director for several companies including Haldeman Mining
Company, Minera Las Cenizas, Minera Bornita, Aenza and others.
Nicolas has an MBA from The Wharton School at the University of Pennsylvania and also received a Master’s degree in Financial
Economics from Universidad Católica de Chile.
Mike Hodgson,
Chief Executive
Mike has worked in the mining industry for over 30 years and has extensive international experience. Prior to joining Serabi, 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.
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
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 its sale to Ashanti Gold and 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.
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
Aquiles has more than 25 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. He graduated with a degree in geology from the
Universidad de Chile.
Luis Azevedo,
Non-Executive
Luis is a resource industry professional with over 37 years of international experience. He is both a licensed lawyer and
geologist with over 27 years of business and mining experience, specifically in Brazil. He is currently the Managing Partner at
FFA Legal Ltda, a legal firm he founded with its main office in Rio de Janeiro, Brazil, and which is focused solely on natural
resources companies. Mr Azevedo is also an Executive Director of Harvest Minerals Limited and Jangada Mines plc, GK
Resources Ltd, and previously worked for Western Mining Corporation, Barrick Gold Corporation and Harsco Corporation. Mr
61
Corporate Governance
Board of Directors and Senior Management
Azevedo was formerly an executive director of Avanco Resources Ltd and is now Chairman of the Brazil advisory board to Oz
Minerals Ltd.
Mr Azevedo received a geology degree from UERJ – Universidade do Estado do Rio de Janeiro in 1986, a law degree from
Faculdade Integradas Cândido Mendes in 1992, and a post graduate degree from PUC-Rio, Pontifícia Universidade Católica of
Rio de Janeiro in 1995.
T Sean Harvey,
Non-Executive
Sean spent 10 years in the early part of his career working in investment and merchant banking, primarily focused on the basic
industry (mining) sector and subsequently 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.
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.
Eduardo Rosselot,
Non-Executive
Eduardo is a mining engineer with 34 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 mainly in south America, and is a partner
of the privately owned mining company Minera HMC S.A., with producing projects in Chile. 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.
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.
Mark Sawyer,
Non-Executive
Mark co-founded Greenstone Resources in 2013 after a 16 year career in the mining sector. Prior to establishing Greenstone, Mr
Sawyer was GM and Co-Head Group Business Development at Xstrata plc where he was responsible for originating, evaluating
and negotiating new business development opportunities for Xstrata. Prior to Xstrata Mr Sawyer held senior roles at Cutfield
Freeman & Co (a boutique corporate advisory firm in the mining industry) and at Rio Tinto plc.
Mark qualified as a lawyer and has a law degree from the University of Southampton.
Senior Management
Helio Tavares,
General Manager of Projects and Operations
Helio is a Brazilian mining engineer who has been involved with a number of international junior mining groups over the past 20
years. His early career was as a process engineer in the Brazilian coal industry and he then expanded his experience through his
involvement in the coordination, planning, design, assembly and management of a range of ore processing plants, before
establishing his own drilling and industrial process design business. He was general manager for Serabi from 2002 to 2005 and
62
Corporate Governance
Board of Directors and Senior Management
again between November 2012 and May 2019. He has also been a consultant to several international junior mining groups working
on projects across a range of minerals including iron ore, kaolin, diamonds and manganese as well as gold.
Helio has a degree in Mine Engineering from the Federal University of Rio Grande Do Sul.
63
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
PART 1 - Summary statement from the Chair of the Remuneration Committee
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, including restricted stock awards and stock options, a significant component of executive compensation. This approach
assumes that the performance of the Group’s share price over the long-term is an important indicator of long-term performance and
seeks to align the remuneration of senior management with the Group’s shareholders.
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’s shareholders, 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.
As the Company has evolved, so has its remuneration policy both to meet the changing landscape and expectations of shareholders
and to recognise the changing demands and expectations made of the Company’s senior management. Over time a policy favouring
short-term incentives tied to specific short-term objectives has now made way for a blended policy that incorporates longer-term
performance linked targets that are transparent to all shareholders, readily measurable, and provide a strong link between executive
rewards and growing value for shareholders.
The Remuneration Committee keeps itself appraised of changing obligations for corporate governance and best practice both in the
UK and across other jurisdictions in order that the Company’s policies remain appropriately flexible not only to meet the needs of the
Company and shareholders, but also to ensure that, as needed, the Company can provided remuneration structures and incentive
arrangements that meet the needs and expectations of the international labour community from which the Company can draw its
talent. The Company has resolved to comply with the QCA Code so far as is practicable given the Company’s size, nature and stage
of development.
Remuneration Committee meetings are normally held at least twice a year and, additionally, matters for its consideration may be
discussed at Board meetings. On such occasions, no Executive Director would be present while matters concerning him or her were
discussed, and all decisions regarding Executive Directors will be taken by the Non-executive Directors.
Principal actions and decisions during the period
The principal decisions in respect of remuneration taken during the period were:
Approving the payment of deferred salary increases to Executive Directors that had been approved by the Board and the
Remuneration Committee in March 2020 following an independent benchmarking exercise commissioned by the
Remuneration Committee at the end of 2019. However, with the uncertainties surrounding the COVID-19 pandemic the
Executive Directors voluntarily proposed to forego these changes in remuneration until the outlook for the Company and its
operations became clearer.
64
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
Approving the award of Conditional Share Awards (“CSAs”) to the Executive Directors and certain senior management
personnel. Shareholders approved the adoption of the Serabi Gold 2020 Restricted Share Plan (“the 2020 Plan”) at the Annual
General Meeting of the Company held on 16 June 2020 which was formally approved and adopted by the Board in November
2020. As a result of the exceptional circumstances in 2020, no awards under the 2020 Plan were made during 2020. The Board
therefore combined in the 2021 award the annual awards for 2020 and the annual awards for 2021. It is the intention that
awards under the 2020 Plan should be made annually.
Mark Sawyer
Chairman of the Remuneration Committee
9 June 2022
PART 2 – Remuneration policy
The Company’s remuneration policy seeks to provide a strong and clear link between business strategy and incentive
arrangements.
The Board is responsible for determining and reviewing compensation arrangements for the Directors and senior executives
reporting to the Chief Executive Officer. The broad policy is to ensure that remuneration properly reflects the individuals’ duties
and responsibilities and that remuneration is fair and competitive in attracting, retaining and motivating quality people with
appropriate skills and experience.
Elements of executive compensation
The elements of compensation earned by the executives of the Group for the financial year ended 31 December 2021 consists of a base
salary, along with annual discretionary incentive compensation in the form of a performance-based bonus, and a longer-term incentive
which in the past was in the form of stock options but has now been replaced with awards made under the 2020 Plan. At the Annual
General Meeting held on 16 June 2020, shareholders approved the introduction of the 2020 Plan to replace the executive share option
plan that had been introduced in 2011.
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 in the table below.
Element
Base salary
individual’s
Purpose and link to
remuneration policy
To recognise the market
value of the role, reflecting
the
skills,
experience, authority and
responsibilities, to ensure
the business can
that
retain
attract
appropriate
individuals
for executive roles.
and
Performance-
related bonus
To incentivise and reward,
on an annual basis, the
performance
of
individuals, and of the
Key features and operation
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 uses
in
remuneration
consultants
benchmarking and
the
remuneration policies follow current trends
and best practice initiatives.
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
longer-term
sustainable future of the Group. The short-term
assist
that
goals with
to ensure
the
to
65
Applicable
performance
measures
None
Maximum
opportunity
is
no
There
maximum level
but appropriate
consideration
will always be
given
the
Group’s size and
financial
circumstances.
to
Annual bonuses
to
are specific
each individual
range
and
Performance
measures and
relative
weightings are
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
Element
and
Purpose and link to
remuneration policy
Group, using a range of
non-
financial
financial metrics.
The
measures may be linked to
annual objectives aligned
with key strategic goals
that are expected to help
enhance
shareholder
value. These performance
criteria may vary between
individuals.
respect
Key features and operation
incentive component is structured to reward
not only increased value for shareholders but
also performance with
to key
operational and cost metrics and other non-
financial goals considered important to long-
term success. At the end of each year the
Committee considers if and to what extent the
KPIs have been achieved and in this way
establish a transparent and non-discretionary
assessment of an individual’s performance and
contribution to the Group. Non-executive
Directors do not participate in the bonus
scheme.
Maximum
opportunity
Applicable
performance
measures
30%
between
and 75% of base
salary.
Share-related
incentive
plans
To reward delivery of
long-term
sustained
in
improvements
shareholder returns by
aligning
performance
directly with an increase
fundamental
in
measure of the generation
of shareholder value.
the
Awards
are
given annually
a
with
maximum value
of 50% of salary.
In situations of
exceptional
performance
compared with
the benchmarks
the Board has
to
discretion
grant additional
shares.
Exceptional
performance
would be where
TSR exceeds 1.4,
ROCE premium
exceeds 1.4, and
ROS exceeds 1.3.
The Board seeks to award equity-related
incentives on an annual basis. Whilst it is
generally expected that these will be equity
settled, provisions exist, to be used at the
discretion of the Board, for these awards to be
cash settled on an equivalent basis where, for
example, the tax treatment might significantly
disadvantage an individual recipient.
the Group
The 2020 Plan
All employees of
(including
Executive Directors who are employees) are
eligible to participate in the 2020 Plan. Awards
provide rights to acquire ordinary shares
(subject to restrictions) in the capital of the
Company (whether by transfer or subscription)
in such form (including but not limited to
conditional shares or options) as the Board may
determine in its absolute discretion. The
number of shares over which awards to
subscribe for shares may be granted under the
2020 Plan on any date shall be limited so that
the total number of shares issued and issuable
pursuant to rights granted under any employee
share scheme operated by the Company in any
rolling ten year period is restricted to ten (10)
per cent of the Company’s shares in issue
calculated at the relevant time excluding any
lapsed awards or those that are no longer
capable of exercise. Awards may be granted
66
and
annually
set
generally
covering
matters
such
as health and
safety,
financial
performance,
operational
performance,
resource
growth,
and
specific project
milestones.
The
Remuneration
Committee has
the discretion
to change the
measurement
on
based
circumstances.
The
performance
criteria
minimum
to
thresholds
achieved
be
be
can
summarised as
follows:
•
of the award is
subject to Total
Shareholder
Return, (where
TSR must be
times or
1.2
more the BMO
Junior Gold
Index)
•
of the award is
to
subject
Return
on
Capital
Employed
(where ROCE
premium over
Weighted
Average Cost
Capital
of
30%
40%
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
Element
Purpose and link to
remuneration policy
Pension
provision
The provision of pension
is a relatively
benefits
normal
of
constituent
compensation offered by
The
peer companies.
Group will contribute to
defined
contribution
schemes on behalf of its
executives as part of the
overall
remuneration
package provided to an
employee.
30%
Applicable
performance
measures
must be 1.2
times or more),
and
•
of the award is
to
subject
Return
on
(where
Sales
must
ROS
exceed
average
annual budget
or
10%
by
more)
Exceptional
performance
would
where
exceeds
ROCE
premium
exceeds 1.4, or
ROS
exceeds
1.3.
be
TSR
1.4,
Maximum
opportunity
Key features and operation
subject to performance conditions which will be
specified at the time of grant. All awards under
the 2020 Plan are subject to malus and clawback
provisions.
Executive Share Option Plan
The Serabi 2011 Share Option Plan has reached the
end of its intended life and no new options will be
issued under this arrangement. The following
information relates only to those options which
remain in issue.
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
exercise
the Committee may
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 10 per cent of the issued capital and
whilst there is no maximum value to options
that may be granted in one year, nor any cap on
the level that 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
level of
which can
retirement benefit provided for any individual.
the overall
increase
None
the
The Company
limits
the
contributions
that it makes to
employee’s
an
pension
arrangements
unless
employee
foregoes salary
or
other
elements of the
proposed
remuneration
package that are
not performance
related.
67
Key features and operation
The Group provides private medical and life
assurance benefits for employees and Executive
Directors which may be linked to base salary.
Maximum
opportunity
Applicable
performance
measures
no
There
maximum value.
is
None
Peer group data is also used to assess the level
of fees for the Non-executive Directors.
no
There
maximum value.
is
None
N/A
N/A
N/A
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
Element
Benefits in
kind
Non-
executive
Director fees
Non-
executive
Director share
awards
individual’s
Purpose and link to
remuneration policy
To provide cost effective,
competitive remuneration
benefits to recruit and
retain personnel.
To recognise the market
value of the role, reflecting
skills,
the
experience
and
responsibilities, to ensure
the business can
that
retain
attract
appropriate
individuals
for non-executive roles.
Following the adoption of
the 2020 Plan and the
cessation of the 2011 Share
Option Plan there is no
intention to issue further
equity-based awards
to
Non-executive
the
The Non-
Directors.
executive Directors are not
entitled to participate in
the 2020 Plan.
and
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;
• Malus and clawback provisions exist within the long-term incentive plans in line with UK governance best practice; and
• Ultimately, complete Board accountability.
Non-executive remuneration
The remuneration package for Non-executive Directors is established by the Board as a whole but Non-executive Directors do not vote
on any changes to their own fees.
Remuneration consists of a fixed fee which is set to reflect prescribed time commitments and the relative responsibilities of each Non-
executive Director in the affairs of the Group, fees payable in respect of attendance at meetings and fees payable for service on any
68
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
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, given the nature and size of the Group and the need to conserve
cash resources, it has been appropriate that the remuneration of the Non-executive Directors be aligned with the success and growth
of the Group. The Board notes also that it is normal practice for natural resources companies listed on the Toronto Stock Exchange to
provide Non-executive Directors with share options as part of their remuneration. However, the 2011 Share Option Plan operated by
the Company has reached the end of its term and no new options will be issued under it. It has been replaced by the 2020 Plan and the
Non-executive Directors do not qualify to be participants in the 2020 Plan. Accordingly, no new equity-based incentives are available
to be awarded to the Non-executive Directors.
Share price performance
One year share price graph compared with AIM Basic Resources and AIM all Share indices
69
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
One year share price graph compared with AIM peer group
One year share price graph compared with Brazilian peer group
70
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
Three year share price graph compared with AIM Basic Resources and AIM All Share indices
Three year share price graph compared with AIM peer group
71
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
Three year share price graph compared with Brazilian peer group
72
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
Directors and their interests
Remuneration
Year to 31 December 2021
Director
Michael Hodgson
Clive Line
Aquiles Alegria
Luis Azevedo(1)
Nicolas Bañados
T Sean Harvey
Eduardo Rosselot
Mark Sawyer
Total
Salary
US$
273,673
235,251
–
–
–
–
–
–
508,294
Fees as
Director
US$
–
–
28,928
28,928
43,192
36,855
28,534
36,852
203,289
Other
fees
US$
–
–
–
–
–
–
60,000
–
60,000
Bonus
US$
–
–
–
–
–
–
–
–
–
Pension
US$
11,004
–
–
–
–
–
–
–
11,004
IFRS 2
charge
for
options
granted
US$
66,663
46,947
13,616
12,201
13,616
13,616
13,616
13,616
193,891
For the year to
31 December
2021
Total
US$
357,421
287,265
42,544
41,129
56,808
50,471
102,150
50,468
988,256
Other
US$
6,081
5,067
–
–
–
–
–
–
11,148
(1) Mr Azevedo is the owner of FFA Legal which provides legal services to the Group and its Brazilian subsidiaries. During 2021 charges issued by FFA
Legal totalled BrR$3.78 million (US$0.7 million at the average exchange rate for the 2021 calendar year of Brr$5.39 to US$1.00).
Year to 31 December 2020
Director
Michael Hodgson
Clive Line
Aquiles Alegria
Luis Azevedo(1)
Nicolas Bañados
T Sean Harvey
Eduardo Rosselot
Mark Sawyer
Felipe Swett (1)
Melvyn Williams (2)
Total
Salary
US$
236,556
211,602
–
–
–
–
–
–
–
–
448,158
Fees as
Director
US$
–
–
26,410
18,213
34,384
33,309
26,410
29,147
9,977
17,540
195,390
Other
fees
US$
–
–
–
–
–
–
60,000
–
–
–
60,000
Bonus
US$
–
–
–
–
–
–
–
–
–
–
–
Pension
US$
10,258
–
–
–
–
–
–
–
–
–
10,258
IFRS 2
charge
for
options
granted
US$
76,511
54,681
16,426
10,808
16,426
16,829
16,426
22,109
5,618
17,087
252,921
For the year to
31 December
2020
Total
US$
329,450
271,387
42,836
29,021
50,810
50,138
102,835
51,256
15,595
34,627
977,956
Other
US$
6,125
5,104
–
–
–
–
–
–
–
–
11,229
(1) Mr Swett stood down from the Board on 27 April 2020 and on the same day Mr Azevedo was appointed to the Board.
(2) Mr Williams stood down from the Board on 16 June 2020.
73
Corporate Governance
Remuneration Committee Report
For the year ended 31 December 2021
Ordinary shares and options
The Directors of the Company, who held office during the year and as of 31 December 2021, had the following interests in the ordinary
shares of the Company according to the register of Directors’ interests:
Shares held
at 31
December
2021
Shares held
at 31
December
2020
Michael Hodgson
70,066
22,066
Conditional
Share
Awards
held at 31
December
2021
355,500
Clive Line
73,332
38,332
266,600
Aquiles Alegria
5,000
5,000
Luis Azevedo
–
–
Nicolas Bañados(1)
1,122,197
1,122,197
T Sean Harvey
60,000
60,000
Eduardo Rosselot
Mark Sawyer(2)
–
–
–
–
–
–
–
–
–
–
Conditional
Share
Awards
held at 31
December
2020
Share
options
held
at 31
December
2021
Share
options
held
at 31
December
2020
Option
price
UK£8.20
UK£0.75
UK£0.85
Option exercise period
28 Jan 11 to 27 Jan 21
2 July 18 to 1 July 21
27 May 20 to 26 May 23
UK£8.20
UK£0.75
UK£0.85
28 Jan 11 to 27 Jan 21
2 July 18 to 1 July 21
27 May 20 to 26 May 23
30,000
400,000
500,000
30,000
300,000
350,000
100,000
100,000
UK£0.75
UK£0.85
2 July 18 to 1 July 21
27 May 20 to 26 May 23
–
–
500,000
–
–
350,000
100,000
–
100,000
100,000
UK£0.85
27 May 20 to 26 May 23
100,000
–
–
100,000
–
100,000
–
100,000
100,000
100,000
UK£0.75
UK£0.85
2 July 18 to 1 July 21
27 May 20 to 26 May 23
100,000
100,000
UK£0.75
UK£0.85
2 July 18 to 1 July 21
27 May 20 to 26 May 23
100,000
100,000
UK£0.75
UK£0.85
2 July 18 to 1 July 21
27 May 20 to 26 May 23
100,000
100,000
UK£0.75
UK£0.85
2 July 18 to 1 July 21
27 May 20 to 26 May 23
–
–
–
–
–
–
–
–
(1) 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 Inversionnes Villarrica Limitada, a private
financial investment fund, which is interested in 1,107,000 ordinary shares.
(2) Mr Sawyer is a partner of Greenstone Resources II LP which as at 31 December 2021 was interested in 19,083,394 ordinary shares.
During the year ended 31 December 2021 the Company’s shares have traded between 46.5 pence and 114.5 pence.
74
Corporate Governance
Audit Committee Report
For the year ended 31 December 2021
I am pleased to present this report on the activities of the Audit Committee (“the Committee”) for the year ended 31 December 2021.
This report is prepared in accordance with the Quoted Companies Alliance (“QCA”) corporate governance code for small and mid-
sized quoted companies, revised in April 2018. A summary of the Committee’s role and membership can be found in the Governance
section of this Annual Report. Committee meetings are held at least four times a year, and the Finance Director is invited to attend
together with the external auditor. During the period, four meetings of the Committee were held, and the following significant issues
were considered during the course of the year.
Significant issue
Summary of significant issue
Actions and conclusion
Going concern
the Group’s ability
Assessment of
to
continue as a going concern as part of the
preparation of the financial statements. This
includes considering whether the Group has
adequate resources to continue in operation
for the foreseeable future from the date of
anticipated
financial
statements.
signing of
the
The assessment of going concern covers a
period of at least 12 months from the date of
signing the financial statements.
The Group advised that as a result of certain
operational issues encountered at its Sao Chico
deposit that its production guidance to be
generated from the Palito Complex for the 2022
calendar
to
approximately 30,000 ounces compared with the
previous guidance of 36,000 to 38,000 ounces.
year would
reduced
be
therefore
The reduced level of production will impact on
level of
the revenues and
operational cash flow that the Group can
generate in 2022 which it can use to fund its
ongoing
expenditure programmes
including the on-gong development of Coringa.
capital
the
Management have prepared and the Board has
considered an operational plan and cash flow
forecast based on their best judgement of the
operational performance of the Group for the
next 18 months using economic assumptions that
the Directors consider are reasonable in the
current global economic climate. This plan
assumes, interalia, that during the rest of 2022
and for 2023, the Group will be successful in
mining higher levels of gold from its Palito
orebody than it originally planned for, and will
continue to generate a limited level of gold
production from São Chico, albeit at lower levels
than 2021 and previously planned for 2022, due
to the issues encountered at the Julia Vein. In
addition, the Group will, as a temporary
measure, transport Coringa ore for processing at
the Palito Complex. To manage
costs,
discretionary expenditures will be minimised
including further regional exploration drilling
which has now been suspended.
In May 2022 the Group secured a unsecured loan
for US$5.1 million from a Brazilian bank which is
repayable in May 2023.
The Group plans to continue the development for
Coringa but this will be restricted to a level that
can be supported by available financial resources.
In order to fund the longer term continued
75
Corporate Governance
Audit Committee Report
For the year ended 31 December 2021
Significant issue
Summary of significant issue
Actions and conclusion
development of Coringa
including a gold
processing facility, and repay the Group’s debt,
which comprises a 12 month, US$5 million bank
loan maturing in May 2023, the Group intends to
obtain additional funding. This funding may be
generated from a variety of sources which could
include a combination of bank debt, royalty,
streaming of gold and copper revenues, new
equity capital and cash flow from the current
operations.
The Directors and management are confident of
their ability to raise additional finance as and
when required and that the Group’s operations
will perform at the levels that they now anticipate
over the next 18 month period.
The Directors therefore considered the going
concern assessment to be appropriate.
Schemes exist and have been used in the past that
allow companies to sell their ICMS credits to
other companies but use of these schemes is
always subject to the approval of the STA. Legal
advice has also highlighted the opportunity to
use the credits as part payment for certain goods
and capital equipment.
