MIDAS SHARE TIPS: Find a safe haven… with miner Serabi, who, even in these uncertain economic and political times, has golden prospects
In uncertain times, gold comes into its own. And these are, without doubt, uncertain times – good for gold investors and for gold miners too.
The Tapajos region in northern Brazil has been recognised as a gold-producing district for more than 200 years. When the founders of Serabi Gold were looking for a Brazilian venture, therefore, Tapajos seemed a logical place to start.
They acquired 125,000 acres of land and set to work. That was almost 20 years ago. Access was tough, power supplies were limited and obstacles erupted at every turn. The mine eventually went into hibernation and Mike Hodgson, a UK geologist turned mining company doctor, was brought in to turn the business round.
On track: Back in 2020, Serabi shares hit £1.05. Today they are just 39p – that is too cheap
By 2013, the Palito mine was up and running and six years later Serabi produced 40,000 ounces of gold from the site. Then the pandemic struck. Production fell below 35,000 ounces in both 2020 and 2021. Sales in the first quarter of this year amounted to less than 7,000 ounces, as Hodgson struggled to find the equipment he needed to mine high-grade ore.
The stock market has been unforgiving. Back in 2020, Serabi shares hit £1.05. Today they are just 39p. That is too cheap.
Production has bounced back since March and an update for the three months to June – out this week – should show a healthy improvement. Palito is unlikely to hit 40,000 ounces in 2022 but Hodgson is determined to return to that level as swiftly as possible. Serabi owns another mine too, Coringa, 125 miles south of Palito. Geological and economic assessments have already been carried out and the mine should double Serabi’s annual ounces once it is in full production.
Hodgson is waiting on the final permit but early licences have been granted. In the meantime, Serabi is trucking ore from Coringa to Palito and processing it there. The process should generate 3,000 ounces of gold this year, rising to more than 6,000 in 2023.
Ultimately, Hodgson and his team aim to construct a full processing plant at Coringa, but the new plan means this mine can start paying its way at least a year earlier than expected – a particular benefit with gold prices around $1,800 (£1,500) an ounce.
Hodgson has one more cat in the bag – Matilda, an area within the Palito complex, where early exploration programmes suggest the presence of large amounts of copper.
Mining giants including Rio Tinto and Anglo American have been looking for the red metal in the same area. If Serabi has struck lucky, lucrative deals could be in the offing. Even without that kicker, Serabi is expected to make $4million (£3.3million) of profit this year, soaring to $12.6million in 2023.
Midas verdict: Serabi has had a rough couple of years, but the company is back on track, profitable and moving in the right direction. At 39p, the shares are a buy.
Traded on: AIM Ticker: SRB Contact: serabigold.com or 020 7246 6830