Drill core from Anfield Gold's Coringa project, in Brazil, which is being acquired by Serabi Gold for $22-million
Photo by: Anfield Gold
VANCOUVER (miningweekly.com) – Dual-listed mining and development company Serabi Gold is looking to double output with the acquisition of the Coringa gold project, located in the Tapajos gold province of Para state, in Brazil.
The LSE Aim- and TSX-listed miner announced early on Tuesday morning that it would acquire the outstanding equity and intercompany debt of Chapleau Resources, a subsidiary of Anfield, for about $22-million, spread across several payments.
Coringa is located about 200 km from Serabi's current Palito and Sao Chico mining operations and process plant, allowing synergies for management and infrastructure and a potential reduction of unit operating costs, CEO Mike Hodgson pointed out to Mining Weekly Online in an interview.
With Anfield now involved in a merger with Trek Mining and Newcastle Gold, the Coringa project is no longer considered a core project within Anfield’s enlarged portfolio. According to Hodgson, acquiring Coringa makes “clear sense for Serabi, offering an obvious opportunity to grow”.
“We’ve identified and tried to acquire the Coringa project for several years now. It makes perfect sense for us, since some investors consider us ‘too big to be small and too small to be big’,” he noted. “This acquisition delivers on our strategic goal to scale production, yet at the same time not blow our brains out.”
Hodgson said that the Coringa project is a near 'carbon-copy' of Serabi's current operation, which, bolstered by its satellite deposit that achieved commercial production in January 2016, has been in production since 2014.
“The similarities mean Serabi is very well placed to expedite the successful development and future production potential of the project,” Hodgson advised.
Under the terms of the conditional acquisition agreement, Serabi will make an initial payment to Anfield – on closing the transaction – of $5-million in cash. A further $5-million in cash is payable within three months of closing and a final payment of $12-million in cash will be due when the first gold is produced or 24 months from the date of closing, whichever happens first. The company will fund as much as possible from its current cash position and plans to tap the equity market and add a debt component for the later payments.
The Serabi board expects to settle the initial payment and first instalment from an extension of its existing loan facilities and current cash holdings, which, as at September 30, were $9.75-million, and is evaluating its options for the longer-term development finance requirements of the Coringa project and the company's existing organic growth prospects.
Coringa is located some 70 km to the south-east of the town of Novo Progresso, which is about 130 km by road south of Serabi's current mining operations at Palito. “We’ll be able to make people work better by exploiting general and administrative cost synergies,” Hodgson said.
Last year Anfield undertook a 26 400 m infill drilling programme at Coringa, including 183 exploration holes over the principal Meio, Serra and Galena veins. Anfield also completed the acquisition of a 750 t/d crushing, milling and carbon-in-pulp (CIP) process plant for Coringa and invested in essential initial infrastructure, including a 200-person accommodation facility, offices and laboratory facilities.
Anfield published a feasibility report on Coringa in September, outlining a Canadian National Instrument 43-101-compliant provisional mine plan averaging a production rate of 32 000 oz/y and a total mineable reserve of about 160 000 oz of gold. The all-in sustaining costs are expected to average $783/oz; while the after-tax net present value, at a 5% discount rate, is $31-million; and the project has a robust after-tax internal rate of return of 30.8%.
Hodgson explained that the latest reserve update ignored a substantial amount of previously included inferred resources, which he expects could easily be incorporated into the resource statement with minimal infill drilling.
Serabi believes there is scope to reduce capital and operating costs at Coringa by using its existing gold processing facilities at Palito.
As well as this near-term gold production growth, the feasibility study highlights a number of other areas of geological interest within the tenement holdings of more than 13 000 ha.
“As we are finding with our Sao Chico and Palito orebodies, I feel there is significant opportunity to expand the resource and extend the life of the operation well into the future. Past gold discoveries at Coringa including the Mae de Leite, Come Quieto, Demetrio and Valdette veins, have not been included in the current Coringa mineral resource estimate and provide scope for growing the resources and expanding the life of the project,” Hodgson advised.
Coringa hosts a mineral resource estimate of 376 000 oz of gold, including an indicated resource of 195 000 oz of gold with an average grade of 8.4 g/t. Estimated mineral reserves included with the mineral resource are 160 000 oz of gold with an average grade of 8.4 g/t.
London-based investment broker SP Angel’s John Meyer said in a statement that the proposed acquisition of the relatively nearby Coringa deposit, which is being acquired for around $60/oz of indicated and inferred resources, offers potential synergy with the Palito operation, particularly if Serabi can improve on the previously announced economic projections for Coringa.
Serabi also on Tuesday reported third-quarter production of 9 657 oz of gold. The company expects to produce 10 000 oz of gold in the current quarter, to bring full-year output in line with guidance of about 38 000 oz.
“It was very pleasing to see third-quarter production returning to expected levels, after a slightly disappointing second quarter. We have now achieved total production for the first nine months of the year of 27 666 oz.
“Whilst a little below the production for the same period in 2016, the shortfall was simply due to a short-term operational problem at Sao Chico during April and May, when we lost remote scoop capability and therefore had to rely on lower-grade development ore for this period. By June the problem was over, and we have seen strong monthly production figures since, Hodgson explained.
The next step in the permitting process will be for a formal trial mining licence to be issued by the Departamento Nacional de Produção Mineral (DNPM). The trial mining licence will allow Serabi to start mine development and production from Coringa. The trial mining licence will authorise mining and processing of up to 50 000 t/y.
Under applicable regulations, once the mine is operational, Chapleau Brazil may apply to the DNPM to increase the processing limit. Serabi intends to continue the work started by Anfield on the permitting and licensing process and will, to any extent necessary, complete the environmental impact study and any supplementary work requested following its initial submission to the relevant Brazilian government departments for approval.
Serabi will review the cost estimates contained in the feasibility study and optimise these, prepare its own development plan and evaluate alternative construction development and processing options so that Serabi's management can enhance the economics of the project.
Anfield proposes to hold its shareholder meeting to approve the proposed transaction on December 19, and closing is expected shortly thereafter.