Management has assessed the future expenditure
plans of the Group over the coming years and
made an assessment of the potential recovery of
these debts over a reasonably foreseeable period
through the use of these arrangements.
The timing of these receipts has then been fair
valued using appropriate discount rates and any
shortfall in the estimated recoverable amount has
been provided for in full.
The Directors consider, based on the best
information available, that adequate provision
has been made at the end of the calendar year for
those taxes that may not be recoverable in the
reasonably foreseeable future.
Recoverability of State
taxes
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 (“STA”) and the
expected future operational expenditures
over the next 12 months, that certain State
taxes that it is able to recover and are owed
at 31 December 2021 are not expected to be
recovered in full 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.
Revenue estimation
and adjustments
Revenue is initially recognised based on
estimations based on laboratory analysis of
metal content at the time of sale and these
estimations are subject to change when the
final levels of metal content are agreed based
on further laboratory assessments conducted
by both the buyer and the seller. Revenue is
The Group maintains its own site laboratory
which processes a large number of mineral
samples on a daily basis, including samples
extracted for mining activities and exploration,
and uses industry standard analytical processes,
equipment and quality assurance/quality control
procedures including the use of control samples
76
Corporate Governance
Audit Committee Report
For the year ended 31 December 2021
Significant issue
Summary of significant issue
Actions and conclusion
therefore subject to amendment at a future
date.
and verification with third party accredited
laboratories.
In the case of gold bullion any adjustments
are currently agreed within a few days of the
initial sale and usually within the month of
sale. In the case of sales of copper/gold
concentrate the final adjustments may not be
known for up to six months from the initial
laboratory assessment and four to five
months
initial
recognition of the sale. Historically these
adjustments have not been material and the
revenue adjustment is recognised in the
month in which it is identified.
the date of
from
the
During the second half of 2020, material
variances were identified between assays of
copper/gold concentrate reported by the
Company’s own on-site
laboratory and
samples taken and analysed by the refinery.
These variations in metal content result in
adjustments
initially
the
recognised at the date of sale, in subsequent
periods with a delay of up to six months
before the final sales value is confirmed.
revenue
to
Resource estimations
The Group uses estimates of mineral
resources for determining amortisation rates,
life of mine forecasts and the timing of mine
closure provisions. The accuracy of the
estimates and the judgement of the level of
resources to be included in each of these
calculations affects the level of amortisation
in a period, the potential for impairment and
the fair value of any closure provisions.
77
in
Management implemented additional control
measures
the assaying of copper/gold
concentrate to identify potential errors prior to
the material arriving at the refinery to minimise a
reoccurrence and help identify the reasons for
such variances. This has included sending
duplicate samples of material collected prior to
shipment to an independent laboratory in Brazil
for comparison. During 2021 following the
identification of the initial errors and with a re-
enforcement of normal operational protocols, the
level of variance has reduced to more normal
levels that are no longer considered material.
At the beginning of 2022, the Group has also
entered into a new contract for the sale of
concentrate and as part of the negotiation
included arrangements for improved sampling
procedures to minimise the future risk of sample
bias.
One sale made during 2021 has, at the date of
finalising these financial statements, not been
finalised with the customer and the final value of
this sales remains subject to adjustment.
regular
prepares
Management
internal
assessments of mineral resources and reserves
following accepted
standards
including the procedures set out in Canadian NI
43-101.
international
The Board considers management plans for
extracting these resources in the future and the
Group’s record of resource replenishment and
resource conversion.
that
geological
In light of the issues encountered at the Sao Chico
deposit, the Board sought an
independent
confirmed management’s
opinion which
assessment
setting
the
encountered at the Julia Vein was isolated to that
area of the Sao Chico deposit and that the overall
mineral resource for the rest of the deposit was
not materially affected (less than 10%). As noted
under Going Concern, the Board also requested
management to prepare revised operational
plans and cash forecasts to assist with planning
for the remainder of 2022 and for 2023.
Corporate Governance
Audit Committee Report
For the year ended 31 December 2021
Significant issue
Summary of significant issue
Actions and conclusion
Unaccounted-for
withdrawals of cash
the Group’s auditors
During the course of audit work conducted
for the financial year ended 31 December
identified
2020,
withdrawals
BrR$450,000
totalling
(US$80,000) made in cash from the Group’s
bank account in Brazil for which there was
no supporting documentation. Whilst these
amounts were not considered material,
management
in Brazil were unable to
provide adequate explanation for the use of
these funds.
no
unsupported
There were
cash
withdrawals noted as having occurred
during 2021 although the investigation noted
a transaction with a value of US$29,000 that
was improperly documented.
During 2021 an investigation into certain
unsubstantiated cash withdrawals and
irregularities relating to the payment of
travel advances and expense claims covering
the period January 2015 to March 2021,was
commissioned by the Board and by the Audit
Committee and was completed. The value of
the irregularities relating to the payment of
travel advances and expense claims incurred
during 2021 was US$116,000 with further
transaction totalling US$29,000 identified as
being improperly documented.
Travel and expense
advances and
reimbursement of
expenses
The enquiries completed by FFA and
Deloitte identified irregularities relating to
the payment of travel advances and expense
claims incurred during 2021 of US$116,000.
In total the enquiries identified that a total of
US$75,000 and US$435,000 of expense
advances and travel advances respectively
had been awarded between 1 January 2015
and 31 March 2021 to certain Brazilian based
staff and have been expensed through the
Group’s income statement in each of the
relevant years. However, further analysis
indicates that no claims for reimbursement of
expenses were ever submitted for these
78
The Directors consider that the mineral resource
estimates used by management are reasonable.
The Audit Committee and Board initiated an
internal enquiry initially involving the Group’s
legal advisers in Brazil (“FFA”) and then engaged
the services of Deloitte in Brazil to undertake a
full forensic review. The Audit Committee
established that the cash position reported by the
Group was not affected by this matter.
The enquiries completed by FFA and Deloitte
during 2021 established that approximately
US$349,000 in cash payments had been made by
the Group through its subsidiary SMSA during
the period 1 January 2015 to 31 December 2020.
Whilst the Group has recorded invoices in respect
of US$136,000 of these payments it is unclear that
the services set out in these invoices were ever
received. The remaining payments have no
supporting documentation. The enquiries did
improper
not
payments occurring within the scope of licensing
and/or payments to obtain benefits in connection
with public agencies. Whilst the Board cannot
conclude definitively on the nature of the
payments made there continues to be no evidence
or allegations suggesting that these funds were
used for improper purposes to the benefit of the
Company.
identify direct evidence of
Management have made certain changes to the
Group’s control procedures for the processing of
bank payments and has engaged Deloitte to
establish an internal audit function reporting
directly to the Audit Committee to improve the
overall internal control environment.
Management has made certain changes to the
Group’s control procedures for the processing of
advances to staff and the reimbursement of out-
of-pocket expenses and has engaged Deloitte to
establish an internal audit function reporting
directly to the Audit Committee to improve the
overall internal control environment.
Whilst the Board cannot conclude definitively on
the nature of the payments made there continues
to be no evidence or allegations suggesting that
these funds were used for improper purposes to
the benefit of the Company.
Corporate Governance
Audit Committee Report
For the year ended 31 December 2021
Significant issue
Summary of significant issue
Actions and conclusion
Future mine
development capital
Impairment of mining
properties
advances, and it would appear therefore
that, in the absence of documented expense
claims, these advances which over the period
from January 2015 to March 2021 totalled
approximately US$510,000 remain due to be
repaid to SMSA.
In addition, the enquiries identified claims
for reimbursement of expenses submitted by
certain members of staff in Brazil that lacked
appropriate and adequate
supporting
documentation or were not necessarily of a
nature that appeared business related. The
total value of such expenses over the period
1 January 2015 to 31 March 2021 was
approximately US$904,000. All these costs
have been expensed through the Group’s
income statement in each of the relevant
years.
Directly linked to the level of mineral
resource used in certain estimates, it is also
necessary to assess the amount and cost of
future mine development that will be
capitalised by the Group in order to mine
those mineral resources.
prepares
Management
indicative mine
development plans considering the location of
the mineral
resources and management’s
estimates of vertical mine development required
to access these mineral resources.
Management estimates the future costs of this
development by reference to equivalent historical
costs.
The Directors have considered the work and
estimates prepared by management and consider
them to be reasonable.
Management is required to assess, at least
annually, whether there is any indication
that the Group’s mining assets may be
impaired. If an indication of impairment
exists, management should estimate the
recoverable amount of the asset through
consideration of the discounted expected
future cash flows.
In the fourth quarter of 2021 and the first
quarter of 2022 the Group identified the
presence of intrusive dykes that intersected
the newly accessed Julia Vein at Sao Chico.
These dykes which had not been
encountered in other areas of the Sao Chico
orebody, have had the effect of reducing the
payability of this part of the Sao Chico
orebody when using non-selective mining
techniques such as the long-hole stoping
The Group has determined that the Palito and
São Chico operations comprise a single cash
generating unit (“CGU’’), being the Palito
Complex.
Management has undertaken an assessment of
the issues relating to the mining of the Julia Vein.
It has concluded at this time that the issues
encountered are limited only to the Julia Vein
which is located west of the remaining mineral
resources that comprise the Sao Chico orebody.
Management consider that the introduction of
selective mining practices will allow the Julia
Vein to be mined in the future allowing better
control and the ability to focus on those areas of
the orebody with high-grade mineralisation.
However, with the immediate effect being to
reduce production from Sao Chico and for the
79
Corporate Governance
Audit Committee Report
For the year ended 31 December 2021
Significant issue
Summary of significant issue
Actions and conclusion
methodology.
This had the effect of
reducing the tonnage of ore that could be
mined compared with the Group’s internal
plans, whilst the narrower widths of the ore
body resulted in higher than expected levels
of dilution. Management has made the
decision to reduce mining activity in the area
of the Julia Vein whilst it re-plans and
develops this area of the Sao Chico ore-body
for a more selective mining method that it
expects will reduce the levels of dilution and
increase the payability of the orebody.
Palito Complex overall
it was considered
necessary to undertake a detailed impairment
review. Management prepared a discounted cash
included a number of
flow model which
estimates and
future
including
commodity prices, production rates, future
capital expenditure, reserves and resources,
discount rates and foreign exchange rates.
judgments
With this exception management has otherwise
carried out a review of impairment indicators and
concluded there were no other indicators of
impairment in line with the provisions of IAS 36.
The forecasts prepared by management of net
present value are in excess of the carrying value
of the CGU.
On the basis of results presented by management
the Directors have concluded that the carrying
value of the mining properties will be recovered.
Carrying value of
exploration costs
Management is required to assess, at least
annually, whether there is any indication
that the Group’s exploration assets may be
impaired.
Management has reported that it considers no
facts or circumstances exist at or subsequent to
the year-end requiring it to perform a full
impairment review under IAS 36.
on
review work presented
by
Based
management,
agree with
the Directors
management’s conclusion that there are no
indicators of impairment.
Management is required to assess whether
there are any indicators that an asset may be
impaired in accordance with IFRS 6 at the
end of each reporting period. If any such
indicators are identified a full impairment
test in line with the requirements of IAS 36 is
necessary.
In December 2021 a court judge in Brazil
announced that future licences required for
the Group’s Coringa project could only be
issued once adequate evidence had been
presented regarding the impact (if any) on
the neighbouring indigenous populations.
This decision overturned two previous
decisions rendered by the Brazilian which
concluded that the Group was not required
to produce such a study was not formally a
licencing requirement under prevailing
Brazilian law. The Group, the ANM and
SEMAS have each made formal submissions
to the court disputing the grounds for the
decision. However, the Group had since
September 2021 been in discussion with
SEMAS and FUNAI over the merits of
producing an indigenous study to avoid
future objections. This study has been
80
Corporate Governance
Audit Committee Report
For the year ended 31 December 2021
Significant issue
Summary of significant issue
Actions and conclusion
commissioned and expected to be completed
before the end of the second quarter of 2022.
Based on the results of previous studies
completed the results are not expected to
identify any material impacts.
The Chairman of the Committee submits a report on each Committee meeting to the other Directors at the next Board meeting.
Fees of the external auditor
There was no significant non-audit work carried out by BDO. Full details of fees paid during the period may be found in note 3b to the
consolidated financial statements.
Objectivity and independence
The Committee continues to monitor the auditor’s objectivity and independence and is satisfied that BDO and the Company have
appropriate policies and procedures in place to ensure that these requirements are not compromised.
Re-appointment of external auditor
The Committee recommends to the Board the re-appointment of BDO as auditor at the forthcoming Annual General Meeting (AGM),
and BDO has expressed its willingness to continue in office.
Internal auditor
The requirement for the appointment of an internal auditor is reviewed annually by the Committee; and the Committee takes into
consideration, among other things, the conclusions and reports of the Group’s external auditor and the complexity of the operations
when considering this decision. Following the completion of the work conducted by Deloitte into unexplained cash transactions and
their additional findings, in the fourth quarter of 2021, the Board appointed Deloitte to establish and initially run an internal audit
department based in Brazil reporting directly to the Audit Committee.
Going concern
The Directors considered it appropriate to continue to adopt the going concern basis of accounting in preparing the financial statements.
The going concern statement is detailed in full in note 1a of the consolidated financial statements.
Conclusion
The Committee is satisfied with the quality, independence and objectivity of the external audit and believes that on the basis of the
audit it can make a proper assessment of the quality of financial and other systems of reporting and control within the Company. In
respect of its own performance, the Committee notes that during the period January 2015 to March 2021 there was a breakdown in
internal controls allowing certain authorised transactions to be undertaken. Whilst in each of the years affected the value of the
transactions is not considered material the overall sums involved in the context of a single financial year are significant. The Committee
has taken action in the implementation of an internal audit function and oversaw the implementation by the finance department of
procedural changes to improve control over all aspects of the financial activities of the Group.
T Sean Harvey
Chairman of the Audit Committee
9 June 2022
81
Corporate Governance
Environmental, Social and Communities Report
For the year ended 31 December 2021
Serabi is committed to delivering value for all stakeholders through building a long-term, sustainable mining business. Through a
series of programmes and initiatives, the Company seeks to minimise any environmental impacts whilst maximising the social benefits
for the local communities and broader region. Serabi seeks to meet and exceed all operating standard requirements within Brazil and
has the objective of achieving international best practice.
The Company enjoys strong local and regional support and has an exemplary track record from an environmental perspective although
continually strives to improve. The following performance metrics demonstrate Serabi’s ongoing commitment to sustainability and
report the performance during the calendar year 2021.
Senior management and the Board have put in place a reporting regime that tracks a large number of metrics across the areas of
environmental control, and social and community engagements. This data is also used to provide regular reporting to the relevant
Brazilian authorities to ensure constant compliance with all regulatory requirements.
Key environmental highlights
Small footprint from underground mines with no tailings dams - filtration and dry stacking technology
Zero activity within primary forest
Remediation of old artisanal mining areas
On site nursery for cultivation of indigenous plants to support remediation and enhance biodiversity
Low carbon intensity of 0.40 tCO2e/Au oz in 2021 (half industry average) Scope 1&2
91% of materials recycled
Key social and community highlights
Health & safety is a top priority
o >10,000 hours of safety training
o 34% improvement in average annual total recordable injury frequency rate over six years
Local employment
o 79% from State of Para
o 39% from immediate communities
Local procurement
o 42% of purchases from within 100km
o 64% of purchases from State of Para
Community support initiatives
o Clean water & health care – 260 people
o Education support – 500 children
o Roads & infrastructure
Serabi has been operating for 21 years in the State of Pará in the Tapajós region and has close cooperation with the local communities
around its mines, Jardim do Ouro, Moraes d'Almeida, Novo Progresso and Itaituba. The Company’s presence has generated many
jobs and opportunities for local communities, as well as other improvements in living conditions through assistance with infrastructure
educational and health projects. It is a key objective of the Group that its own successes and growth should also result in maximising
the economic benefits for local companies and individuals and for the State of Pará.
All of Serabi's socio-environmental activities are carried out ethically, in accordance with local laws and regulations, and aim to
establish strong relationships with the local communities. Through consultation we try to identify social and environmental issues and
work with local communities to find ways to address these with sustainable and responsible solutions.
Environment
During 2021, technological investment helped ensure continued compliance with changing regulation and increased external scrutiny
of mining operations in general. As an example, improved management of water use and daily quality monitoring ensured that
neighbouring water courses are not affected by the Company's activities, ensuring minimal impact of the surrounding flora and fauna.
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Corporate Governance
Environmental, Social and Communities Report
For the year ended 31 December 2021
Increasingly stringent legislative requirements, intensify the commitment that the Company must make to high environmental
standards to ensure that it remains in compliance with its obligations.
Occupational Health and Safety
Serabi has made a significant investment in personal health and safety at work. The Company has implemented two macro
programmes, the Risk Management Programme (“PGR”) and the Occupational Health and Medical Control Programme (“PCMSO”),
which are supplemented by the Internal Accident Prevention Commission (“CIPA”) and Daily Health, Safety and Environment
(“DSSMA”). These programmes help make employees aware of safety issues and best practices to reduce the risk of accidents.
Throughout the year, we have continued to reinforce awareness of hygiene and personal care following the guidelines and measures
that the Company has established to contain and prevent the spread of COVID-19. To assist in this, we have increased the numbers of
occupational doctors and nurses, and established partnerships with clinics and hospitals to provide care and support for employees
diagnosed with COVID-19 and their families, including contingency arrangements for potential air transportation as well as meeting
the cost of hospital expenses.
Serabi also carries out internal health campaigns such as lectures and dialogues on mental health, breast cancer, prostate cancer,
sexually transmitted diseases and guidance in group sessions with health professionals. The actions are aimed at the promotion,
prevention and treatment of health problems.
Community programmes
In the social sphere, our community and social relations professionals undertake regular meetings with the neighbouring communities
to understand the needs of the local residents of that region, as well as explaining the role that Serabi can play in improving community
life. These meetings with residents' associations and community representatives and the programmes that are generated through this
dialogue, help strengthen ties with the community and reinforce the positive benefits that our operations bring to the region.
Support for local workforce
We are constantly seeking to maximise the opportunities that can be made available to the local workforce and provide assistance with
training and support in a number of fields. We have established an education programme for young people aged 18 to 22 in the State
of Pará in partnership with SENAI (National Service for Industrial Learning) where young people can learn about administrative or
industrial routines and at the end of the one-year training period leave with a recognised professional certification.
We have over the last year seen a small improvement in the numbers of staff recruited from both the neighbouring communities and
with the wider State of Para and will continue to try to improve on these ratios as the Company grows.
83
Corporate Governance
Environmental, Social and Communities Report
For the year ended 31 December 2021
Community health
One of the biggest concerns during 2021 was the health of our neighbouring communities and employees, so through a partnership
with the local city hall and SUS (Brazilian Health System), Serabi assisted with the roll out of the successful COVID-19 and influenza
(H1N1) vaccine programmes.
As a result hundreds of employees
from the Palito, São Chico and
Coringa mines and residents of the
communities
the
immunising vaccines.
received
Serabi, through its own medical
staff, supports communities such as
São Chico and Jardin do Ouro with
medical and emergency care and for more serious cases the Company provides an
ambulance to take patients to hospitals.
Local supplier support
Serabi seeks to foster business relationships with local suppliers and thus help create
wealth in local communities. During 2021, 44 per cent of its supply of goods and
services was sourced from within municipality of Itaituba, with over 56 per cent
coming from within the broader State of Pará.
We have also established an ethic with our suppliers, incentivising them to hire
employees from the region and we currently have 107 people hired from the region
through our suppliers.
Community safety
Maintaining its commitment to contribute to the safety of the community, in 2021 Serabi contributed to the setting up of a police station
in the community around the Coringa project located at KM 1000, with donations of furniture for the police station.
Indigenous population
Interaction with indigenous communities is strictly controlled by legislation, but Serabi worked with government agencies to bring
about improvements in the levels and quality of water supply to the Kayapó community, work that was carried out through interviews
with the community and site visits. The Company will continue to evaluate ways to bring positive benefits to indigenous communities
while respecting their desires to maintain traditional values and culture.
Support in sport and children's schools
Serabi believes in sport and the benefits it brings to the body and mind. Therefore, we sponsored two soccer teams, the team for the
Company's employees' and the Jardim do Ouro community soccer team.
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Corporate Governance
Environmental, Social and Communities Report
For the year ended 31 December 2021
On Children's Day, Serabi provides gifts and educational games to the children, in support of an initiative between Serabi, local
businesses and parents who live in the Moraes Almeida community. In addition, toys were donated to the toy library of the ABC Child
Education Center, which serves children aged three to five years old, who live in the locality. At the end of 2021, Serabi participated
in the end-of-year celebration and pre-school graduation of the children of Jardim do Ouro School, near the Palito mine. The Company
sought to provide unique moments and create memories for the children of the Jardim do Ouro community.
85
Corporate Social Responsibility
Modern Slavery and Human Trafficking Statement
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 ounce 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 during 2023. The Company directly employs approximately 640 personnel 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% 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 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 Whistle-blowing – 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.
86
Corporate Social Responsibility
Modern Slavery and Human Trafficking Statement
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 negate 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 are 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 2021.
87
Corporate Governance
Report on Corporate Governance
For the year ended 31 December 2021
Board of Directors and operation of the Board
The Board of Directors is responsible for the management of the Group on behalf of its shareholders. The objective of the Group is to
create long-term value for shareholders, and the Board is responsible for delivering that objective by governing the Company and its
subsidiaries. The Board is responsible for approving the Group strategy and policies, for safeguarding the assets of the Group, and is
the ultimate decision-making body of the Group in all matters except those that are reserved for specific shareholder approval. Matters
that are specifically reserved for the Board’s decision include business acquisitions or disposals, authorisation of major capital
expenditure and material contractual arrangements, changes to the Group’s capital structure, setting policies for the conduct of
business, approval of budgets, remuneration policy of Directors and senior management, and taking on debt and approval of financial
statements. Other matters are delegated to the committees of the Board and Executive Directors, supported by policies for reporting to
the Board.
The Board consists of two Executive Directors who hold the key operational positions in the Group and six Non-executive Directors
(including a Non-executive Chairman), who bring a breadth of experience and knowledge.
The Board, as a matter of practice, meets at least every one to two 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 2021, the Board met eleven 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 Board has established an Audit 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 discharged by the Remuneration Committee currently or, if the circumstances so dictate, the Board as a
whole.
The responsibilities of Nicolas Banãdos 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.
The Board is currently comprised of the Chief Executive, Mr Mike Hodgson, the Financial Director, Mr Clive Line and six Non-
executive Directors. Of the Non-executive Directors, Mr Sean Harvey, Mr Luis Azevedo and Mr Aquiles Alegria are considered to be
independent, whilst Mr Nicolas Bañados, Mr Eduardo Rosselot and Mr 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 61 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 Report. Copies are available on the Company’s website at
www.serabigold.com.
Additionally, the Board has appointed an Executive Committee to oversee and coordinate the day-to-day running of the Group. It is
empowered to make decisions over a number of areas without reference to the full Board and specifically to deal with all matters
relating to the daily operation of the Group.
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Corporate Governance
Report on Corporate Governance
For the year ended 31 December 2021
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 commit as much of their 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 9 April 2020 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.
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.
Corporate Governance Code
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.
The QCA Code sets out 10 principles of corporate governance that the Company should adopt. Details of how the Company applies
each of the principles can be located at http://www.serabigold.com/corporate/corporate-governance).
Dialogue with shareholders
The Board is committed to providing shareholders with clear and timely information on Serabi’s activities, strategy and financial
position. General communication with shareholders is coordinated by the Chief Executive Officer and the Chief Financial Officer
together with the Business Development Manager.
The Company publishes on its website a range of information which helps current and potential shareholders to make an assessment
of the Group’s position and prospects:
•
•
•
•
•
•
•
Investor presentations
Independent technical reports on the operations and projects
Estimations of the Company’s Mineral Resources
Annual and quarterly financial statements
Quarterly operations reviews
Business strategy
Governance and policy materials
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Corporate Governance
Report on Corporate Governance
For the year ended 31 December 2021
•
•
•
All regulatory and other announcements relating to equity issues, Board changes, etc.
Shareholder information
Contact details for the Company
Institutional investors
The Board maintains a regular dialogue with the Company’s major institutional investors, providing them with such information
on the Company’s progress as commercial confidentiality, market abuse rules and other legal requirements permit.
Private investors
The Company acknowledges that the majority of its private investors hold their shares via nominee shareholders and may not be
able to fully exploit their shareholder rights effectively. The Company attends selected industry events at which management are
available to engage with private investors and provides published interviews with media outlets to coincide with key news flow
and events.
The Company’s Executive Directors are generally available to receive shareholder enquiries and shareholders may also contact the
Company’s brokers and investor relations advisers who are also available to facilitate engagement with its private investors.
Board review
The Board is kept informed of the views and concerns of major shareholders by briefings from the CEO and the CFO and the
Company’s brokers. Analyses of the share register are also periodically circulated to the Board, together with significant investment
reports from analysts.
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. Details of the Board’s assessment of the Principal Operational Risks and Uncertainties are set
out on pages 44 to 51 in this Annual Report.
The Board engaged the services of Deloitte Touche Tohmatsu Consultores Ltda in Brazil (“Deloitte”), in the fourth quarter of 2021, to
establish an internal audit function to mitigate the potential risk of inaccurate financial reporting, financial irregularities or fraud. The
Executive Directors have established appropriate reporting and control mechanisms to ensure the effectiveness of the Company’s
control systems.
Attendance at Board and committee meetings
During 2021, the Board held eleven Board meetings. Attendance by each of the Directors at these meetings and meetings of its
committees are as set out in the table below. There is no fixed time commitment imposed on each of the Non-executive Directors,
however, it is expected that each individual will and is in a position to commit to whatever time requirement is necessary at any time
during the year as well as throughout the year.
Director
Nicolas Bañados
Michael Hodgson
Clive Line
Aquiles Alegria
Luis Azevedo
Sean Harvey
Eduardo Rosselot
Mark Sawyer
Board meetings
(Attended / Held)
Audit Committee
meetings
(Attended/Held)
Remuneration Committee
meetings
(Attended/Held)
11/11
11/11
11/11
11/11
11/11
10/11
10/11
11/11
7/7
–
–
–
–
7/7
–
7/7
90
3/3
–
–
–
–
3/3
–
3/3
Corporate Governance
Report on Corporate Governance
For the year ended 31 December 2021
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. Biographies
of each of the Directors are set out on pages 61 and 62.
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, safe and responsible
manner. The Board considers that its members represent a diversity of culture and experience and is 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. 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 has not adopted a target regarding the number of women on the Board of Directors.
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
chairman of the Audit Committee whereby that Committee's effectiveness can be considered.
Over a period between November 2021 and February 2022, an independent evaluation was undertaken by Board Excellence , an
international board practice. The core objectives were to complete an assessment of the Board’s effectiveness, performance and
compliance with
The QCA Corporate Governance Code
TSX Governance requirements
Relevant aspects of the UK Corporate Governance Code (2018)
UK Financial Reporting Council Guidance on Board effectiveness (July 2018)
Internationally recognised board best practices
Board Excellence’s own experience and board best practices
The report highlighted the need to improve the current system of corporate governance. The recommendation of Board Excellence
was that this should be undertaken under the guidance and leadership of an independent chairperson. The Board has acknowledged
this and other recommendations made by Board Excellence and has initiated a process for the identification of suitable candidate to be
appointed to the role of chairperson. Other areas that the review highlighted for action included
increased levels of independence and diversity
a reduction in the size of the Board whilst prioritising gender diversity
for the Audit Committee to assume a greater role in Group’s risk management framework including Cyber risks
that on at least an annual basis the Board review and agree its strategy and establishes a set of key financial and non-
financial KPIs to monitor performance against that strategy on a monthly basis.
that an annual cycle be established for consideration by the Board of key matters such as risk management, strategy,
budget approval and succession planning.
outsourcing of the Company Secretarial function
developing templates for the preparation of Board papers
development of an appropriate succession plan for the senior executives
Corporate culture
The Board through its actions and direction has sought to establish a corporate culture that places emphasis on the Group’s and the
Board’s cultural priorities:
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Corporate Governance
Report on Corporate Governance
For the year ended 31 December 2021
Social responsibility – working closely with communities to ensure that the Group’s operations bring enhancements to the
lives of those that might be most affected by the Group’s presence in the area;
Transparency – the Group should be open in its dealings with all stakeholders, clear in its objectives and aims and cognisant
and sympathetic to the needs and requirements of stakeholders;
Health and Safety – whilst recognising the inherent risks that are present in the industry, actively encouraging a working
environment and work practices within the Group’s operations, that strive to minimise and eliminate risk to personnel
wherever possible;
Risk management – the Board encourages, through its decision making process, that management properly evaluates and
considers the implications of decisions (operational, financial or otherwise) on the long-term future of the business, seeking
to ensure that risk is adequately managed and minimised; and
Sustainability – the Board considers that it has a responsibility to stakeholders to ensure that the business is able to deliver
long-term benefits whether, financial, social or environmental and ensuring that decisions do not have longer-term
implications that would jeopardise the long-term sustainability of the Group.
Board independence
Position
Appointed
Status
Audit
Committee
Remuneration
Committee
Nicolas Bañados
Non-executive Chairman
13 May 2013
Not independent (1)
Member
Member
Aquiles Alegria
Non-executive Director
7 July 2014
Luis Azevedo
Non-executive Director
20 April 2020
Sean Harvey
Non-executive Director
30 March 2011
Michael Hodgson
Chief Executive
Clive Line
Financial Director
1 February 2007
14 March 2005
Independent
Independent
Independent
Executive
Executive
Eduardo Rosselot
Non-executive Director
20 October 2012
Not independent (2)
–
–
–
–
Chair
Member
–
–
–
–
–
–
Mark Sawyer
Non-executive Director
23 March 2018
Not independent (3)
Member
Chair
(1) Mr Bañados is appointed as a representative of Fratelli Investments and until recently held the position of Managing Director of
Private Equity and Venture Capital at Megeve Investments and Fratelli 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.
(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.
92
Directors’ Report
For the year ended 31 December 2021
The Directors present their report together with the audited financial statements for the year ended 31 December 2021.
Results and dividends
The Group profit for the year after taxation amounts to US$9,949,964 (2020: profit of US$7.031,025). The Directors do not
recommend the payment of a dividend.
The results for the year are set out on page 102 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 11), it is involved in the development of gold and
other metals mining projects in Brazil and the operation of the Palito gold mine in the Tapajos region of Brazil.
A detailed review of activities, future developments and the Group’s projects is included in the Chairman’s Statement, the
Strategic Review and the Management Discussion and Analysis – Operational Review and Financial Review.
Substantial shareholdings
As at 8 June 2022 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 Asset Management
Premier Miton Group PLC
Share capital
Number of
shares held
19,318,785
19,083,394
5,930,300
4,207,784
Per centage
25.5%
25.2%
7.8%
5.6%
Details of the share capital and movements in share capital during the period are disclosed in note 21 to the financial statements.
During the period the Group did not make any share option awards under the Serabi Mining 2011 Share Option Plan to Directors
and other employees.
During the period the Group made the following issues of Conditional Share Awards under the 2020 Serabi Gold Restricted Share
Plan.
Date of Issue
7 December 2021
7 December 2021
Company’s listings
Performance
period
1 January 2020 to
31 December 2022
1 January 2021 to
31 December 2023
Number issued
Vesting date
404,700
6 December 2023
459,800
6 December 2024
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
At 31 December 2021, the Group held cash of US$12.2 million and has subsequently reported that at 31 March it held cash of
US$6.9 million with a further receipt of US$1.6 million for a sale of copper/gold concentrate due to be received in early April
having been delayed from March following late changes in sailing schedules. The reduction in cash reflects the continued
development expenditure of Coringa during the quarter, and the reduced level of sales revenue generated in the period as a result
of lower production.
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Directors’ Report
For the year ended 31 December 2021
The Group has advised that in light of the issues encountered in the mining of the Julia Vein at São Chico, it has reduced its
production guidance for the remainder of 2022 whilst it reconfigures the Julia Vein for selective mining and undertakes further
evaluation and development of other sectors of the São Chico deposit. This will reduce revenue for the rest of 2022 and will
therefore impact on the ability of the Group to generate positive cash flow for the rest of 2022. Management have already taken
actions to reduce some of the operational costs and is evaluating further options to generate additional gold production to improve
cash generation. This includes the transportation and processing of high grade ore recovered from the current mine development
being undertaken at Coringa. The first trucks began transporting ore during May 2022. In addition, in the short term, the Group
has negotiated a US$5 million unsecured loan with a Brazilian bank for an initial 12 month period to ease any immediate working
capital pressure. These funds were received during May 2022.
The Directors have prepared an operational plan and cash flow forecast based on their best judgement of the operational
performance of the Group for the next 18 months using economic assumptions that the Directors consider are reasonable in the
current global economic climate. This plan assumes, interalia, that during the rest of 2022 and for 2023, the Group will be
successful in mining higher levels of gold from its Palito orebody than it originally planned for and will continue to generate a
limited level of gold production from São Chico, albeit at lower levels than 2021 and previously planned for 2022, due to the issues
encountered at the Julia vein. In addition, the Group will, as a temporary measure, transport Coringa ore for processing at the
Palito Complex. To manage costs, discretionary expenditures will be minimised including further regional exploration drilling
which has now been suspended.
Although the Group’s operational plan incorporates the processing of some of the ore recovered from the planned development
of the Coringa mine at the Palito complex, the Groups plan is to construct a gold processing plant at Coringa. The estimated cost
of the full-scale development of the Coringa project reported in the Coringa PEA, including necessary mine development, the
erection of a gold processing plant and other site infrastructure was estimated to be approximately US$24.7 million before
sustainable positive cash flow is achieved.
While the Group plans to restrict development activity to a level that can be supported by available financial resources, in order
to fund the longer term continued development of Coringa including a gold processing facility, and repay the Group’s debt, which
comprises a 12 month, US$5 million bank loan maturing in May 2023, the Group intends to obtain additional funding. This
funding may be generated from a variety of sources which could include a combination of bank debt, royalty, streaming of gold
and copper revenues, new equity capital and cash flow from the current operations. The Group has been successful in raising
funding as and when required in the past and the Directors consider that the Group continues to have strong support from its
major shareholders who been supportive of and provided additional funding when required on previous occasions.
As such, whilst the expenditure on the development of Coringa will be incurred over a period of nine to twelve months it is the
intention of management that firm commitments for the majority of this funding must have been secured and there is strong
confidence that the balance of any remaining financing requirement is available prior to commencing the full scale development.
Whilst recognising the uncertainty that has been created by the need to adjust the operational plan during the first half of the year
and the lower levels of gold production that are now forecast as a result, the Directors and management are confident of their
ability to raise additional finance and that the Group’s operations will perform at the levels that they now anticipate over the next
18 month period. However, an inability to raise new finance, unplanned interruptions or further reductions in gold production,
unforeseen reductions of the gold price or appreciation of the Brazilian Real could adversely affect the level of free cash flow
available to the Group.
These material uncertainties may cast significant doubt upon the Group’s ability to continue as a going concern and therefore its
ability to settle its debts and realise its assets in the normal course of business. Notwithstanding these material uncertainties, the
Directors have a reasonable expectation that the Group has adequate resources to continue in existence for the foreseeable future
and have concluded it is appropriate to adopt the going concern basis of accounting in the preparation of the financial statements.
The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
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 accounting standards in
conformity with the requirements of the Companies Act 2006. The Parent Company financial statements have also been prepared
in accordance with those parts of the Companies Act 2006 applicable to companies reporting under International Financial
94
Directors’ Report
For the year ended 31 December 2021
Reporting Standards (“IFRS”). 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 international accounting standards in conformity with the
requirements of the Companies Act 2006. The Parent Company financial statements have also been prepared in accordance
with those parts of the Companies Act 2006 applicable to companies reporting under International Financial Reporting
Standards (“IFRS”), 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.
Engagement with stakeholders
Details of the approach taken by the Directors to engage with its various stakeholders including its suppliers and customers are
outlined in the Strategic Report on pages 52 to 58.
Principal risks and uncertainties
The principal risks and uncertainties are outlined in the Strategic Report on pages 44 to 51.
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 observes the principles of 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. Further details are set out in the Report on Corporate Governance on pages 88 to 92.
Board composition
The Directors who served during the year are shown on pages 61 and 62.
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Directors’ Report
For the year ended 31 December 2021
The Board has a wide range of experience directly relevant to the Group and its activities and its structure ensures that no
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 88 to 92.
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 88 to 92.
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 electronically and displayed at the mine site
and in the corporate offices. Employees are made aware of the Company’s share ownership policy, both to ensure compliance
with listing rules but also to make them aware of the opportunity to participate in the Company’s share performance.
Share dealing
The Company has adopted a share dealing code for Directors and 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.
As described in the Audit Committee Report on page 80, during 2021, an investigation into certain unsubstantiated cash
withdrawals was commissioned by the Board and by the Audit Committee and was completed. The value of the irregularities
relating to the payment of travel advances and expense claims incurred during 2021 was US$116,000 with further transaction
totalling US$29,000 identified as being improperly documented. Over the review period from January 2015 to March 2021 it was
identified that the total of unsupported cash withdrawals was approximately US$340,000 with irregularities relating to the
payment of travel advances and expense claims totalling approximately US$1,414,000. Based on the findings of this report, the
Board has concluded that there was a breakdown in the Group’s internal control in relation to the authorisation of certain banking
transactions and the payment and approval for travel advances and reimbursement of expenses. The Board has implemented a
number of measures to strengthen the Company’s internal control systems including establishing an internal audit function based
in Brazil and reporting directly to the Audit Committee.
Whilst the above matter highlighted a breakdown of internal controls resulting in unauthorised transactions being undertaken,
the Board remains satisfied that all of these transactions were recorded and reported in the financial statements both in the current
and in all prior financial periods. As a result, there has been no requirement for any restatement of prior period financial
statements.
The Board and management, taking account of the size and nature of the Group, base the design of the Group’s internal control
procedures 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). Nonetheless
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
96
Directors’ Report
For the year ended 31 December 2021
entered into at the start of 2022 for a two year period. However, management considers that alternative suppliers and purchasers
could be arranged if necessary and do not therefore consider that the Group is unduly reliant on any single contract or supplier.
The Group is reliant on retaining its exploration and mining licences and its operating licences which are subject to compliance
with various Federal and State regulations and obligations. The Group considers such compliance a high priority in view of this
reliance.
Post balance sheet events
On 19 April 2022, the Company advised that dilution in the Julia Vein which forms part of the Sao Chico deposit and which is
being mined by mechanised long hole open stoping was higher than expected as a consequence of the presence of parallel and
cross cutting faults and intrusive dykes which post-date the ore. This level of faulting appears to be unique to the Julia Vein. The
Company advised that it would introduce selective open stoping, the method used successfully on the Palito orebody, and which
over time is expected to improve grades by minimising dilution through greater selectivity in the mining. 1,000 ounces of
production which had been scheduled from São Chico in February by long hole, would now be mined selectively during the
second quarter and over the rest of the year.
The Company further advised that as a result of the decision to mine selectively on the Julia Vein, the reliance on production
ounces would, in the near term, focus on the Palito orebody, with operations at São Chico focusing more on mine development
with a view to a return to planned production levels later in the year and into 2023. In the short term the Company advised that
it would be focusing on producing profitable ounces and maximising operational cashflow rather than production growth for the
rest of the year. The Company reduced production guidance for 2022 from the previously declared level of 36,000 to 38,000 ounces
to being in the region of 30,000 ounces.
On 17 May 2022, the Company completed a US$5.1 million unsecured loan arrangement with a Brazilian bank. The loan is
repayable as a bullet payment on 12 May 2023 and carries an interest coupon of 6.6 per cent.
Except as set out above, 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)
(b)
There is no relevant available information of which the auditor is unaware; and
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
9 June 2022
97
Independent Auditor’s Report
Independent auditor’s report to the members of Serabi Gold Plc
Opinion on the financial statements
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 2021 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in accordance with UK adopted international accounting
standards;
the Parent Company financial statements have been properly prepared in accordance with UK adopted international
accounting standards 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.
We have audited the financial statements of Serabi Gold Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’) for the
year ended 31 December 2021 which comprise the Group Statement of Comprehensive Income/(Loss), the Group and Company
Balance Sheets, the Group and Company Statements of Changes in Shareholders’ Equity, the Group and Company Cashflow
Statement 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 UK adopted international
accounting standards and, as regards the Parent Company financial statements, as applied in accordance with the provisions of
the Companies Act 2006.
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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We remain 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.
Material uncertainty related to going concern
We draw your attention to note 1a in the financial statements concerning the Group’s ability to continue as a going concern. As
detailed in note 1a, in order to fund the continued development of the Coringa mine, and repay the Group’s US$5 million bank
loan which matures in May 2023, the Group will need to raise additional funding.
As stated in note 1a these events or conditions, along with the other matters set out in note 1a indicate that a material uncertainty
exists that may cast significant doubt on the Group’s ability to continue as a going concern. Our opinion is not modified in respect
of this matter.
Because of the judgements made by the Directors, and the significance of this area, we have determined going concern to be a key
audit matter.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the Director’s assessment of the appropriateness of the going concern basis of preparation of these financial
statements and in response to the key audit matter included:
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Independent Auditor’s Report
We obtained the Directors' Group cash flow forecast to 31 December 2023. We assessed the reasonableness of underlying
assumptions, including forecast levels of expenditure, production and revenue used in preparing these forecasts. To
assess the reasonableness and timings of the cash inflows and outflows, we used our knowledge of the business and
compared the forecasts to the Directors’ approved budgets.
We verified cash balances used in the forecast close to the date of sign off of these financial statements, which included
a $5million loan facility entered into in May 2022 with a 12 month maturity.
We obtained the Directors’ sensitivity analysis which was performed to determine the impact each sensitivity has on
when liquidity breaks which included:
o
o
increases in operating costs, and
reductions in production given the recent operational issues at Sao Chico, and the commencement of processing
Coringa ore at the Palito complex.
We evaluated potential mitigating actions identified by management.
We assessed the appropriateness of the going concern disclosures included in the financial statements against the
requirements of the relevant auditing standards.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections
of this report.
Overview
Coverage3
Key audit matters
100% (2020: 100%) of Group profit before tax
100% (2020: 100%) of Group revenue
100% (2020: 100%) of Group total assets
2021 2020
Fraud investigation
Going concern
Carrying value of the Group’s property, plant, and
equipment
Carrying value of deferred exploration costs (Coringa)
Parent company’s investment in subsidiaries*
x
x
x
x
-
x
-
x
-
x
*Risk not classified as a key audit matter due to the limited judgement and
estimation applied in assessing the recoverability of the investment as of 31
December 2021.
Materiality
Group financial statements as a whole
$0.8m (2020: $0.7m) based on 4% (2020: 4.5%) of earnings before interest, tax,
depreciation and amortisation (EBITDA)
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s system of
internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of
management override of internal controls, including assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
Our Group audit scope focussed on the Group’s principal operating locations and legal structure. As a result of our audit
approach, we achieved coverage of 100% of the Group’s revenue, 100% of the Group’s EBITDA and 100% of total assets.
3 These are areas which have been subject to a full scope audit by the group and the component team.
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Independent Auditor’s Report
The Group has operating entities based in the UK and Brazil. The Parent Company, Serabi Mineraçăo SA - containing the Palito
and São Chico gold mines, Gold Aura do Brasil Mineraçăo Ltda and Chapleau Exploraçăo Mineral Ltda were the entities that
were deemed to be significant components by virtue of size and risk.
For Serabi Mineraçăo SA, Gold Aura do Brasil Mineraçăo Ltda and Chapleau Exploraçăo Mineral Ltda, the BDO network firm in
Brazil completed full scope audits reporting to the Group audit team.
The Parent Company and consolidation were subject to a full scope audit by the Group audit team.
The remaining subsidiaries were deemed non-significant, and the Group auditor principally performed analytical review
procedures on the financial information.
Our involvement with component auditors
For the work performed by component auditors, we determined the level of involvement needed in order to be able to conclude
whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group financial statements as a
whole. Our involvement with component auditors included the following:
Detailed Group reporting instructions were sent to the component auditor, which included the significant areas to be
covered by the audit (including areas that were to be considered to be key audit matters) and set out the information
required to be reported to the Group audit team.
In addition to regular team interactions with the component teams during various stages of the audit, review of key
working papers and participation in the component team’s planning and closing meetings with local management, the
group partner and manager visited BDO Brazil in February 2022 where the key audit issues were discussed.
The Group audit team was actively involved in the direction of the audits performed by the component auditors along
with the consideration of findings and determination of conclusions drawn. We performed additional procedures in
respect of certain of the significant risk areas in addition to the procedures performed by the component auditor.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that 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. The matters set out below are in addition to the Material Uncertainty
related to going concern above which is also a key audit matter. 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.
In addition to the matter described in the material uncertainty section of our report, we identified the following key audit matters:
Key audit matter
Fraud
investigation
As set out in note 1, during 2021 an
independent investigation into certain
unsubstantiated cash withdrawals and
irregularities relating to the payment of travel
advances and expense claims was initiated by
the board.
The investigation covered the period between
January 2015 to March 2021 and identified
irregularities relating to the payment of travel
advances and expense claims. In addition, it
identified payments made to third parties
including persons connected with individuals
who have previously held public office.
100
How the scope of our audit addressed the key
audit matter
In respect of the period to March 2021, which was
subject to an independent investigation, we
engaged internal forensic experts both in Brazil and
the UK to support the audit team in evaluating the
scope and findings of the external forensic
investigation instigated by management. This
included:
Assessing the competence, capabilities,
and objectivity of the external forensic
investigator;
Reviewing the investigator’s engagement
letter and scope;
Challenging the evidence identified to
determine whether procedures
undertaken were sufficient;
Independent Auditor’s Report
For the period January 2015 to March 2022 the
total value of these transactions was $1,846,000.
For the three-month period to March 2021 the
total value of these transactions was £145,000.
Given the magnitude of the deficiency in the
internal controls, we consider this to be a key
audit matter that is fundamental to the users’
understanding.
Reading the external forensic
investigator’s final report and assessing
their findings;
Considering the impact on other areas of
the audit pertaining to management
override of control; and
Evaluating the investigation findings and
the appropriateness of the disclosures
included in the financial statements.
For the remainder of the year, which was not subject
to an external forensic examination, we have:
Confirmed the individuals that committed
the fraud were removed from office.
Examined the Company’s legal case filed
against the employees, the employees’
initial defence and the Company’s
response to this defence to determine any
inconsistencies with the findings of the
previously conducted forensic
examination.
Used our knowledge of the control
environment and the previously
committed frauds to identify transaction
characteristics that indicated they had an
increased risk of being unsubstantiated.
We then used data analytics to identify
transactions that contained these
characteristics and performed tests to
confirm that they were valid transactions
with a business rationale. This included
performing specific tests on payments
made directly from cash, as these
transactions are outside of the normal
purchase to payables cycle.
Obtained a listing of payments to newly
created suppliers, and using risk-based
criteria, we obtained evidence that
payments made to these suppliers were
valid, approved, and related to goods or
services being acquired on behalf of the
Group.
Key observation
We have not identified any additional
unsubstantiated transactions to those
communicated in the previous year. Whilst all the
unsubstantiated transactions have been expensed
in the Group’s Income Statement in the relevant
year, and no direct evidence has been obtained of
improper payments occurring within the scope of
licensing and/or payments to obtain benefits in
connection with public officials, based on the
conclusions of the enquiries, the Directors have not
101
Independent Auditor’s Report
Carrying value of
Group’s
the
Property,
plant
and equipment
As at 31 December 2021 the Group’s Property,
plant and equipment totalled $27.6m (2020:
$26.2m) and details of these assets and the
related critical judgements and estimates are
disclosed in notes 1(d) and 9.
During Q4 2021 and Q1 2022 the Group
identified the presence of intrusive dykes that
intersected the Julia vein at Sao Chico. This led
to the group reducing its production guidance
for 2022 and 2023, and revising the Sao Chico
life of mine model. This represented an
impairment indicator and as result
management undertook an impairment test to
determine the recoverable amount of its mining
properties. The recoverable amount of each
cash generating unit (CGU) is determined in
reference to a discounted cash flow which is
based on estimates of future cash flows.
Given the significant estimates regarding gold
prices, reserves and resources, production
rates, operating costs and capital expenditure
as well as economic variables such as discount
rates, and the material value of the mining
properties we consider the carrying value of
the mining assets to be a significant audit risk
and a key audit matter.
Carrying value of
deferred
exploration costs
(Coringa)
As at 31 December 2021 the Group’s deferred
exploration costs totalled $34.9m (2020: $27.8m)
and details of these assets and the related
critical judgements and estimates are disclosed
in notes 1(e) and 8.
Following a public civil lawsuit filed in
September 2017 by the Federal Prosecutor’s
Office (“MPF”) against Chapleau Exploração
Mineral Ltda (“Chapleau”), the award of the
Installation Licence which is required before
102
been able to definitively conclude on the nature of
the payments made, or the extent to which these
were valid payments for services provided or
expenditures incurred on behalf of the business.
Our procedures in relation to management’s
impairment test included, but were not limited to
the following:
We assessed the appropriateness of
management’s determination of each cash
generating unit (CGU) in line with the
relevant accounting standard.
We obtained management’s discounted
cash flow model and performed data
integrity and arithmetic checks on the
models.
We determined whether the basis of
preparation of the models was in line with
the applicable accounting standard, our
expectations and valuation methodology.
We critically challenged the discounted
cash flow model, focussing on the
appropriateness of estimates, including
commodity price, production, operating
costs, capital costs, discount rates, foreign
exchange rates and reserves and resources
estimates by reference to empirical data
and external evidence.
We challenged managements internal
assessment of reserves and resources
estimates by reviewing the findings of an
independent expert that was employed by
management to assess the reasonableness
of managements internal estimate. Our
procedures included assessing the
independence, competence and scope of
the independent expert.
Key Observation
Based on our procedures we considered the
Directors’ conclusion that there was no impairment
in respect of the Group’s Property, plant and
equipment as at 31 December 2021 to be
reasonable.
Our audit procedures included, but were not
limited to:
We obtained and examined management’s
impairment indicator paper, in line with
requirements of IFRS 6 – Exploration and
evaluation of mineral resources, and
assessed the appropriateness of their
conclusion that no potential indicator of
impairment was present;
Independent Auditor’s Report
construction of the plant and the rest of the site
infrastructure is pending.
Given the importance of the licence in the
continuity of the operations, and therefore,
recoverability of the carrying value of the asset,
and the magnitude of the impact in the
scenario where future licences are not granted,
we consider this to be a significant audit risk
and a key audit matter.
We obtained and reviewed the opinion
provided by external legal advisors, which
supports management’s assessment and
concludes certain proper legal processes
have not been followed by the courts and
confirmed management was taking legal
steps for the judge’s decision to be
reconsidered; and
We considered the independence and
competence of the legal advisors, noting
that the lead partner of the law firm
providing the advice is a non executive
director of the Company.
Key Observation
Based on our procedures we considered the
Directors’ conclusion that there was no impairment
trigger in respect of the Group’s deferred
exploration costs as at 31 December 2021 to be
reasonable.
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole and performance
materiality as follows:
Group financial statements
2020
2021
$m
$m
0.70
0.80
4.5% of EBITDA
4% of EBITDA
Parent company financial statements
2021
$m
0.60*
1.5% of assets capped
to 75% of group
materiality
2020
$m
0.42*
1.5% of assets capped
to 60% of group
materiality
We consider Earnings Before Interest,
Tax, Depreciation and Amortisation
(EBITDA) to be the most significant
determinant of the Group’s financial
performance used by the users of the
financial statements and it approximates
to operating cash generation.
The company holds material investments in
subsidiaries and intercompany debtors. Given
the substance of the company is to invest in
operations in Brazil we determined that assets
was the most appropriate benchmark for the
Parent company, however this was also
capped to a percentage of Group materiality.
0.4
0.5
* This represents the capped amount.
0.3
0.3
Performance materiality was set at 50% (prior year: 75%) of the above materiality levels
given the increased risk arising as a result of the fraud identified in 2021.
Materiality
Basis for
determining
materiality
Rationale for
the benchmark
applied
Performance
materiality
Basis for
determining
performance
materiality
103
Independent Auditor’s Report
Component materiality
We set materiality for each component of the Group based on a percentage of between 9% and 75% (2020: 16% and 60%) of Group
materiality dependent on the size and our assessment of the risk of material misstatement of that component. Component
materiality ranged from $70,000 to $600.000 (2020: $110,000 and $420,000) In the audit of each component, we further applied
performance materiality levels of 50% of the component materiality to our testing to ensure that the risk of errors exceeding
component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of $16,000 (2020:
$14,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.
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. 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 course of 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 this gives rise to a material misstatement in the financial statements themselves. 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.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
Strategic report
and Directors’
report
Matters on
which we are
required to
report by
exception
In our opinion, based on the work undertaken in the course of the audit:
the information given in the Strategic report and the Directors’ report for the financial
year for which the financial statements are prepared is consistent with the financial
statements; and
the Strategic report and the Directors’ report have been prepared in accordance with
applicable legal requirements.
In the light of the knowledge and understanding of the Group and 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.
104
Independent Auditor’s Report
Responsibilities of Directors
As explained more fully in the Directors’ responsibilities, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of
accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including fraud is detailed below:
Holding discussions with management, the audit committee, the component auditor and component management to
understand the laws and regulations relevant to the Group and the Parent Company. These included elements of the
financial reporting framework, tax legislation and environmental regulations;
Holding discussions with management and the audit committee and considering any known or suspected instances of non-
compliance with laws and regulations or fraud; We assessed the susceptibility of the financial statements to material
misstatement, including fraud and considered the fraud risk areas to be management override of controls, revenue
recognition, impairment of property, plant and equipment, and deferred exploration costs, and unauthorised payments.
Performing a detailed review of the Group’s year-end adjusting entries and investigating any that appear unusual as to
nature or amount;
For significant and unusual transactions, investigating the possibility of related parties and the sources of financial
resources supporting the transactions;
Our procedures in the key audit matters section above relating to the fraud investigation, the carrying value of property,
plant and equipment, and the carrying value of deferred exploration costs.
Assessing the judgements made by management when making key accounting estimates and judgements, and challenging
management on the appropriateness of these judgements;
Extending inquiries to individuals outside of management and the accounting department to corroborate management’s
ability and intent to carry out plans that are relevant to developing estimates; and
Reviewing minutes from board meetings of those charges with governance to identify any instances of non-compliance
with laws and regulations.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements, recognising that the
risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud
may involve deliberate concealment by, for example, forgery, misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further removed non-compliance with laws and regulations is from the
events and transactions reflected in the financial statements, the less likely we are to become aware of it.
further description of our responsibilities
A
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
is available on
the Financial Reporting Council’s website at:
105
Independent 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.
Peter Acloque (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London United Kingdom
9 June 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
106
Group Statement of Comprehensive Income/(Loss)
For the year ended 31 December 2021
Revenue
Cost of sales
Provision for impairment of State taxes receivable
Depreciation and amortisation charges
Total cost of sales
Gross profit
Administration expenses
Share-based payments
(Loss)/gain on disposal of fixed assets
Operating profit
Foreign exchange (loss)/gain
Finance expense
Finance income
Profit before taxation
Income tax expense
Profit for the period(1)
Other comprehensive income (net of tax)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translating foreign operations
Total comprehensive profit/(loss) for the period(1)
Earnings per ordinary share (basic) (1)
Earnings per ordinary share (diluted) (1)
Group
For the year ended
31 December 2021
US$
For the year ended
31 December 2020
US$
Notes
63,141,437
(37,759,318)
–
(6,049,628)
(43,808,946)
19,332,491
(5,825,655)
(270,631)
(160,219)
13,075,986
(41,456)
(261,825)
585,840
13,358,545
(3,408,581)
9,949,964
55,830,078
(33,127,648)
(1,038,083)
(5,128,895)
(39,294,626)
16,535,452
(5,856,760)
(533,264)
245,743
10,391,171
(214,845)
(1,763,240)
74,403
8,487,489
(1,456,464)
7,031,025
(4,643,212)
5,306,752
13.85c
12.97c
(15,591,140)
(8,560,115)
11.92c
11.10c
3
4
4
5
7
7
(1)
The Group has no non-controlling interests and all profits are attributable to the equity holders of the Parent Company.
107
Group Balance Sheet
As at 31 December 2021
Notes
8
9
10
13
5
12
13
14
15
16
18
19
16
17
5
19
18
21
Non-current assets
Deferred exploration costs
Property, plant and equipment
Right of use assets
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
Derivative financial liabilities
Accruals
Total current liabilities
Net current assets
Total assets less current liabilities
Non-current liabilities
Trade and other payables
Provisions
Deferred tax liability
Derivative financial liabilities
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
Company Number 5131528
Group
At 31 December
2021
US$
At 31 December
2020
US$
34,857,905
27,575,335
2,600,631
605,125
1,224,360
66,863,356
6,973,207
2,307,458
2,316,669
12,217,751
23,815,085
5,624,511
290,060
–
397,400
6,311,971
17,503,114
84,366,470
427,663
2,581,431
861,430
165,495
444,950
4,480,969
79,885,501
27,778,354
26,235,551
2,573,738
696,077
1,879,158
59,162,878
6,979,438
1,936,044
1,554,991
6,603,620
17,074,093
6,846,202
8,726,302
390,456
292,089
16,255,049
819,044
59,981,922
91,916
1,467,032
324,519
–
350,931
2,234,398
57,747,524
11,213,618
36,158,068
1,075,348
13,694,731
(68,648,170)
86,391,906
8,905,116
21,905,976
1,173,044
10,254,048
(64,004,958)
79,514,298
79,885,501
57,747,524
The financial statements were approved and authorised for issue by the Board of Directors on 9 June 2022 and signed on its
behalf by:
Clive Line
Finance Director
9 June 2022
108
Company Balance Sheet
As at 31 December 2021
Notes
11
13
13
14
15
16
18
19
19
21
Non-current assets
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
Accruals
Total current liabilities
Net current liabilities
Total assets less current liabilities
Non-current liabilities
Derivative financial liabilities
Total non-current liabilities
Net assets
Equity
Share capital
Share premium reserve
Option reserve
Merger reserve
Retained surplus
Equity shareholders’ funds attributable
to owners of the parent
Company Number 5131528
Company
At 31 December
2021
US$
At 31 December
2020
US$
102,623,843
9,784,884
112,408,727
2,274,114
146,922
8,586,734
11,007,770
29,836,667
–
–
237,406
30,074,073
(19,066,303)
93,342,424
165,495
165,495
93,176,929
11,213,618
36,158,068
1,075,348
361,461
44,368,434
101,832,791
9,783,318
111,616,109
1,885,242
280,079
3,813,957
5,979,278
28,322,731
8,524,899
390,456
416,935
37,655,021
(31,675,743)
79,940,366
–
–
79,940,366
8,905,116
21,905,976
1,173,044
361,461
47,594,769
93,176,929
79,940,366
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 for the year ended 31 December 2021 was US$3,594,662 (2020: loss of US$8,366,292).
The financial statements were approved and authorised for issue by the Board of Directors on 9 June 2022 and signed on its
behalf by:
Clive Line
Finance Director
9 June 2022
109
Statements of Changes in Shareholders’ Equity
For the year ended 31 December 2021
Group
Equity shareholders’
funds at 31 December
2019
Foreign currency
adjustments
Profit for year
Total comprehensive
income for the year
Shares issued in period
Transfer to taxation
reserve
Share options exercised
in period
Share options lapsed in
period
Share option expense
Equity shareholders’
funds at 31 December
2020
Foreign currency
adjustments
Profit for year
Total comprehensive
income for the year
Shares issued in period
Transfer to taxation
reserve
Share options lapsed in
period
Share option expense
Equity shareholders’
funds at 31 December
2021
Share
capital
US$
Share
premium
US$
Share option
reserve
US$
Other
reserves
US$
Translation
reserve
US$
Retained
surplus Total equity
US$
US$
8,882,803
21,752,430
1,019,589
7,149,274
(48,413,818)
75,208,238
65,598,516
–
–
–
–
–
–
22,313
153,546
–
–
–
–
–
–
–
–
–
–
–
–
–
(31,752)
(348,057)
533,264
–
–
–
–
3,104,774
–
–
–
(15,591,140)
–
(15,591,140)
–
7,031,025
7,031,025
(15,591,140)
7,031,025
(8,560,115)
–
–
–
–
–
–
175,859
(3,104,774)
31,752
348,057
–
–
–
–
533,264
8,905,116
21,905,976
1,173,044
10,254,048
(64,004,958)
79,514,298
57,747,524
–
–
–
–
–
–
2,308,502
14,252,092
–
–
–
–
–
–
–
–
–
–
–
(368,327)
270,631
–
–
–
–
3,440,683
–
–
(4,643,212)
–
(4,643,212)
–
9,949,964
9,949,964
(4,643,212)
9,949,964
5,306,752
–
–
–
–
–
16,560,594
(3,440,683)
368,327
–
–
–
270,631
11,213,618
36,158,068
1,075,348
13,694,731
(68,648,170)
86,391,906
79,885,501
Other reserves comprise a merger reserve of US$361,461 and a taxation reserve of US$13,333,270 (2020: merger reserve of
US$361,461 and taxation reserve of US$9,892,587).
The following is a description of each of the reserve accounts that comprise equity shareholders’ funds
Share capital
Share premium
Share option reserve
Other reserves
Translation reserve
Retained surplus
The share capital comprises the issued ordinary shares of the Company at par.
The share premium comprises the excess value recognised from the issue of ordinary shares at par.
Cumulative fair value of options charged to the statement of comprehensive income net of transfers to the profit and
loss reserve on exercised and cancelled/lapsed options.
Other reserves is comprised of a merger reserve arising on the acquisition of Kenai Resources Limited, representing the
difference between the nominal value of the shares issued and their fair value, and a warrant reserve being the
cumulative fair value of warrants issued associated with equity shares issued.
The Group has also established a taxation reserve. The reserve is used to accumulate taxation savings received by the
Group as a result of a lower taxation rate being applied in Brazil through its eligibility for a tax incentive programme
(“SUDAM”). SUDAM reduces the Group’s effective tax rate from approximately 34 per cent to approximately 15.25 per
cent. The regulations of the incentive programme require the Group to accumulate incentives received through tax
savings in a taxation reserve. The taxation reserve is not considered a distributable reserve but can be used to meet the
cost of regional investment programmes completed by the Group and approved by SUDAM.
Cumulative gains and losses on translating the net assets of overseas operations to the presentation currency.
Retained surplus / (accumulated losses) comprise the Group’s cumulative accounting profits and losses since inception.
110
Statements of Changes in Shareholders’ Equity
For the year ended 31 December 2021
Company
Equity shareholders’ funds
at 31 December 2019
Loss for the year
Comprehensive loss for year
Shares issued in period
Share options exercised in
period
Share options lapsed in
period
Share option expense
Equity shareholders’ funds
at 31 December 2020
Loss for the year
Comprehensive loss for year
Shares issued in period
Share options lapsed in
period
Share option expense
Equity shareholders’ funds
at 31 December 2021
Share
capital
US$
Share
premium
US$
Share option
reserve
US$
Merger
reserve
US$
Retained
surplus
US$
Total equity
US$
8,882,803
21,752,430
1,019,589
361,461
55,581,252
87,597,535
–
–
22,313
–
–
153,546
–
–
–
–
–
–
–
–
–
(31,752)
(348,057)
533,264
–
–
–
–
–
–
(8,366,292)
(8,366,292)
–
(8,366,292)
(8,366,292)
175,859
31,752
348,057
–
–
–
533,264
8,905,116
21,905,976
1,173,044
361,461
47,594,769
79,940,366
–
–
2,308,502
–
–
14,252,092
–
–
–
–
–
–
–
(368,327)
270,631
–
–
–
–
–
(3,594,662)
(3,594,662)
–
368,327
(3,594,662)
(3,594,662)
16,560,594
–
–
270,631
11,213,618
36,158,068
1,075,348
361,461
44,368,434
93,176,929
111
Cashflow Statements
For the year ended 31 December 2021
Cash outflows from operating activities
Profit / (loss) for the period
Net financial expense
Depreciation – plant, equipment and mining properties
Taxation expense
Share-based payments
Loss/(gain) on fixed asset sales
Taxation paid
Interest paid
Foreign exchange (loss) / gain
Changes in working capital
(Increase) in inventories
(Increase) in receivables, prepayments and accrued
income
(Decrease)/increase in payables, accruals and provisions
Increase in short-term intercompany payables
Net cash inflow/(outflow) from operations
Investing activities
Acquisition payment for subsidiary
Acquisition of other property rights
Purchase of property, plant, equipment, and projects in
construction
Mine development expenditure
Geological exploration expenditure
Pre-operational project costs
Proceeds from sale of assets
Investment in subsidiaries
Loans to subsidiaries
Interest received and other finance income
Net cash outflow on investing activities
Financing activities
Issue of ordinary share capital (net of costs)
Issue of warrants
Repayment of convertible loan
Payment of convertible loan arrangement fee
Convertible loan note receipts
Repayment of short-term secured loan
Payment of lease liabilities
Net cash inflow/(outflow) from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Exchange difference on cash
Cash and cash equivalents at end of period
Group
Company
For the
year ended
31 December
2021
US$
For the
year ended
31 December
2020
US$
For the
year ended
31 December
2021
US$
For the
year ended
31 December
2020
US$
Notes
9,949,964
(282,559)
6,049,628
3,408,581
270,631
160,219
(1,125,382)
(1,302,708)
(104,531)
7,031,025
1,903,682
5,128,895
1,456,464
587,970
(245,743)
(466,604)
(285,567)
129,533
(3,594,662)
54,607
218,682
–
270,631
–
–
(1,260,213)
40,424
(8,366,292)
1,544,508
–
–
533,264
–
–
(262,439)
166,748
(331,400)
(1,843,621)
–
–
(1,259,952)
(770,571)
(255,713)
(1,019,281)
(637,285)
–
14,795,206
1,930,609
–
14,556,072
(495,355)
1,829,761
(3,191,838)
(194,219)
14,629,149
7,031,438
(5,500,000)
(101,106)
(6,500,000)
(634,594)
(5,500,000)
–
(6,500,000)
–
(4,132,914)
(2,545,575)
–
–
(5,400,933)
(4,102,530)
(4,354,954)
379,347
–
–
–
(23,213,090)
(2,952,943)
(2,425,440)
(1,330,469)
627,447
–
–
911
(15,760,663)
16,560,593
333,936
(2,000,000)
(300,000)
–
–
(355,836)
14,238,694
5,820,810
6,603,620
(206,679)
12,217,751
–
–
–
–
2,000,000
(6,983,492)
(397,490)
(5,380,982)
(6,585,573)
14,234,612
(1,045,419)
6,603,620
–
–
–
–
(1,009,734)
–
–
(6,509,734)
16,560,593
333,936
(2,000,000)
(300,000)
–
–
–
14,594,530
4,892,958
3,813,957
(120,181)
8,586,734
–
–
–
–
(894,994)
(300,000)
911
(7,694,083)
–
–
–
–
2,000,000
(6,983,492)
–
(4,983,492)
(5,646,137)
9,447,822
12,272
3,813,957
5
18
9
9
9
8
8
11
18
18
112
Notes to the Financial Statements
For the year ended 31 December 2021
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 93.
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 parent and consolidated financial statements have been prepared in accordance with UK-adopted international accounting
standards and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards.
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into the UK law and became UK-adopted
international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The group
transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 January 2021. There
was no impact or changes in accounting from the transition.
Accounting standards, amendments and interpretations effective in 2021
The Group has not adopted any standards or interpretations in advance of the required implementation dates.
The following new standards, amendments or interpretations applicable to periods beginning on or after 1 January 2021 were
each effective as of 1 January 2021:
COVID-19-Related rent Concession (Amendment to IFRS 16)
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Interest Rate benchmark Reform – Phase 2
Effective date
1 June 2020
1 January 2021
The adoption of these standards has had no effect on the financial results of the Group.
There are a number of standards, amendments to standards, and interpretations which have been issued that are effective in
future periods and which the Group has chosen not to adopt early. A new standard Property, Plant and Equipment – Proceeds
before Intended Use (amendments to IAS 16) which is effective 1 January 2022 will impact the Group as it develops the Coringa
mine. In the event that the Group realises sales revenues prior to a declaration of commercial production it will now be required
to recognise the proceeds from sales and the costs of production in profit and loss. Previously the sales would have been treated
as a deduction from the cost of bringing an item (or items) of property, plant and equipment to the location and condition
necessary to be capable of operating in the manner intended by management.
Of the remaining standards, amendments to standards, and interpretations, none of these are expected to have a significant
effect on the Group, in particular.
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
Annual Improvements to IFRS Standards 2018-2020
Reference to Conceptual Framework (Amendments to IFRS 3)
IFRS 17 Insurance Contracts, including Amendments to IFRS 17
Classification of Liabilities as Current or Non-current (Amendments to IAS 1) and Classification of
Liabilities as Current or Non-current – Deferral of Effective Date
Effective date
1 January 2022
1 January 2022
1 January 2022
1 January 2023
1 January 2023
Investigation into unsubstantiated payments
During 2021 an investigation into certain unsubstantiated cash withdrawals and irregularities relating to the payment of travel
advances and expense claims was commissioned by the Board and by the Audit Committee and was completed. The value of the
irregularities relating to the payment of travel advances and expense claims incurred during 2021 was US$116,000 with further
113
Notes to the Financial Statements
For the year ended 31 December 2021
transaction totalling US$29,000 identified as being improperly documented. The total value of all unsubstantiated cash
withdrawals identified by the review was US$349,000 with irregularities relating to the payment of travel advances totalling
US$510,000 and expense claims totalling approximately US$904,000.
The Company initially engaged its legal advisers in Brazil (“FFA”) to undertake enquiries into these transactions and following
the presentation of their initial findings subsequently engaged the services of the Forensic Investigations group of Deloitte Touche
Tohmatsu Consultores Ltda in Brazil (“Deloitte”). Deloitte were retained to review, analyse and substantiate the initial findings
of FFA and also to conduct a more comprehensive investigation to identify any other potential matters that may not have been
identified in the initial review by FFA. Based on the findings of these enquiries, the Board concluded that there was a breakdown
in the Group’s internal control in relation to the authorisation of certain banking transactions and the payment and approval for
travel advances and reimbursement of expenses. However, notwithstanding that the Board considers that all reasonable and
practicable steps have been taken at this time, based on the conclusions of the enquiries, the Board was unable to definitively
conclude on the precise nature of the payments made, and the extent to which these were valid payments for services provided
or expenditures incurred on behalf of the business. The Board has introduced a number of measures to strengthen the Company’s
internal control systems.
Cash withdrawals
All the identified cash withdrawals were recorded through the accounts of SMSA and expensed in the period in which they were
incurred, and the enquiries concluded that no direct evidence of improper payments occurring within the scope of licensing
and/or payments to obtain benefits in connection with public agencies had been identified. However, notwithstanding that the
Board considers all reasonable and practicable steps have been taken, at this time it has not been possible to definitively conclude
on the precise nature of the purpose to which the cash was ultimately used and it remains possible that the ultimate beneficiaries
of these funds were not necessarily employees of SMSA. Certain of the cash payments were supported by invoices for services
provided. It cannot be established with certainty that those services were rendered, that if services were rendered the service
actually provided reflects the value of the consideration made or that the ultimate recipient of the payment was the service
provider named on the invoice.
Irregularities regarding expense claims and advances
The enquiries also identified a number of other potential irregularities relating to expense claims and travel and other expense
advances made to some Brazilian based members of staff during the same period. It has been identified that these advances were
expensed through the Group’s income statement in each of the relevant years. However, analysis indicates that no claims for
reimbursement of expenses were ever submitted for these advances, and it would appear therefore that, in the absence of
documented expense claims, these advances which over the period from January 2015 to March 2021 totalled approximately
US$510,000, remain due to be repaid to SMSA.
In addition, the enquiries identified claims for reimbursement of expenses submitted by certain members of staff in Brazil that
lacked appropriate and adequate supporting documentation or were not necessarily of a nature that appeared business related.
The total value of such expenses over the period January 2015 to March 2021 was approximately US$904,000. All these costs have
been expensed through the Group’s income statement in each of the relevant years.
In respect of the advances that remain due to be repaid and the claims for expenses, no direct evidence has been identified of
improper payments occurring within the scope of licensing and/or payments to obtain benefits in connection with public agencies.
However, in both situations, whilst the payments were made by electronic bank transfer to the bank accounts of the appropriate
employee and notwithstanding that the Board considers all reasonable and practicable steps have been taken, it has not been
possible to establish with certainty that the funds paid were retained, in whole or in part, by these employees.
Other matters of relevance
The enquiries also identified certain isolated transactions which are considered relevant in the context of the work. These were;
i)
ii)
a contract for BrR$104,000 (approximately US$20,000) with a former public official to provide consulting
services from January 2018 to December 2018. It has not been identified that the individual held any public
office during this period.
payments totalling BrR$175,510 (approximately US$34,000) made between November 2015 and December 2016
to an individual providing consultancy services to SMSA that were not in accordance with the contractual terms
for this individual. The individual provided services to the Company from 2008 until his contract was
terminated in July 2021.
114
Notes to the Financial Statements
For the year ended 31 December 2021
iii)
iv)
A payment of BrR$250,000 (approximately US$49,000) for the supply of diesel fuel. The diesel fuel was never
received, and the funds were returned to SMSA. It was identified that the owner of the Company who was
supposed to supply the diesel fuel was related to an employee of SMSA.
A payment of BrR$151,500 (approximately US$29,000) under a contract signed with SMSA in March 2021 for
environmental services to be provided over a period to December 2021. The contract has been terminated by
SMSA for non-performance. A senior officer of the service provider held positions of public office between
2011 and 2019.
In respect of these transactions no direct evidence has been identified of improper payments occurring within the scope of
licensing and/or payments to obtain benefits in connection with public agencies.
Summary of findings by year (1)
2015
US$
2016
US$
2017
US$
2018
US$
2019
US$
2020
US$
2021
US$
Total
US$
58,000
60,000
47,000
-
97,000
87,000
-
349,000
125,000
163,000
183,000
223,000
267,000
337,000
116,000
1,414,000
-
34,000
-
20,000
-
-
29,000
83,000
Cash
withdrawals
Travel
advances
and expense
claims
Other
matters
(1) A fixed exchange rate of BRL5.15 to US$1.00 has been used to calculate the approximate US$ equivalent values at an approximate
current exchange rate.
The Company is pursuing appropriate legal remedies in respect of any funds that are considered to have been misappropriated.
Going concern and availability of finance
At 31 December 2021, the Group held cash of US$12.2 million and has subsequently reported that at 31 March it held cash of
US$6.9 million with a further receipt of US$1.6 million for a sale of copper/gold concentrate due to be received in early April
having been delayed from March following late changes in sailing schedules. The reduction in cash reflects the continued
development expenditure of Coringa during the quarter, and the reduced level of sales revenue generated in the period as a result
of lower production.
The Group has advised that in light of the issues encountered in the mining of the Julia Vein at São Chico, it has reduced its
production guidance for the remainder of 2022 whilst it reconfigures the Julia Vein for selective mining and undertakes further
evaluation and development of other sectors of the São Chico deposit. This will reduce revenue for the rest of 2022 and will
therefore impact on the ability of the Group to generate positive cash flow for the rest of 2022. Management have already taken
actions to reduce some of the operational costs and is evaluating further options to generate additional gold production to improve
cash generation. This includes the transportation and processing of high grade ore recovered from the current mine development
being undertaken at Coringa. The first trucks began transporting ore during May 2022. In addition, in the short term, the Group
has negotiated a US$5 million unsecured loan with a Brazilian bank for an initial 12 month period to ease any immediate working
capital pressure. These funds were received during May 2022.
The Directors have prepared an operational plan and cash flow forecast based on their best judgement of the operational
performance of the Group for the next 18 months using economic assumptions that the Directors consider are reasonable in the
current global economic climate. This plan assumes, interalia, that during the rest of 2022 and for 2023, the Group will be
successful in mining higher levels of gold from its Palito orebody than it originally planned for, and will continue to generate a
limited level of gold production from São Chico, albeit at lower levels than 2021 and previously planned for 2022, due to the issues
encountered at the Julia vein. In addition, the Group will, as a temporary measure, transport Coringa ore for processing at the
Palito Complex. To manage costs, discretionary expenditures will be minimised including further regional exploration drilling
which has now been suspended.
Although the Group’s operational plan incorporates the processing of some of the ore recovered from the planned development
of the Coringa mine at the Palito complex, the Group’s plan is to construct a gold processing plant at Coringa. The estimated cost
of the full-scale development of the Coringa project reported in the Coringa PEA, including necessary mine development, the
115
Notes to the Financial Statements
For the year ended 31 December 2021
erection of a gold processing plant and other site infrastructure was estimated to be approximately US$24.7 million before
sustainable positive cash flow is achieved.
While the Group plans to restrict development activity to a level that can be supported by available financial resources, in order
to fund the longer term continued development of Coringa including a gold processing facility, and repay the Group’s debt, which
comprises a 12 month, US$5 million bank loan maturing in May 2023, the Group intends to obtain additional funding. This
funding may be generated from a variety of sources which could include a combination of bank debt, royalty, streaming of gold
and copper revenues, new equity capital and cash flow from the current operations. The Group has been successful in raising
funding as and when required in the past and the Directors consider that the Group continues to have strong support from its
major shareholders who been supportive of and provided additional funding when required on previous occasions.
As such, whilst the expenditure on the development of Coringa will be incurred over a period of nine to twelve months it is the
intention of management that firm commitments for the majority of this funding must have been secured and there is strong
confidence that the balance of any remaining financing requirement is available prior to commencing the full scale development.
Whilst recognising the uncertainty that has been created by the need to adjust the operational plan during the first half of the year
and the lower levels of gold production that are now forecast as a result, the Directors and management are confident of their
ability to raise additional finance and that the Group’s operations will perform at the levels that they now anticipate over the next
18 month period. However, an inability to raise new finance, unplanned interruptions or further reductions in gold production,
unforeseen reductions of the gold price or appreciation of the Brazilian Real could adversely affect the level of free cash flow
available to the Group.
These material uncertainties may cast significant doubt upon the Group’s ability to continue as a going concern and therefore its
ability to settle its debts and realise its assets in the normal course of business. Notwithstanding these material uncertainties, the
Directors have a reasonable expectation that the Group has adequate resources to continue in existence for the foreseeable future
and have concluded it is appropriate to adopt the going concern basis of accounting in the preparation of the financial statements.
The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
(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”)
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.
116
Notes to the Financial Statements
For the year ended 31 December 2021
(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 2021 was 1.3489 (2020: 1.3607). The Brazilian Real/US Dollar exchange rate
at 31 December 2021 was 5.4388 (2020: 5.1961).
(d)
Property, plant and equipment
(i) Recognition and measurement
Items of property, plant and equipment are stated at cost less accumulated depreciation (note 1(d) (iii)) 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.
(ii) 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.
(iii) Depreciation
Amortisation of mining property is calculated over the estimated life of the mineable inventory on a unit of production basis.
Mineable inventory will be based on management’s judgement as to the recoverability of Measured, Indicated and Inferred
Resources and these judgements may vary from time to time as the level of management’s understanding and historical
operational performance information increases. Future forecasted capital mine development expenditure is included in the
unit of production amortisation calculation.
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
Buildings
Mining properties
three – seven years
two – ten years
eight years
three years
ten – twenty years
unit of production
117
Notes to the Financial Statements
For the year ended 31 December 2021
Other assets
Furniture and fittings
Office equipment
Communication installations
Computers
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. In addition to the direct costs involved in exploration activity, including sample collection, drilling costs, geophysical
surveys and assay expenses, exploration costs are also considered to include technical and administrative overheads directly
attributable to the exploration department including the cost of consultants, security, salaries, travel and accommodation but not
general overheads of the Group. 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 amortised cost 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(o)).
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.
(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
118
Notes to the Financial Statements
For the year ended 31 December 2021
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)
(ii)
(iii)
(iv)
sufficient data exists that render the resource uneconomic and unlikely to be developed
title to the asset is compromised
budgeted or planned expenditure is not expected in the foreseeable future
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)
(ii)
(iii)
a significant deterioration in the spot price of gold
a significant increase in production costs
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.
If there is an adjustment to the repayment terms of any borrowings which generates a variation of more than 10 per cent of the
future cash flows, under IFRS 9 this constitutes a substantial modification to the original valuation of the loan. Accordingly, the
original loan under the terms of IFRS 9 would be considered to be repaid and a new loan is considered to have been taken out. If
the variation is less than 10 per cent of the future cash flows, this variation would be considered a non-substantial modification.
For a non-substantial modification, the difference between the revised measurement of the liability (calculated as the present
value of the revised cash flows discounted at the original effective interest rate) and the carrying amount at the point of the
modification should be recognised through profit or loss.
119
Notes to the Financial Statements
For the year ended 31 December 2021
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.
(k)
Employee benefits
(i)
Share-based payment transactions and share options
The Group issues share-based payments including share options and restricted share awards to certain employees, which are
measured at fair value at date of grant. The fair value of share options is determined at the grant date and 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 (if any are imposed as a condition of the award but
including periods when management and Directors are prevented from trading) and behavioural considerations. The fair value
of restricted stock awards is determined at the grant date based on the value of the award and expensed on a graded vesting
basis over the vesting period, based on the Group’s estimate of shares that will eventually vest.
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 pre-defined levels of
contribution. Company contributions to such schemes are charged against profit as they fall due.
(l)
Provisions, contingent liabilities and contingent assets
Provisions are recognised when:
(i)
the Group has a present legal or constructive obligation as a result of past events;
(ii)
it is more likely than not that an outflow of resources will be required to settle the obligation; and
(iii)
the amount can be reliably estimated.
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.
(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.
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Notes to the Financial Statements
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(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.
(o)
Revenue
Revenue represents amounts receivable in respect of sales of gold and by-products. Revenue represents only sales for which
contracts have been agreed and for which the product has been delivered to the purchaser in the manner set out in the contract.
Revenue is stated net of any applicable sales taxes. All revenue is derived from the sales of copper/gold concentrates produced
by the Palito Mine and gold doré 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 doré and copper/gold concentrate in accordance with agreed criteria.
The Company recognises 100 per cent 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 the right to payment, but no ongoing physical possession or involvement with the concentrate or gold doré,
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.
(p)
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.
(q)
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.
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Notes to the Financial Statements
For the year ended 31 December 2021
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.
(r)
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.
(s)
Investments in subsidiaries
Investments in subsidiaries are recognised at cost, less any provision for impairment.
(t)
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.
(i) Classification of financial assets
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Notes to the Financial Statements
For the year ended 31 December 2021
The Company is a trading entity, selling directly to its end customers and receiving payments directly from such customers
and as such within its business model all financial assets are treated on a hold to collect basis.
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’s trade receivables are subject to subsequent recognition at fair value through profit or loss (“FVTPL”). The Group
does not otherwise hold any financial assets that meet conditions for subsequent recognition at fair value through other
comprehensive income (“FVTOCI”) or FVTPL.
(ii) Impairment of financial assets
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 expects 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 undertaken during the year are set out in note 13.
(iii) 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.
Financial liabilities
(i) Classification of 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, 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
123
Notes to the Financial Statements
For the year ended 31 December 2021
estimated future cash receipts/payments through the expected life of the financial asset/liability or, where appropriate, a
shorter period.
(ii) Derecognition of financial liabilities
A financial liability (in whole or in part) is derecognised when the Group has extinguished its contractual obligations, it
expires or is cancelled. Any gain or loss on derecognition is taken to the statement of comprehensive income.
(iii) Derivatives
This category comprises out-of-money derivatives where the time value does not offset the negative intrinsic value. They are
carried in the consolidated statement of financial position at fair value with changes in fair value recognised in the
consolidated statement of comprehensive income. The Group does not hold or issue derivative instruments for speculative
purposes, but for hedging purposes. Other than these derivative financial instruments, the Group does not have any liabilities
held for trading.
The Group has issued convertible loan notes providing the holder with the right to convert all or part of the loan notes into
new ordinary shares at any time prior to the repayment date at a fixed conversion price. The Group has no right to repay
the convertible loan notes at any time prior to the repayment date. The Group estimates the value of the conversion option
at the date that loan notes are issued and accounts for this derivative liability separately to the host debt instrument. At each
balance sheet date, the fair value of the derivatives issued by the Group is estimated by reference to quoted mid-market price
using level 1 and level 2 inputs under the fair value hierarchy.
The Company has issued warrants to subscribe for shares at a share price of 93 pence per warrant exercisable at any time at
the warrant holders election until 22 May 2023. The conversion rights embedded in the warrant notes represent a derivative
as the Group’s functional currency is United States Dollars but the conversion price is denominated in Pounds Sterling.
Therefore, the amount to be released in US Dollars on conversion is variable dependent upon the exchange rate between the
US Dollar and GB Pound.
(u)
Leases
The Group accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a period of
time in exchange for consideration. Leases are those contracts that satisfy the following criteria:
There is an identified asset;
The Group obtains substantially all the economic benefits from use of the asset; and
The Group has the right to direct use of the asset.
The Group considers whether the supplier has substantive substitution rights. If the supplier does have those rights, the contract
is not identified as giving rise to a lease. In determining whether the Group obtains substantially all the economic benefits from
use of the asset, the Group considers only the economic benefits that arise from use of the asset. In determining whether the Group
has the right to direct use of the asset, the Group considers whether it directs how and for what purpose the asset is used
throughout the period of use. If the contract or portion of a contract does not satisfy these criteria, the Group applies other
applicable IFRSs rather than IFRS 16.
Lease liabilities are measured at the present value of the contractual payments due to the lessor over the lease term, with the
discount rate determined by reference to the rate inherent in the lease unless this is not readily determinable, in which case the
Group’s incremental borrowing rate on commencement of the lease is used. Variable lease payments are only included in the
measurement of the lease liability if they depend on an index or rate. In such cases, the initial measurement of the lease liability
assumes the variable element will remain unchanged throughout the lease term. Other variable lease payments are expensed in
the period to which they relate.
On initial recognition, the carrying value of the lease liability also includes:
Amounts expected to be payable under any residual value guarantee;
The exercise price of any purchase option granted in favour of the Group if it is reasonably certain to assess that option;
and
124
Notes to the Financial Statements
For the year ended 31 December 2021
Any penalties payable for terminating the lease, if the term of the lease has been estimated based on the termination
option being exercised.
Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and
increased for:
Lease payments made at or before commencement of the lease;
Initial direct costs incurred; and
The amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the
leased asset.
Subsequent to initial measurement lease liabilities increase as a result of interest charged at a constant rate on the balance
outstanding and are reduced for lease payments made. Right of use assets are amortised on a straight-line basis over the remaining
term of the lease.
The Group has elected not to recognise right of use assets and lease liabilities for leases of low-value assets (where the value of
the lease obligation over the lease period is less than US$5,000) and short-term leases (where the period of the contractual lease
obligations is 12 months or less). The Group recognises the lease payments associated with these leases as an expense on a straight-
line basis over the lease term.
(v)
Payments for business acquisition – see note 22
The acquisition of Chapleau Resources Ltd in December 2017, incorporating the rights to the Coringa gold project, was 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 cash payments due were to be paid over a period of time and
each of the stage payments were discounted at a 10 per cent cost of capital.
On 31 March 2020, the Group agreed with the vendor that the final payment of US$12 million due on 31 March 2020 would instead
be paid over a series of monthly instalments over approximately 15 months. The Group recognised this change in payment terms
as a non-substantial modification and re-categorised the remaining payment schedule as an interest-bearing liability rather than
as a general creditor. The interest-bearing liability was recorded at fair value at the date of initial recognition and interest charged
and the new effective interest rate.
(w)
Payments for mineral property acquisition – see note 10
Under existing agreements in place at the time that the Group acquired Kenai Resources Limited in 2013, the Group, subject to
certain conditions, had rights to acquire or could be obliged to acquire a net profits interest held by a third party in the property
which includes the São Chico orebody. The Group had initially accounted for the future acquisition of this net profits interest
and the concurrent potential liability based on the fair value of the potential future obligations under the agreement. In February
2019, the conditions of the existing agreement having not been satisfied, the Group entered into a separate agreement to acquire
the rights of the third party with the consideration being paid over 24 months. The variation in the fair value of the amended
consideration was treated as an amendment to the original recognised value of the investment included within mining
property. The unwinding of the fair value as the staged payments are made is being treated as a further amendment to the value
of the investment in mining property.
(x)
Taxes receivable
The Group expects at any point in time to be due rebates of taxes in each of the jurisdictions that it has operations. The
recoverability of these tax debts varies according to the jurisdictions and whether these taxes are recoverable at a Municipality,
State or Federal level. Where permitted, the Group will always seek to offset any tax debts owing against tax debts that it is owed.
The Group makes regular assessments as to the potential for non-recoverability and will make provision accordingly. In making
its judgement, management will consider the legal advice that it receives, the history of recoverability both of itself and also other
entities, arrangements that may be available for partial recovery through approved schemes and the timescale during which
recovery may occur. The Group will make provision for the estimate of any taxes that are considered as potentially not recoverable
within a reasonable time period (up to five years) and will also discount the value of any final amount that management estimates
125
Notes to the Financial Statements
For the year ended 31 December 2021
may be recoverable, for the time value of money. Taxes receivable are classified as long-term or short-term receivables based on
the expected time frame over which they are expected to be recovered.
(y)
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 ongoing 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 procedures stipulated under Canadian National Instrument
43-101 and the estimation undertaken in accordance with the requirements 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.
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 to the level
of Mineral Resources that it incorporates into its assessments.
The Group includes all of its Measured, Indicated and Inferred Resources in its calculations of amortisation, its life of mine plans
for the purposes of assessing the long-term value of its mines and in calculating its estimates for rehabilitation expenditures. In
prior periods the Group whilst including all of its Measured, Indicated and Inferred Resources for the São Chico deposit had
used 100 per cent of Measured, Indicated and Inferred Resources but only 25 per cent of the Inferred Resources identified at the
Palito deposit. This historical situation reflected the uncertainty when mining of the Palito deposit was restarted in 2013 and
Inferred Resources were located in areas of the deposit that had no immediate access. With the successful development of the
deposit over the intervening years and continuing improvement in the understanding of this deposit and its geology,
management has established much greater confidence in the ability for the deposit to continue to be expanded and for Inferred
Resources to be converted into production ounces. Accordingly, effective from 1 January 2020, the Group has determined that
it is reasonable to use 100 per cent of the Inferred Resources attributable to the Palito deposit in its calculations of amortisation,
its life of mine plans for the purposes of assessing the long-term value of its mines and in calculating its estimates for
rehabilitation expenditure for Palito.
In assessing amortisation, the Group is required to determine the future capital mine development required to gain access to all
identified mineral resources used as the basis for amortisation. Management assesses the vertical extent of the remaining
mineral resources to be mined and estimate, based on current operating costs and operating parameters, the expected costs of
ramp development required to reach the lowest elevations of the mineral resources.
Reducing the level of Inferred Resources used in the amortisation calculations to 75% per cent for both Palito and São Chico
would result in an increase in the amortisation charge for the current year of US$0.40 million.
126
Notes to the Financial Statements
For the year ended 31 December 2021
Revenue
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. In estimating the revenue derived from
the sale of copper/gold concentrate the Group will use assay information provided by the Group’s in house laboratory, and
assessments of weight and humidity also provided by on-site personnel in the determination of the total metal content of the
product being sold and therefore its sales value. These estimates are subject to amendment when the product is received at the
refinery and is weighed and assayed under the scrutiny of the refinery, the purchaser and a representative of the Group. The
final metal content is determined only based on the results of these measurements and the data derived from the Group’s on-
site laboratory is not used in the final calculation of metal content. Taking into account production time frames, transport and
shipping, the final determination of metal content may occur up to six months after the date of production. Adjustments to
revenue to reflect the final agreed metal content are generally made at the time that the metal content is agreed.
Inventory valuation (note 12)
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 amounts recognised in the consolidated financial statements are derived from the Group’s best estimation and judgement
as set out in note 12.
Based on operational history management has high confidence in the estimations of gold contained in inventory and the
expected recovery rates for the gold contained within each stage of work-progress. Once material enters the process plant it is
transformed into a saleable product which will be sold within approximately six to eight weeks of that date. The prevailing
price of gold and copper is the most critical variable in the assessment of valuation. The Group estimates that a prevailing gold
price of US$1,175 would have been required before there was any requirement to impair any valuation of work in progress
inventory at 31 December 2021.
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 considering the impairment of its mining assets in accordance with IAS 36, management will use gold prices and exchange
rates applicable at the balance sheet date. The mine life will be based on the judgement of management of that portion of
Measured, Indicated, and Inferred Resources that can be recovered on the basis that, given the nature of the Group’s orebodies,
the mineral reserves (that portion of the mineral resource that has been proven by independent study to have economic viability)
comprises a small part of the total mineral resource of the Group’s orebodies and does not reflect management’s view of the
true life of the orebody. Production costs, estimated capital costs and plant performance are based on current operating
performance and costs. The value in use calculation will also be determined by the judgements made by management regarding
any future changes in legislation or economic circumstances that might impact the operations.
Management has noted that over the last financial year and up to the date of the signing of the financial statements:
The gold price has since March 2020 being trading at levels which represent an extended period of pricing at five year
highs for gold.
The Brazilian Real has since the end of 2019 generally been at a level of BrR$5:00 to US$1:00 or weaker representing an
extended period of trading when the currency has been at its weakest for over 10 years. The Company incurs between
82 per cent and 85 per cent of its expenditure in Brazilian Real.
The Group has continued to identify and replenish its total Mineral Resources
Management considers that the operational plans adequately take into consideration the impact of COVID-19 , based
on the current understanding of COVID-19 and information available regarding actions being taken in Brazil.
As a result of these considerations, management has determined that it is not aware of any indicator of 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 (“CGUs”). The value in use calculation requires the entity to estimate the future cash
127
Notes to the Financial Statements
For the year ended 31 December 2021
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.
As described in note 1(d) (iii), the Group reviews the estimated useful lives of property, plant and equipment at the end of each
annual reporting period.
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. Recoverable taxes comprise any Federal or State levied input taxes incurred by
the Group including taxes levied on the purchase of goods and services that are designated in law as being recoverable either
in cash, kind or by way of set-off against other tax liabilities at either a Federal or State level. IFRS 9 requires the Parent Company
to make assumptions when implementing the forward-looking expected credit loss model.
In making its judgement regarding recoverable taxes, management will consider the legal advice that it receives, the history of
recoverability both of itself and also other entities, arrangements that may be available for partial recovery through approved
schemes and the timescale during which recovery may occur. The Group will make provision for the estimate of any taxes that
are considered as potentially not recoverable within a reasonable time period (up to five years) and will also discount the value
of any final amount that management estimates may be recoverable, for the time value of money.
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, management estimates the expected future cash flows that might 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 per cent 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
(s) above.
Restoration, rehabilitation and environmental provisions (note 17)
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 the financial statements.
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. Management consider that the issues that they have disclosed with regard to the issue of the Installation
Licence for Coringa, are matters that will be resolved and in particular are not expected to create any materials delay to the
development of the project. It has reached its conclusion based on advice from the Company’s Brazilian lawyers but has also
received positive indications from other parties with whom it has discussed the matter.
128
Notes to the Financial Statements
For the year ended 31 December 2021
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.
Recoverability of ICMS tax debts
ICMS tax is a State-imposed sales tax which is recoverable from the State of Para. The Group has not to date received any cash
refunds and as an exporter generates no output ICMS on its sales. It is reliant on its ability to offset ICMS tax payable against
existing debt to minimise the accumulation of an increased level of tax recoverable from the State of Para. It has identified
certain arrangements that may allow the Group to recover over next five years some of the debt that is owed to the Group and
has provided in full against the remainder. Management considers that based on legal advice received the Group has a good
chance of being able to benefit from these schemes. In the event that it is unable to utilise these schemes or that the rate of
recovery is slower than anticipated the amount of ICMS that may be recovered in the future will be reduced and may be nil.
The Group does not take account of any future benefit from recovery of ICMS tax in its cash flow projections.
129
Notes to the Financial Statements
For the year ended 31 December 2021
2
Segmental analysis
The following information is given about the Group’s reportable segments, further details of which are set out in note 1(r).
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
Provision for impairment of
taxes receivable
Brazil
US$
37,198,774
2021
UK
US$
25,942,663
Total
US$
63,141,437
Brazil
US$
40,067,487
2020
UK
US$
15,762,591
22,844,572
(22,844,572)
–
14,743,498
(14,743,498)
Total
US$
55,830,078
–
(33,879,892)
(3,879,426)
(37,759,318)
(28,647,903)
(4,479,745)
(33,127,648)
–
–
–
(1,038,083)
–
–
(1,038,083)
(5,128,895)
16,535,452
(5,856,760)
(533,264)
245,743
Depreciation and amortisation
(5,717,229)
(332,399)
(6,049,628)
(5,128,895)
Gross profit/(loss)
Administration expenses
Share-based payments
20,446,225
(2,950,006)
(1,113,734)
(2,875,648)
–
(270,631)
Proceeds from sale of assets
(160,219)
–
19,332,491
(5,825,655)
(270,631)
(160,219)
19,996,104
(2,465,453)
(3,460,652)
(3,391,307)
–
(533,264)
245,743
–
Operating profit/(loss)
17,335,999
(4,260,013)
13,075,986
17,776,394
(7,385,223)
10,391,171
Foreign exchange (loss)/gain
Finance expense
Finance income
Profit /(loss) before taxation
Income tax expense
(51,380)
–
417,399
17,702,018
(3,408,581)
9,924
(261,825)
168,441
(4,343,473)
–
(41,456)
(261,825)
585,840
13,358,545
(3,408,581)
(199,472)
(141,466)
(15,373)
(214,845)
(1,621,774)
(1,763,240)
–
74,403
74,403
17,435,456
(1,456,464)
(8,947,967)
8,487,489
–
(1,456,464)
Profit/ (loss) for the period
14,293,437
(4,343,473)
9,949,964
15,978,992
(8,947,967)
7,031,025
Transactions between segments are accounted for in accordance with the Group’s accounting policy for a transaction of that
nature. In particular inter-group sales which comprise sales of copper/gold concentrate are recognised at the same time as the
Group makes the sale to the end purchaser, with the sale value made in accordance with the contractual terms between the
separate entities of the Group. Inter-group sales are transacted at prices intended to conform with accepted norms of international
transfer pricing practice.
An analysis of non-current assets by location is as follows:
Total non-current assets
31 December
2021
US$
30,175,966
34,857,905
605,125
1,224,360
66,863,356
–
66,863,356
31 December
2020
US$
28,809,289
27,778,354
696,077
1,879,158
59,162,878
–
59,162,878
Brazil – operations
Brazil – exploration
Brazil – taxes receivable
Brazil – deferred tax
Brazil – total
UK
130
Notes to the Financial Statements
For the year ended 31 December 2021
An analysis of total assets by location is as follows:
Brazil
UK
Total assets
31 December
2021
US$
31 December
2020
US$
79,655,799
11,022,642
90,678,441
70,243,353
5,993,618
76,236,971
During the year, the following amounts incurred by project location were capitalised as deferred exploration costs:
Brazil
Group
For the
year ended
31 December
2021
US$
8,987,126
For the
year ended
31 December
2020
US$
3,755,909
During the year, the following amounts were capitalised as land and buildings, mine assets, property, plant, equipment and
projects in construction (see note 9):
Brazil
Revenue
Group
For the
year ended
31 December
2021
US$
9,533,847
For the
year ended
31 December
2020
US$
5,498,518
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
2021
US$
37,198,774
25,942,663
63,141,437
31 December
2020
US$
40,067,487
15,762,591
55,830,078
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
Other – sale concluded from Brazil
Total
31 December 2021
31 December 2020
US$
34,314,048
25,942,663
2,884,726
63,141,437
%
54.3%
41.1%
4.6%
100.0%
US$
40,067,487
15,762,591
–
55,830,078
%
71.8%
28.2%
–
100.0%
131
Notes to the Financial Statements
For the year ended 31 December 2021
3
a.
Operating profit
Group operating profit for the year is stated after charging the following:
Staff costs
Depreciation (property, plant and equipment)
Amortisation of the mine asset
b.
Auditor’s remuneration
Group
For the
year ended
31 December
2021
US$
17,038,526
1,440,728
4,608,900
For the
year ended
31 December
2020
US$
15,548,265
1,493,867
3,635,028
Group
For the
year ended
31 December
2021
US$
For the
year ended
31 December
2020
US$
215,983
196,867(1)
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
49,504
10,463
40,500
(1) The 31 December 2020 fees payable to the Group’s auditor have been updated to reflect additional costs incurred as a result
of the extension of the prior year audit. The change to 2020 of £35,875 (US$47,692) reflects a final UK billing raised to cover the
additional forensic and audit work.
62,230
13,668
–
4
Finance expense and income
Interest expense on secured loan
Interest expense on convertible loan
Interest expense on mineral property acquisition liability
Unwinding of discount on rehabilitation provision
Amortisation of arrangement fee for convertible loan
Recognition of variation in effective interest rate of secured loan
Finance expense in respect of non-substantial modification
Interest payable
Gain on revaluation of derivative
Unwinding of discount on rehabilitation provision
Gain on warrants
Gain in respect of non-substantial modification
Finance income on short-term deposits
Finance income
Net finance income/(expense)
132
Group
For the
year ended
31 December 2021
US$
–
(47,502)
(23,854)
–
(150,000)
–
(40,469)
(261,825)
–
417,399
168,441
–
–
585,840
324,015
For the
year ended
31 December 2020
US$
(203,127)
(152,943)
(1,035,904)
(141,466)
(150,000)
(79,800)
–
(1,763,240)
33,023
–
–
40,469
911
74,403
(1,688,837)
Notes to the Financial Statements
For the year ended 31 December 2021
5
Taxation
Current tax
UK tax
Foreign tax – Tax on current year profits
Foreign tax – Adjustment to prior year’s tax charges
Total current tax
Deferred tax
(Increase)/release of deferred tax asset arising from temporary timing differences
Increase of deferred tax liability arising from temporary timing differences
Total deferred tax
Income tax charge
Group
For the
year ended
31 December
2021
US$
–
2,286,605
–
2,286,605
543,567
578,409
1,121,976
3,408,581
For the
year ended
31
December
2020
US$
–
1,683,074
306,847
1,989,921
–
(860,424)
326,967
(553,457)
1,456,464
The tax provision for the current period varies from the standard rate of corporation tax in the UK of 19.00% (2020: 19.00%). The
differences are explained as follows:
Profit on ordinary activities before tax
Tax thereon at UK corporate tax rate of 19.00% (2020: 19.00%)
Factors affecting the tax charge:
expenses not deductible for tax purposes
temporary differences (not recognised)
income not taxable
lower rate tax overseas
unrecognised tax losses carried forward and similar adjustments
recognition of untaxed income previously not recognised
recognition of tax losses and expenses previously not recognised
other movements
Tax charge
Unrecognised gross deferred tax position - 2021
Tax losses brought forward
Tax losses not recognised in the period
Movement in temporary differences
Total unrecognised gross deferred tax position at end of period
Unrecognised gross deferred tax position - 2020
Tax losses brought forward
Tax losses not recognised in the period
Movement in temporary differences
Total unrecognised gross deferred tax position at end of period
133
Trading losses
US$
65,573,473
2,942,510
–
68,515,983
Trading losses
US$
58,434,772
7,138,701
–
65,573,473
Group
For the
year ended
31 December
2021
US$
13,358,545
2,538,124
For the
year ended
31 December
2020
US$
8,487,489
1,612,623
916,782
307,428
–
(952,353)
957,017
–
–
(358,417)
3,408,581
Temporary
differences
US$
(325,460)
–
325,460
–
Temporary
differences
US$
(427,731)
–
102,271
(325,460)
1,208,390
(61,837)
(52,109)
(1,039,025)
1,447,659
326,967
(1,893,332)
(92,872)
1,456,464
Total
US$
65,248,013
2,942,510
325,460
68,515,983
Total
US$
58,007,041
7,138,701
102,271
65,248,013
Notes to the Financial Statements
For the year ended 31 December 2021
Unrecognised deferred tax asset
Tax losses (1)
Temporary differences
Total unrecognised deferred tax asset
Recognised deferred tax asset
Tax losses brought forward
Tax losses and untaxed expenses recognised in the period
Tax losses utilised in the period
Exchange
Net recognised deferred tax asset
Recognised deferred tax liability
Untaxed income brought forward
Untaxed income recognised in the period
Exchange
Net recognised deferred tax liability
For the
year ended
31 December
2021
US$
17,128,996
–
17,128,996
For the
year ended
31 December
2020
US$
12,458,960
(61,837)
12,397,122
1,879,158
354,250
(897,817)
(111,231)
1,224,360
324,519
578,409
(41,498)
861,430
1,321,782
1,893,332
(1,032,908)
(303,048)
1,879,158
–
326,967
(2,448)
324,519
(1) the unrecognised deferred tax asset in respect of UK tax losses has been calculated by reference to the enacted rate of UK
corporation tax from 1 April 2023 of 25%. Had the current rate of 19% been applied the deferred tax asset would be reduced
to US$13.02 million.
The deferred tax asset has been recognised in the financial statements only to the extent that the Group has reasonable certainty
as to the level and timing of future profits that might be generated and against which this asset may be recovered.
Employee information
6
The average number of persons, including Executive Directors, employed by the Group during the year was:
Management and corporate administration
Exploration
Mine operations and maintenance
Mine management and administration
Plant and processing
Total
Staff costs
Wages and salaries
Cost of incentive scheme shares
Social security costs
Termination costs
Group
Company
For the
year ended
31 December
2021
Number
25
26
492
36
81
660
For the
year ended
31 December
2020
Number
24
17
484
29
83
637
For the
year ended
31 December
2021
Number
5
–
9
1
–
15
For the
year ended
31 December
2020
Number
5
–
11
1
–
17
For the year
ended
31 December
2021
US$
For the year
ended
31 December
2020
US$
For the year
ended
31 December
2021
US$
For the year
ended
31 December
2020
US$
11,885,263
533,264
3,046,013
68,783
2,516,660
270,631
147,141
–
2,869,862
533,264
101,692
–
12,681,207
270,631
3,594,397
468,934
134
Notes to the Financial Statements
For the year ended 31 December 2021
Pension contributions
Total
Group
Company
For the
year ended
31 December
2021
23,357
17,038,526
For the
year ended
31 December
2020
14,942
15,548,265
For the
year ended
31 December
2021
23,357
2,957,788
For the
year ended
31 December
2020
14,942
3,519,760
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 their respective employees are entitled.
Directors’ remuneration
The compensation of the Directors is:
Salary and other benefits
Post-employment benefits
Total
For the
year ended
31 December
2021
US$
783,362
11,004
794,366
For the
year ended
31 December
2020
US$
714,777
10,258
725,035
The remuneration of the highest paid Director during the year was US$357,421 (2020: US$329,450). This includes cash
contributions made by the Company to his money purchase pension scheme of US$11,004 (2020: US$10,258).
During the year ended 31 December 2021, two of the Directors (2020: two) were contractually entitled to accrue retirement benefits
under money purchase schemes.
During the years ended 31 December 2021 and 31 December 2020, none of the serving Directors exercised any share options.
7
Earnings per share
Profit attributable to ordinary shareholders (US$)
Weighted average ordinary shares in issue
Basic profit per share (US cents)
Diluted ordinary shares in issue
Diluted profit per share (US cents)
For the year
ended
31 December
2021
9,949,964
71,829,223
13.85
76,726,221(1)
12.97
For the year
ended
31 December
2020
7,031,025
58,981,340
11.92
63,362,744(2)
11.10
(1) Based on 1,166,670 options vested and exercisable as at 31 December 2021.
(2) Based on 2,345,088 options vested and exercisable as at 31 December 2020 and 2,036,316 shares that could be issued pursuant
to any exercise of conversion rights attaching to the convertible loan notes as at 31 December 2020.
135
Notes to the Financial Statements
For the year ended 31 December 2021
8
Intangible assets
Deferred exploration costs
Cost
Opening balance
Exploration and evaluation expenditure
Pre-operational project costs
Foreign exchange movements
Total as at end of period
Group
31 December
2021
US$
31 December
2020
US$
27,778,354
4,102,530
4,884,596
(1,907,575)
34,857,905
29,656,716
2,425,440
1,330,469
(5,634,271)
27,778,354
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.
A public civil lawsuit filed in September 2017 by the Federal Prosecutor’s Office (“MPF”) against Chapleau Exploração Mineral
Ltda (“Chapleau”), the National Mining Agency (the “ANM”) and the State environmental agency (“SEMAS”) regarding
confirmation that the needs of the indigenous populations have been properly considered . The Company remains optimistic for
the award of the Installation Licence which is required before construction of the plant and the rest of the site infrastructure can
be started. Ongoing dialogue with the relevant agencies involved with issuing this licence, continues to be very positive and has
not highlighted any concerns with the project design itself. The agencies continue to follow the steps and processes set down by
the law to help expedite the issue of the licence. Both ANM and SEMAS have together with Serabi, filed documents of protest
with the relevant court authorities and the court judge who is currently reviewing the need for any ongoing intervention given
that all proper processes are being followed.
9
Tangible assets
Property, plant and equipment – Group
2021
Cost
Balance at 31 December 2020
Additions
Disposals
Changes in estimates on rehabilitation provision
Foreign exchange movements
At 31 December 2021
Depreciation
Balance at 31 December 2020
Charge for period
Released on asset disposals
Foreign exchange movements
At 31 December 2021
Net book value at 31 December 2021
Land and
buildings
– at cost
US$
2,148,533
42,096
–
–
(149,177)
2,041,452
(956,114)
(113,832)
–
112,582
(957,364)
1,084,088
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
38,187,449
5,400,933
–
–
(3,690,809)
39,897,573
(26,307,071)
(4,528,932)
–
1,865,387
(28,970,616)
10,926,957
8,962,712
2,479,619
–
1,695,416
(218,245)
12,919,502
–
–
–
–
–
12,919,502
Plant and
equipment
– at cost
US$
15,869,405
1,611,199
(1,802,512)
–
(1,097,018)
14,581,075
(11,669,364)
(1,595,256)
608,628
719,705
(11,936,287)
2,644,788
Total
US$
65,168,100
9,533,847
(1,802,512)
1,695,416
(5,155,249)
69,439,602
(38,932,549)
(6,238,020)
608,628
2,697,674
(41,864,267)
27,575,335
In February 2019, the Group concluded an arrangement to acquire a historic residual interest in the São Chico mining property
held by a former owner of the property and granted under the terms of an agreement with Gold Aura do Brasil Mineração in
October 2012 and the fair value of the consideration resulted in US$303,068 being reported as an addition to mining property.
During 2021 the Group completed the payments under the terms of the acquisition agreement totalling US$101,106 (2020:
US$634,594).
136
Notes to the Financial Statements
For the year ended 31 December 2021
No costs of borrowing have been capitalised during the period (2020: nil).
2020
Cost
Balance at 31 December 2019
Additions
Reallocation
Disposals
Changes in estimates on rehabilitation provision
Foreign exchange movements
At 31 December 2020
Depreciation
Balance at 31 December 2019
Charge for period
Released on asset disposals
Foreign exchange movements
At 31 December 2020
Net book value at 31 December 2020
10
Right of use assets
Land and
buildings
– at cost
US$
2,770,152
–
–
–
–
(621,619)
2,148,533
(1,316,792)
(75,806)
–
436,484
(956,114)
1,192,419
Mining
property
– at cost
US$
Projects in
construction
– at cost
US$
46,487,148
2,952,943
–
–
(441,405)
(10,811,237)
38,187,449
(29,374,004)
(3,517,398)
–
6,584,331
(26,307,071)
11,880,379
11,186,977
458,336
(1,627,819)
–
–
(1,054,782)
8,962,712
–
–
–
–
–
8,962,712
Plant and
equipment
– at cost
US$
18,079,108
2,087,239
1,627,819
(637,077)
–
(5,287,683)
15,869,405
(13,340,426)
(1,504,145)
32,997
3,142,210
(11,669,364)
4,200,042
Total
US$
78,523,385
5,498,518
–
(637,077)
(441,405)
(17,775,321)
65,168,100
(44,031,222)
(5,097,349)
32,997
10,163,025
(38,932,549)
26,235,551
Cost
Opening balance
Additions
Foreign exchange movements
Total as at end of period
Depreciation
Opening balance
Charge for period
Foreign exchange movements
Total as at end of period
Net book value at end of period
Plant and equipment
31 December
2021
US$
31 December
2020
US$
3,733,675
508,018
(273,655)
3,968,038
(1,159,937)
(297,103)
89,633
(1,367,407)
2,600,631
2,904,085
835,848
(6,258)
3,733,675
(906,909)
(254,937)
1,909
(1,159,937)
2,573,738
During the year ended 31 December 2021, the Group acquired assets under right of use assets totalling US$508,018 (2020:
US$835,848). The net book value of right of use assets at 31 December 2021 was US$2,600,631 (2020: US$2,573,738). Depreciation
charged on right of use assets for the period was US$297,103 (2020: US$254,937).
The Group only leases underground mining equipment. As at 31 December 2021, the future minimum lease payments due in
respect of outstanding lease contracts for mining equipment are US$735,010. The net present value of these lease contracts is
US$682,348.
137
Notes to the Financial Statements
For the year ended 31 December 2021
Current lease liabilities
Plant and equipment
Non-current lease liabilities
Plant and equipment
Total lease liabilities
31 December 2021
US$
31 December 2020
US$
290,060
290,060
444,950
444,950
735,010
201,403
201,403
350,931
350,931
552,334
The Group also has short-term leases which are presented in note 24. During 2021 the Group incurred expenses of US$63,202
(2020: US$184,089) on these short-term leases.
138
Notes to the Financial Statements
For the year ended 31 December 2021
11
Investments held as fixed assets
The Group consists of the following subsidiary undertakings:
Name
Incorporated
Registered office address
Serabi Mineração SA
Brazil Rodovia Transgarimpeira, km
Kenai Resources Ltd
British Columbia,
Canada
22,
Bairro Jardim do Ouro –
Itaituba/PA CEP 68181-000
Brazil
Royal Centre, P.O Box 11125,
Suite 1750-1055
W Georgia Street,
Vancouver, Canada
Gold Aura do Brasil
Mineração Ltda
Brazil Rodovia Transgarimpeira, KM
54
Comunidade São Chico –
Itaituba/PA CEP 68181-000
Brazil
Serabi Mining Ltd
British Virgin
Islands
Craigmuir Chambers,
Road Town, Tortola,
British Virgin Islands
Chapleau Resources Ltd
British Colombia,
Canada
Royal Centre, P.O Box 11125,
Suite 1750-1055
W Georgia Street,
Vancouver, Canada
Chapleau Resources
(USA) Inc
Chapleau Exploração
Mineral Ltda
Alaska,
USA
1029 West 3rd Avenue
Suite 400
Anchorage,
Alaska USA
Brazil Avenida Jornalista Ricardo
Marinho no 360, loja 113
Barra da Tijuca
Rio de Janeiro
RJ Brazil CEP 22.361-350
Serabi Gold Nominee
Limited
England 66 Lincoln’s Inn Fields
London WC2A 3LH
England
Activity
%
holding
Gold mining and
exploration
100%(1)
Investment
100%
Gold mining and
exploration
99.9%(1)
Investment
100%
Investment
100%
Gold exploration
100%(1)
Gold mining and
exploration
100%(1)
Dormant
100%
(1) indirectly held.
139
Notes to the Financial Statements
For the year ended 31 December 2021
Cost at start of period
Investment in subsidiary during period
Cost at end of period
Impairment provision at start of period
Reallocation of impairment provision in period
Impairment provision at end of period
Net book value at end of period
Company
31 December
2021
US$
111,617,713
791,052
112,408,765
(9,784,922)
-
(9,784,922)
31 December
2020
US$
110,722,719
894.994
111,617,713
(9,784,922)
-
(9,784,922)
102,623,843
101,832,791
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
2021 the Company has made an assessment as to whether any indicators exist 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.
12
Inventories
Consumables
Stockpile of mined ore
Other material in process
Finished goods awaiting sale
Group
31 December
31 December
2021
US$
3,692,452
266,214
1,094,405
1,920,136
6,973,207
2020
US$
3,171,288
349,024
1,233,291
2,225,835
6,979,438
Further details regarding the nature of the inventories and valuations are provided in the Financial Review on page 41.
13
Trade and other receivables
Current
Trade receivables
Other receivables
Trade and other receivables
Non-current
Taxes receivable
Amounts owed by subsidiaries
Gross receivable
Impairment provision
Net value of non-current other
receivables
Group
Company
31 December
2021
US$
31 December
2020
US$
31 December
2021
US$
31 December
2020
US$
2,261,376
46,082
2,307,458
2,071,216
–
2,071,216
1,874,928
61,116
1,936,044
2,270,458
–
2,270,458
2,261,376
12,738
2,274,114
–
18,176,606
18,176,606
1,874,928
10,314
1,885,242
–
18,175,040
18,175,040
(1,466,091)
(1,574,381)
(8,391,722)
(8,391,722)
605,125
696,077
9,784,884
9,783,318
140
Notes to the Financial Statements
For the year ended 31 December 2021
The trade receivables owed to the Group at the balance sheet date are recoverable from parties with which the Group has had
long standing relationships and at the balance sheet date none of the amounts owed to the Group were overdue. The Group has
not made any provision for any expected credit losses in respect of these trade receivables.
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 2021, 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.
At 31 December 2021, Serabi Gold plc has two loans outstanding to subsidiaries that are not fully impaired.
These loans are owed by Chapleau Exploração Mineral Ltda. (“CEML”) and Kenai Resources (“Kenai”). Both advances were
made 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 attached to the CEML loan, management has considered different scenarios through which the loan
will be recovered.
a) Scenario 1 – the loan is repaid within the next five years from the successful start up of the Coringa project.
b) Scenario 2 – the loan is repaid in less than 12 months from the sale of equipment and machinery.
The loan to Kenai is for a total amount of US$6,515, The credit risk is considered to be immaterial.
14
Prepayments and prepaid taxes
Recoverable State and Federal taxes
Supplier down payments
Other prepayments and employee advances
Prepayments
15
Cash and cash equivalents
Cash and cash equivalents
16
Trade and other payables
Current
Trade payables
Property acquisition(1)
Other payables
Group
Company
31 December
2021
US$
1,180,388
827,195
309,086
2,316,669
31 December
2020
US$
617,366
556,128
381,497
1,554,991
31 December
2021
US$
–
–
146,922
146,922
31 December
2020
US$
–
–
280,079
280,079
Group
Company
31 December
2021
US$
12,217,751
31 December
2020
US$
6,603,620
31 December
2021
US$
8,586,734
31 December
2020
US$
3,813,957
Group
Company
31 December
2021
US$
31 December
2020
US$
31 December
2021
US$
31 December
2020
US$
3,196,978
–
951,893
3,612,107
99,646
728,714
525,191
–
–
862,887
–
–
141
Notes to the Financial Statements
For the year ended 31 December 2021
Employee benefits
Other taxes and social security
Amounts due to subsidiaries
Due in less than one year
Non-current
(Between one and five years)
Other taxes and social security
Due in more than one year
Group
Company
31 December
2021
US$
600,195
875,445
–
5,624,511
31 December
2020
US$
758,596
1,647,139
–
6,846,202
31 December
2021
US$
45,596
–
29,265,880
29,836,667
31 December
2020
US$
23,726
–
27,436,118
28,322,731
427,663
427,663
91,916
91,916
–
–
–
–
(1)During 2019 the Group concluded an arrangement to acquire a historic residual interest in the São Chico mining property held
by a former owner of the property and granted under the terms of an agreement with Gold Aura do Brasil Mineração in October
2012. The consideration was settled in a series of monthly payments which were completed at the end of February 2021.
17
Non-current provisions
Environmental rehabilitation provision
Opening balance
Provided for in year
as a result of additions on initial recognition
as a result of changes in estimates
as a result of variations in discount
as a result of exchange variations
Total provided for in year
Total non-current provisions
Group
Company
31 December
2021
US$
1,467,032
390,043
1,305,373
(417,399)
(163,618)
1,114,399
2,581,431
31
December
2020
US$
2,237,266
–
(441,405)
141,466
(470,295)
(770,234)
1,467,032
31 December
2021
US$
–
31 December
2020
US$
–
–
–
–
–
–
–
–
–
–
–
–
–
The environmental rehabilitation provision has been established to cover any asset decommissioning and rehabilitation
obligations for the Palito, São Chico and Coringa 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. A provision ofUS$390,043
in respect of Coringa has been established during 2021.
142
Notes to the Financial Statements
For the year ended 31 December 2021
18
Interest-bearing liabilities
Current
Acquisition liability
Convertible loan stock
Obligations under right of use leases
Due in less than one year
Non-current
(Between one and five years)
Obligations under right of use leases
Due in more than one year
Group
Company
31 December
2021
US$
31 December
2020
US$
31 December 31 December
2020
US$
2021
US$
–
–
290,060
290,060
6,495,435
2,029,464
201,403
8,726,302
444,950
444,950
350,931
350,931
–
–
–
–
–
–
6,495,435
2,029,464
–
8,524,899
–
–
Each right of use lease is secured against the underlying assets that are the subject of that lease.
Secured loan facility
Secured loan facility
Amount outstanding at beginning of period
Repayment of principal
Recognition of variation in effective interest rate of
secured loan
Value of secured loan facility at period end
Group
Company
31 December
2021
US$
31 December
2020
US$
31 December
2021
US$
31 December
2020
US$
–
–
–
–
6,903,692
(6,983,492)
79,800
–
–
–
–
–
6,903,692
(6,983,492)
79,800
–
During 2020, the Group paid interest of US$262,439 on the secured loan facility whilst the total interest expense was US$203,127.
There was no interest payment or expense during 2021.
Convertible loan
Convertible loan
Amount outstanding at beginning of period
Drawdown of convertible loan
Initial fair value of derivative associated with loan
Repayment of convertible loan
Release of derivative associated with loan
Loan arrangement fee
Accrued interest
Value of secured convertible loan at end of period
Group
Company
31 December
2021
US$
31 December
2020
US$
31 December
2021
US$
31 December
2020
US$
2,029,464
–
–
(2,500,455)
423,479
–
47,512
–
–
2,000,000
(423,479)
–
–
300,000
152,943
2,029,464
2,029,464
–
–
(2,500,455)
423,479
–
47,512
–
–
2,000,000
(423,479)
–
–
300,000
152,943
2,029,464
During 2021, the Group incurred an interest expense of US$47,512 (2020: US$152,943) on the convertible loan. In accordance with
the terms of the convertible loan, interest was capitalised and repaid when the convertible loan notes were repaid or converted.
An arrangement fee of US$300,000 was also incurred in connection with the convertible loan notes. Further details regarding the
terms of the convertible loan notes (maturity date, interest rate, details of the conversion option) are disclosed in note 25 – Related
party transactions.
143
Notes to the Financial Statements
For the year ended 31 December 2021
Deferred mineral property acquisition liability
Mineral property acquisition liability
Deferred acquisition liability at start of period
Unwinding of fair value discount
Interest payable
Gain in respect of non-substantial modification
Loss in respect of non-substantial modification
Repayment of interest
Repayment of principal
Value of deferred mineral property acquisition
liability at end of period
Group
Company
31 December
2021
US$
31 December
2020
US$
31 December
2021
US$
31 December
2020
US$
6,495,435
–
18,041
–
40,469
(1,053,945)
(5,500,000)
12,000,000
–
1,035,904
(40,469)
–
–
(6,500,000)
6,495,435
–
18,041
–
40,469
(1,053,945)
(5,500,000)
12,000,000
–
1,035,904
(40,469)
–
–
(6,500,000)
–
6,495,435
–
6,495,435
The mineral property acquisition liability represents the Deferred Consideration for the acquisition of the Coringa gold project,
further details of which are set out in note 22 - Acquisition of Chapleau Resources Limited
At the start of the second quarter of 2020, the Group agreed revised repayment terms for the mineral property acquisition allowing
for a series of staged payments replacing the single lump sum payment that was otherwise then due. In accordance with IFRS 9,
the Group recognised the effect of a non-substantial modification to the previous payment arrangement. Accordingly, the Group
initially recognised a benefit arising from the modification totalling US$40,469 which was fully amortised during 2020.
Following the revision to the payment terms detailed above, this liability was re-classified from being an “Acquisition payment
outstanding” within “Current liabilities” to an “Interest-bearing liability”.
During 2021, the Group incurred an interest expense of US$18,041 (2020: US$1,035,904). Interest charges incurred were accrued
and paid at the same time that the final payment was made in respect of the mineral property acquisition. The final interest
payment made was US$1,053,945.
19
Derivatives
Group
Company
31 December
2021
31 December
2020
31 December
2021
31 December
2020
Derivative liability related to warrants in issue
US$
US$
US$
US$
Fair value at start of period
Subscription receipts at date of issue
Fair value adjustment on initial recognition
Initial fair value of financial liability
Decrease in fair value at end of period
Fair value at end of period
–
333,936
337,087
671,023
(505,528)
165,495
–
–
–
–
–
–
–
333,936
337,087
671,023
(505,528)
165,495
–
–
–
–
–
–
Fair value is determined using a Black-Scholes model and by reference to quoted mid-market prices at each balance sheet date for
the ordinary shares. The fair value of the derivative has been measured using level 1 and level 2 inputs.
The conversion rights embedded in the warrant notes represent a derivative as the Group’s functional currency is United States
Dollars but the conversion price is denominated in Pounds Sterling. Therefore, the amount to be released in US Dollars on
conversion is variable dependent upon the exchange rate between the US Dollar and GB Pound.
144
Notes to the Financial Statements
For the year ended 31 December 2021
Conversion rights attaching to convertible loan
Fair value at start of period
Initial fair value of derivative associated with
conversion rights
Decrease on revaluation of fair value at end of
period
Write back on settlement of convertible loan
Fair value at end of period
Group
Company
31 December
2021
31 December
2020
31 December
2021
31 December
2020
US$
390,456
–
–
(390,456)
–
US$
–
423,479
(33,023)
–
390,456
US$
–
–
–
(390,456)
–
US$
–
423,479
(33,023)
–
390,456
Fair value is determined using a Black-Scholes model and by reference to quoted mid-market prices at each balance sheet date for
the ordinary shares. The fair value of the derivative has been measured using level 1 and level 2 inputs.
The conversion rights embedded in the convertible loan notes represent a derivative as the loan is denominated in United States
Dollars but conversion price is denominated in Pounds Sterling therefore the rate of conversion is variable according to the
exchange rate between the US Dollar and GB Pound.
20
Analysis of changes in liabilities arising from financial activities
Revaluation of derivative
Interest
At 1 January 2021
Cash flows
Non-cash flows
-
-
- New lease arrangements
-
- Other
-
At 31 December 2021
Exchange rate movements
Transfers
Convertible
loan
2,029,464
(2,500,455)
Current
obligations
under right
of use assets
201,403
(355,836)
Non-current
obligations
under right of
use assets
350,931
–
423,479
47,512
–
–
–
–
–
–
–
307,622
73,058
81,182
(17,369)
290,060
–
–
195,268
(73,058)
–
(28,191)
444,950
Total
2,581,798
(2,856,291)
423,479
47,512
502,890
–
81,182
(45,560)
735,010
During 2021, the Group has incurred an interest expense of US$47,512 (2020: US$152,943) on the convertible loan. In accordance
with the terms of the convertible loan, interest was capitalised and repaid when the convertible loan notes were repaid or
converted. An arrangement fee of US$300,000 was also incurred in connection with the convertible loan notes.
21
Share capital
Each of the ordinary shares carries equal rights and entitles the holder to 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 to 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
Ordinary shares in issue at end of period
2021
Number
$
Number
$
2020
59,084,551
16,650,000
75,734,551
8,905,116
2,308.502
11,213,618
58,909,551
175,000
59,084,551
8,882,803
22,313
8,905,116
145
Notes to the Financial Statements
For the year ended 31 December 2021
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 2021.
Details of the number of share options and the weighted average exercise price (“WAEP”) outstanding under the Serabi 2011
Share Option Plan are as follows:
Outstanding at the beginning of the period
Granted during the period
Exercised in period
Expired during the period
Outstanding at the end of the period
Exercisable at end of the period
31 December
2021
Number
3,711,750
-
-
(1,961,750)
1,750,000
1,166,670
31 December
2021
WAEP UK£
0.974
-
-
1.085
0.85
0.85
31 December
2020
Number
2,569,250
2,050,000
(125,000)
(782,500)
3,711,750
2,345,088
31 December
2020
WAEP UK£
1.071
0.85
0.75
1.000
0.974
1.047
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
27/05/20
Vesting
period
(years)
2
First
vesting
date
27/05/20
Expected
life
(years)
3
Risk
free
rate
0.75% UK£0.85
Exercise
price
Volatility
of share
price
50%
Fair
value
UK£0.239
Options
vested
1,166,670
Options
granted
1,750,000
Expiry
26/05/23
During the year a charge of US$270,631 (2020: US$316,332) has been recorded in these financial statements in respect of these
options.
Conditional Share Awards
On 16 June 2020, shareholders approved the adoption of the Serabi 2020 Restricted Share Plan (the “2020 Plan”) which was
subsequently adopted by the Board on 10 November 2020. Details of the 2020 Plan were set out in the Notice of Annual General
Meeting dated 15 May 2020, which is available from the Company’s website. The 2020 Plan as a Long-term Incentive Plan (“LTIP”)
replaces the Serabi 2011 Share Option Plan. No further awards are being made by the Company under the Serabi 2011 Share
Option Plan.
On 7 December 2021 the Board of Directors agreed to award in aggregate 864,500 Conditional Share Awards to employees
(including directors) of the Company. The awards were part of the Company's normal annual compensation review. While the
intention of the Board is that awards under the 2020 Plan should be made annually, as a result of the exceptional circumstances
in 2020, no awards under the 2020 Plan were made during 2020 following its approval by shareholders. The Board is therefore
combining in the award made on 7 December 2021, the annual awards for 2020 and the annual awards for 2021.
The awards are subject to a three-year performance period during which time certain performance criteria stipulated by the Board
must be attained. Vesting only occurs at the end of the performance period. The performance criteria and minimum thresholds to
be achieved can be summarised as follows:
40% of the award is subject to Total Shareholder Return, (where TSR must be 1.2 times or more the BMO Junior
Gold Index)
30% of the award is subject to Return on Capital Employed (where ROCE premium over Weighted Average
Cost of Capital must be 1.2 times or more), and
30% of the award is subject to Return on Sales (where ROS must exceed average annual budget by 10 per cent
or more)
146
Notes to the Financial Statements
For the year ended 31 December 2021
The number of Conditional Shares awarded was calculated by reference to the 20 day VWAP average of the Company's shares
on the date of grant. The underlying shares to be issued pursuant to each of the Conditional Share Awards will only be issued at
the time of vesting and only in such amount (if any) as is required based on the achievement of the performance criteria.
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 Exploracao 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 was due 24 months from the date of Closing representing the remaining “Deferred Consideration”. The total proposed
consideration for the acquisition amounts to US$22 million in aggregate. On 20 December 2019, Anfield (via its parent company
Equinox Gold Corp.) and Serabi agreed to extend the final payment date for a further three months to 31 March 2020. The
Company agreed that it would pay interest on the amount of the Deferred Consideration outstanding at the rate of 10 per cent
per annum.
On 31 March 2020, Serabi and Anfield (via its parent company Equinox Gold Corp) entered into a further agreement whereby the
date for the completion of the payment of the Deferred Consideration was extended (the “Deferral Period”) until such time as
there are no international travel restrictions imposed by the Brazilian authorities and also no travel restrictions within or into the
State of Para, Brazil, (the “Travel Restriction Condition”) where the Group’s Palito Complex gold production operations and the
Coringa gold project are located. Under the terms of the extension the Group started to make instalment payments in respect of
the Deferred Consideration of US$500,000 per month payable on each of 1 May 2020, 1 June 2020 and 1 July 2020 which increased
to US$1 million per month thereafter until such time as the Travel Restriction Condition is satisfied. As of 31 December 2020,
US$5.5 million (plus accrued interest) remained outstanding. Settlement of all outstanding amounts due to Anfield was
completed in April 2021 including payment of all outstanding interest of US$1.09 million.
Following the agreement that interest should accrue on any amount of the Deferred Consideration that remained outstanding
and that the Deferred Consideration should be paid in instalments, the Deferred Consideration was re-classified as an interest-
bearing liability.
The effect of the reclassification, effective as of 31 March 2020, is shown in the table below:
Mineral property acquisition liability
Amount outstanding at beginning of period
Unwinding of fair value discount
Reclassification to interest-bearing liability (note
18)
Value of deferred mineral property acquisition
liability at end of period
Group
Company
31 December
2021
US$
31 December
2020
US$
31 December
2021
US$
31 December
2020
US$
–
–
–
–
12,000,000
–
(12,000,000)
–
–
–
–
–
12,000,000
–
(12,000,000)
–
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 was discounted at a 10 per cent cost of capital upon initial recognition in December 2017.
147
Notes to the Financial Statements
For the year ended 31 December 2021
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 has 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 it will seek to raise further finance within the next 12 month period to fund the longer term continued
development of Coringa including a gold processing facility, and repay the Group’s debt, which comprises a 12 month, US$5
million bank loan maturing in May 2023, This funding may be generated from a variety of sources which could include a
combination of bank debt, royalty, streaming of gold and copper revenues, new equity capital and cash flow from the current
operations. The Group has been successful in raising funding as and when required in the past and the Directors consider that
the Group continues to have strong support from its major shareholders who been supportive of and provided additional funding
when required on previous occasions. The Company will judge the optimum timing for securing any future funding but will try
and take advantage of periodic upturns in market sentiment to obtain the optimum conditions available at the time.
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.
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$0.04 million (2020: US$0.04 million).
Capital Purchases
At 31 December 2021 the Group had placed orders for and made initial down payments for mining machinery to be acquired
under supplier finance arrangements. The Group’s obligation under these finance arrangements totals US$2.28 million over
periods of 24 or 36 months beginning in 2022. In addition, the Group had made down payments on other items of Plant and
Equipment to be delivered in 2022 with a remaining purchase price of US$0.46 million to be paid in 2022.
Lease commitments
The Group has elected not to recognise right of use assets and lease liabilities for leases of low-value assets and short-term leases.
The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.
The Group has commitments under non-cancellable leases in respect of office premises and equipment as follows:
Commitments falling due:
Within one year
Between one year and five years
Total
Group
Company
31 December
2021
US$
31 December
2020
US$
31 December
2021
US$
31 December
2020
US$
63,202
1,634
64,836
40,777
–
40,777
–
–
–
–
–
–
148
Notes to the Financial Statements
For the year ended 31 December 2021
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.
The Company has taken legal action against a former employee for the recovery of funds that the Company considers had been
misappropriated during the period January 2015 to March 2021. The former employee has submitted his defence to the claims
made by the Company and submitted counterclaim against the Company for wrongful dismissal for a value of approximately
BRL11.0 million (approximately US$2.2 million). The Company’s lawyers consider that the prospect of the counterclaim being
granted against the Company as being very remote.
25
Related party transactions
Issue of convertible loan notes to Greenstone
On 21 January 2020, the Group entered into a subscription deed (“the Subscription Deed”) for the issue of US$12 million of
convertible loan notes (“the Loan Notes”) by Greenstone Resources II LP (“Greenstone”) the proceeds of which were to be applied
inter-alia to settle the Coringa Deferred Consideration. The subscription deed was subject to shareholder approval and certain
other conditions being fulfilled at the time of initial drawdown. Shareholder approval was received on 26 February 2020.
However, as a consequence of the uncertainties caused by COVID-19, the Group subsequently agreed with Greenstone to extend
the period for the satisfaction of all the conditions necessary for the completion of the subscription by, and issue to, Greenstone
of the Loan Notes.
On 23 April 2020, the Company and Greenstone signed an amendment deed which varied the original Subscription Deed (the
“Amended Subscription Deed”).
Under the Amended Subscription Deed and a further subsequent amendment, whilst the Travel Restriction Condition was in
place the Company could only submit a subscription request in respect of the Loan Notes in the amount of US$500,000 each
month. Following the satisfaction of the Travel Restriction Condition, the Company could then issue further subscription requests
for amounts of not less than US$100,000 and not exceeding an amount equal to US$12,000,000 less the sum of the aggregate
principal amount of all Notes outstanding at that time. The arrangements with Greenstone included a provision whereby the
Loan Notes were available to be drawn down by the Company at any time until 30 June 2021. The Loan Notes carried fixed
conversion rights into ordinary shares of the Company at a price of UK£0.76 per share. Subject to certain conditions the holder of
the Loan Notes may convert all of part of the Loan Notes in issue at any time before 31 August 2021. Unless otherwise converted
into ordinary shares of the Company, the Loan Notes were due to be redeemed on 31 August 2021.
Whilst an existing secured loan facility with Sprott (the “Sprott Loan”) was outstanding the Loan Notes were unsecured and
subordinated to the Sprott Loan. Following settlement of the Sprott Loan, the security interests of Sprott were discharged and
the Group granted to Greenstone the security package as originally envisaged save that a pledge of the shares of Chapleau
Resources Limited (“CRL”) continued to be held by Anfield and its parent company, Equinox, until such time as the Coringa
Deferred Consideration was settled in full. CRL holds 100 per cent of the shares of Chapleau Exploração Mineral Ltda which in
turn holds the exploration licences for the Coringa gold project.
The Amended Subscription Deed included certain covenants and undertakings that are in accordance with normal market practice
for these types of arrangement. These included an undertaking that at each month end (i) the cash position of the Group should
be the higher of US$1 million or 25 per cent of the value of the partial subscriptions completed at that date and (ii) the Group
should have positive working capital (excluding the value of the Loan Notes) of at least US$2.5 million.
On 19 March 2021, the Group redeemed all of the outstanding Loan Notes together with interest and other fees payable in
connection with the Loan Notes and the security package was released by Greenstone.
149
Notes to the Financial Statements
For the year ended 31 December 2021
Transactions with intergroup entities
During the period the Company made one loan to a subsidiary of US$1,566 (2020: US$0.30 million). There were no loans converted
into new shares issued by subsidiaries during 2021 (2020: US$Nil). The balance of these loans at 31 December 2021 was US$9.78
million (2020: US$9.78 million).
The Company has loans receivable from subsidiaries totalling US$18,176,606 (2020: US$18,175,040) before any provision for the
impairment of these loans (see note 13).
The Company has purchased, during the year from its subsidiary SMSA, 1,340 tonnes of copper/gold concentrate for a
consideration of US$22,776,700 (2020: 860 tonnes; US$14,629,149). At the end of the period the Company owed US$29,265,880 to
its subsidiary SMSA (2020: US$27,436,118).
Key management remuneration
Key management comprises the Executive Directors, Non-executive Directors, the former COO and the former Country Manager
only. Their compensation is:
Short-term employee benefits
Post-employment benefits
Share-based payments
Total
26
Financial risk management
For the
year ended
31 December
2021
US$
1,046,297
11,004
193,889
1,251,191
For the
year ended
31 December
2020
US$
1,037,437
10,258
275,902
1,323,597
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 up during the year to 31 December 2021 from which financial instrument
risk arose or may arise in the future are as follows:
Trade and other receivables
Cash and cash equivalents
Trade and other payables
Convertible loan notes
Loans and borrowings
Leases and asset loans
Derivative
The principal financial instruments by category are as follows:
150
Notes to the Financial Statements
For the year ended 31 December 2021
Group financial assets
Cash and cash equivalents
Trade and other receivables
Total financial assets
Group financial liabilities
Trade and other payables
Convertible loan notes
Other loans and borrowings
Derivatives
Total financial liabilities
Company financial assets
Cash and cash equivalents
Trade and other receivables
Total financial assets
Company financial liabilities
Trade and other payables
Convertible loan notes
Other loans and borrowings
Total financial liabilities
General objectives, policies and processes
Fair value through profit or
loss
Amortised cost
2021
US$
2020
US$
2021
US$
2020
US$
–
–
12,217,751
6,603,620
2,307,458
1,936,044
–
–
2,307,458
1,936,044
12,217,751
6,603,620
Fair value through profit or
loss
Amortised cost
2021
US$
–
–
–
165,495
165,495
2020
US$
–
–
–
390,456
390,456
2021
US$
6,052,174
–
735,010
–
6,787,184
2020
US$
6,938,118
2,029,464
7,047,769
–
16,015,351
Fair value through profit or
loss
2021
US$
–
2,274,114
2,274,114
2020
US$
–
1,885,242
1,885,242
Amortised cost
2021
US$
8,586,734
–
8,586,734
2020
US$
3,813,957
–
3,813,957
Fair value through profit or
loss
2021
US$
2020
US$
–
–
–
–
–
–
–
–
Amortised cost
2021
US$
29,836,667
–
–
29,836,667
2020
US$
28,322,731
2,029,464
6,495,435
36,847,630
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.
151
Notes to the Financial Statements
For the year ended 31 December 2021
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:
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.
Trade receivables are 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. Any subsequent
adjustment is recognised at FVTPL.
Whilst not representing a financial instrument all inventory as at 31 December 2021, 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
The Group and the Company have taken out fixed rate finance leases for the acquisition of some equipment and have previously
utilised floating rate short-term trade finance in respect of sales of copper/gold concentrate production.
In April 2020, the Group entered into a Subscription Deed with Greenstone for the issue to and subscription by Greenstone of up
to US$12 million of convertible loan notes, further details of which are set out in note 25 Related party transactions. Interest was
chargeable on the convertible loan notes at the rate of US$ LIBOR plus 13 per cent. A total of US$2.0 million was drawn down
under the facility. The convertible loan notes were redeemed in full on 19 March 2021.
The Group had been paying down the final instalment of US$12 million due for the acquisition of the Coringa gold project in a
series of monthly instalments. Interest was charged on the outstanding loan at the rate of 10 per cent per annum. As at 1 January
2021, US5.5 million (plus accrued interest) remained outstanding to be paid with the balance being settled in monthly payments
of US$1 million per month. The remaining debt and accrued interest was repaid in full on 29 April 2021.
Whilst the interest rate on the convertible loan notes was linked to market rates, market interest rates remained low prior to the
convertible loan notes being redeemed on 19 March 2021. As a result, neither the Group nor the Company had any material
exposure to market rate movements.
Group
2021
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Derivatives
Interest-bearing liabilities
Total
Weighted
average
effective
interest
rate
%
–
–
–
–
–
–
–
Non-interest-
bearing
US$
–
2,307,458
2,307,458
6,445,586
165,495
–
6,611,081
Floating
US$
12,217,751
–
12,217,751
–
–
–
–
152
Fixed interest maturity
One year or
less
US$
Over one to
five years
US$
Total
US$
–
–
–
–
–
290,060
290,060
–
–
–
12,217,751
2,307,458
14,525,209
–
–
444,950
444,950
6,445,586
165,495
735,010
7,346,091
Notes to the Financial Statements
For the year ended 31 December 2021
Weighted
average
effective
interest rate
%
Non-interest-
bearing
US$
–
–
–
–
9.79%
–
1,936,044
1,936,044
7,230,207
390,456
–
7,620,663
Weighted
average
effective
interest
rate
%
Non-interest-
bearing
US$
–
–
–
–
–
–
–
12,205,920
12,205,920
30,074,073
165,495
30,239,568
Weighted
average
effective
interest rate
%
Non-interest-
bearing
US$
–
–
–
–
10.00%
–
11,948,639
11,948,639
28,739,666
390,456
–
29,130,122
2020
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Derivatives
Interest-bearing liabilities
Total
Company
2021
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Derivatives
Total
2020
Financial assets
Cash
Receivables
Total
Financial liabilities
Payables
Derivatives
Interest-bearing liabilities
Total
Liquidity risk
Fixed interest maturity
One year or
less
US$
Over one to
five years
US$
–
–
–
–
–
–
8,726,302
8,726,302
Fixed interest maturity
One year or
less
US$
Over one to
five years
US$
–
–
–
–
–
–
–
–
–
–
–
–
Fixed interest maturity
One year or
less
US$
Over one to
five years
US$
–
–
–
–
–
–
Floating
US$
6,603,620
–
6,603,620
Floating
US$
8,586,734
–
8,586,734
–
–
–
Floating
US$
3,813,957
–
3,813,957
–
–
–
–
–
–
8,524,899
8,524,899
Total
US$
6,603,620
1,936,044
8,539,664
7,230,207
390,456
8,726,302
16,346,965
Total
US$
8,586,734
12,205,920
20,792,654
30,074,073
165,495
30,239,568
Total
US$
3,813,957
11,948,639
15,762,596
28,739,666
390,456
8,524,899
37,655,021
–
–
–
–
–
–
–
–
–
–
–
–
–
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 and during 2020 issued convertible loan notes to one of its
shareholders. It also uses floating rate short-term trade finance and fixed rate finance leases to finance its activities.
153
Notes to the Financial Statements
For the year ended 31 December 2021
The Group issued US$2 million of convertible loan notes during 2020, which remained outstanding as at 31 December 2020 and
were repaid in full on 19 March 2021.
The Group owed US$5.5 million, as at 1 January 2021, to Anfield being the amount outstanding for the acquisition of the Coringa
gold project. The amount due was being paid in monthly instalments of US$1million per month whilst international and domestic
travel restrictions exist in Brazil. All outstanding amounts were settled on 29 April 2021.
In addition to the above, the Company had obligations under fixed rate right of use asset leases amounting to US$0.74 million
(2020: US$0.55 million) (see note 18).
The following table sets out the maturity profile of the financial liabilities as at 31 December 2021:
Due in less than one month
Trade payables and accruals
Interest-bearing liabilities
Total due in less than one month
Due in less than three months
Trade payables and accruals
Interest-bearing liabilities
Total due in less than three months
Due between three months and one year
Trade payables and accruals
Interest-bearing liabilities
Total due between three months and one year
Total due within one year
Due more than one year
Trade payables and accruals
Interest-bearing liabilities
Total due more than one year
Total
Currency risk
Group
2021
US$
509,571
24,172
533,743
1,995,179
48,343
2,043,522
3,517,161
217,545
3,734,706
6,311,971
423,675
444,950
868,625
7,180,596
2020
US$
743,038
1,016,784
1,759,822
1,936,101
2,033,567
3,969,668
4,459,152
5,675,951
10,135,103
15,864,593
91,916
350,931
442,847
16,307,440
Company
2021
US$
2,434,415
–
2,434,415
8,723,855
–
8,723,855
18,915,803
–
18,915,803
30,074,073
–
–
–
30,074,073
2020
US$
2,065,978
1,000,000
3,065,978
5,789,627
2,000,000
7,789,627
20,884,061
5,524,899
26,408,960
37,264,565
–
–
–
37,264,565
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 2011, were priced in Canadian Dollars. The Company expects that future
issues of ordinary shares may be priced in Sterling or Canadian Dollars. Expenditure is primarily in Brazilian Real and also in US
Dollars, Sterling, Euros and Australian Dollars.
The functional currency of the Company’s operations is US Dollars, which is also the reporting currency for the Group. The
Group’s cash holdings at the balance sheet date were held in the following currencies:
US Dollar
Canadian Dollar
154
Group
31 December
2021
US$
7,050,890
68,748
31 December
2020
US$
4,600,469
75,005
Notes to the Financial Statements
For the year ended 31 December 2021
Sterling
Australian Dollar
Euro
Brazilian Real
Total
Group
31 December
2021
US$
1,359,004
4,487
106,017
3,628,605
12,217,751
31 December
2020
US$
112,954
39,785
64,954
1,710,453
6,603,620
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:
Currency of net monetary
asset/(liability)
US Dollar
Canadian Dollar
Sterling
Australian Dollar
Euro
Brazilian Real
Total
Brazilian Real
31 December 2021
US$
–
–
–
–
(1,179,960)
3,116,572
1,936,612
Functional currency
Canadian $
31 December 2021
US$
10,927
1,865
–
–
–
–
12,792
United States $
31 December 2021
US$
9,406,867
66,336
450,811
4,487
106,017
–
10,034,518
TOTAL
31 December 2021
US$
9,417,794
68,201
450,811
4,487
(1,073,943)
3,116,572
11,983,922
The above indicates that the Group’s and the Company’s primary exposure is to exchange rate movements between UK Pounds
Sterling and the US Dollar and the Euro and the Brazilian Real.
The table below shows the impact of changes in exchange rates on the results and financial position of the Group and the
Company.
10% weakening of Brazilian Real
10% strengthening of Brazilian Real
10% weakening of US Dollar
10% strengthening of US Dollar
10% weakening of Brazilian Real
10% strengthening of Brazilian Real
Against US Dollar
US$
(7,587)
9,056
Against Sterling
US$
(23,033)
26,719
Against Euro
US$
(117,996)
117,996
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”.
155
Notes to the Financial Statements
For the year ended 31 December 2021
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$15,813,927 (2020: US$10,790,732). It is the Group’s policy to only deposit surplus cash with financial institutions that hold
acceptable credit ratings.
The Group currently sells all of its gold bullion to a single customer. The Group seeks to receive full settlement by bank transfer
on delivery of its product to the purchaser to minimise its exposure to any credit risk on that customer.
During 2021, the Group sold all of its copper/gold concentrate production to a single customer, a publicly quoted metals trading
group. Settlement terms were in accordance with industry norms. The customer has a strong reputation within the industry and
has a good credit risk history. As at the balance sheet date there were no amounts owed to the Group that were overdue (2020:
amount overdue: US$Nil).
The Company’s exposure to credit risk amounted to US$20,792,654 (2020: US$15,762,596). Of this amount US$9,784,884 (2020:
US$9,783,318) is due from subsidiary companies, US$8,586,734 represents cash holdings (2020: US$3,813,957) 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 2021 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 13 for
details on the credit loss allowance made.
27
Ultimate controlling party
Fratelli Investments Ltd owns 19,318,785 ordinary shares representing 25.5 per cent of the voting shares in issue and Greenstone
Resources II LP owns 19,083,395 ordinary shares representing 25.2 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
On 19 April 2022, the Company advised that dilution in the Julia Vein which forms part of the Sao Chico deposit and which is
being mined by mechanised long hole open stoping was higher than expected as a consequence of the presence of parallel and
cross cutting faults and intrusive dykes which post-date the ore. This level of faulting appears to be unique to the Julia Vein. The
Company advised that it would introduce selective open stoping, the method used successfully on the Palito orebody, and which
over time is expected to improve grades by minimising dilution through greater selectivity in the mining. 1,000 ounces of
156
Notes to the Financial Statements
For the year ended 31 December 2021
production which had been scheduled from São Chico in February by long hole, would now be mined selectively during the
second quarter and over the rest of the year.
The Company further advised that as a result of the decision to mine selectively on the Julia Vein, the reliance on production
ounces would, in the near term, focus on the Palito orebody, with operations at São Chico focusing more on mine development
with a view to a return to planned production levels later in the year and into 2023. In the short term the Company advised that
it would be focusing on producing profitable ounces and maximising operational cashflow rather than production growth for the
rest of the year. The Company reduced production guidance for 2022 from the previously declared level of 36,000 to 38,000 ounces
to being in the region of 30,000 ounces.
On 17 May 2022, the Company completed a US$5.1 million unsecured loan arrangement with a Brazilian bank. The loan is
repayable as a bullet payment on 12 May 2023 and carries an interest coupon of 6.6 per cent.
Except as set out above, 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.
157
Glossary
“Ag”
“AISC”
“ANM”
“Au”
“assay”
“CIM”
means silver.
means All-In Sustaining Cost – a non IFRS performance measurement established by the World Gold
Council
means the Agencia Nacional de Mineral.
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”
means copper.
“cut-off grade”
“deposit”
“electromagnetics”
“garimpeiro”
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 orebody or as containing ore reserves, until final legal, technical, and
economic factors have been resolved.
is a geophysical technique tool measuring the magnetic field generated by subjecting the sub-surface
to electrical currents.
is a local artisanal miner.
“geochemical”
refers to geological information using measurements derived from chemical analysis.
“geophysical”
“geophysical
techniques”
“gold equivalent”
“gossan”
“grade”
“g/t”
refers to geological information using measurements derived from the use of magnetic and electrical
readings.
include the exploration of an area by exploiting differences in physical properties of different rock
types. Geophysical methods include seismic, magnetic, gravity, induced polarisation and other
techniques; geophysical surveys can be undertaken from the ground or from the air.
refers to quantities of materials other than gold stated in units of gold by reference to relative product
values at prevailing market prices.
is an iron-bearing weathered product that overlies a sulphide deposit.
is the concentration of mineral within the host rock typically quoted as grams per tonne (g/t), parts
per million (ppm) or parts per billion (ppb).
means grams per tonne.
“hectare” or a “ha”
is a unit of measurement equal to 10,000 square metres.
“indicated mineral
resource”
“inferred mineral
resource”
“IP”
is that part of a mineral resource for which quantity, grade or quality, densities, shape and physical
characteristics can be estimated with a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning and evaluation of the
economic viability of the deposit. The estimate is based on detailed and reliable exploration and
testing information gathered through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes that are spaced closely enough for geological and grade
continuity to be reasonably assumed.
is that part of a mineral resource for which quantity and grade or quality can be estimated on the
basis of geological evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited information and sampling
gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings
and drill holes.
refers to induced polarisation, a geophysical technique whereby an electric current is induced into
the sub-surface and the conductivity of the sub-surface is recorded.
158
Glossary
“measured mineral
resource”
“mineralisation”
is that part of a mineral resource for which quantity, grade or quality, densities, shape, and physical
characteristics are so well established that they can be estimated with confidence sufficient to allow
the appropriate application of technical and economic parameters, to support production planning
and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable
exploration, sampling and testing information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to
confirm both geological and grade continuity.
the concentration of metals and their chemical compounds within a body of rock.
“mineralised”
refers to rock which contains minerals e.g. iron, copper, gold.
“mineral reserve”
“mineral resource”
“mt”
“NI 43-101”
“ore”
“oxides”
“ppm”
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.
“saprolite”
is a weathered or decomposed clay-rich rock.
“sulphide”
refers to minerals consisting of a chemical combination of sulphur with a metal.
“tailings”
are the residual waste material that it is produced by the processing of mineralised rock.
“tpd”
“vein”
“VTEM”
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.
159
Shareholder Information
Company
Serabi Gold plc
UK Office
The Long Barn
Cobham Park Road
Downside
Surrey KT11 3NE
Tel:
+44 (0)20 7246 6830
Registered Office
66 Lincoln’s Inn Fields
London WC2A 3LH
Company Number
5131528
Board of Directors
Nicolas Banãdos – Non-executive Chairman
Mike Hodgson – Chief Executive
Clive Line – Finance Director
Aquiles Alegria – Non-executive Director
Luis Azevedo – Non-executive Director
Sean Harvey – Non-executive Director
Eduardo Rosselot – Non-executive Director
Mark Sawyer – Non-executive Director
Company Secretary
Clive Line
Nominated Adviser
Beaumont Cornish Limited
Building 3, Chiswick Park
566 Chiswick High Road
London W4 5YA
Solicitors – UK
Farrer & Co
66 Lincoln’s Inn Fields
London WC2A 3LH
Travers Smith
10 Snow Hill
London EC1A 2AL
Serabi Mineração S.A.
Av Antonio de Pádua Gomes, no. 737
Jardim das Araras, Cidade Itaituba
CEP 8180-120 Pará
Brazil
Email:
Web: www.serabigold.com
contact@serabigold.com
Auditor
BDO LLP
55 Baker Street
London W1U 7EU
Legal Counsel – Canada
Peterson McVicar LLP
18 King Street East, Suite 902
Toronto,
Ontario M5C 1C4
Joint Brokers – UK
Peel Hunt LLP
100 Liverpool Street, London, EC2M 2AT
Joint Brokers – UK
Tamesis Partners LLP
125 Old Broad Street, London EC2N 1AR
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
160