PRESS RELEASE - 17th September 2008
SERABI MINING plc ("Serabi" or "the Company")
Announcement of Strategic Review
Serabi Mining plc, the AIM listed Brazilian gold mining company,
announces that following a review of the performance of its Palito
Mine the Board of Directors are considering a number of strategic
options for the Company.
After an improvement in gold production levels at the Palito Mine
during June and July of this year following the commissioning of new
equipment, the Board was hopeful that operations would return to
forecast production levels. However, mine production has fallen
significantly below target levels for the month of August and the
initial weeks of September, prompting the decision to undertake the
performance review. This review, carried out by the Company's Chief
Executive, has concluded that the mine is not currently able to
maintain the levels of development and production required by the
Company. Performance was adversely impacted earlier this year by
delays in the delivery of new equipment combined with abnormal levels
of breakdown in existing plant and equipment, which limited mine
development activities. This in turn reduced production to levels
materially below management targets.
In addition it has proved difficult to recruit, train and retain
mining staff with the necessary level of expertise and experience in
narrow vein mining. Production has also been impacted by the
departure of a number of key equipment operators over the past two
months.
The Board had been confident that, as described in the Q2 Investor
Update released on 30 July, a return to target production levels
would be possible once the mine was fully equipped and that the
operations would generate the cash-flows required to sustain the
Company's development strategy. However continued production
shortfalls along with the reduced levels of development in the first
half of this year, as described above, have materially impacted the
financial position of the company. The continuing unbudgeted monthly
losses have required further and unforecast injections of working
capital in order to sustain the mine operation.
The review of performance led the Directors to conclude that
operations are now approaching the point where it would become
necessary to enter a significant period of mine development
(involving the mining of new sub-levels, ramps, raises and
ventilation shafts which would result in lower volumes of ore being
available and at lower grade). The mining of the stopes would be
suspended. This decision would have the effect of significantly
reducing the production outlook for 2009 and would require that the
mine operate at a loss during this period.
The Board is therefore taking the following actions:
- With immediate effect it has made 112 employees at the mine
redundant, amounting to over 40% of the local workforce, in order to
limit the level of future cash outflows required to sustain the
operation.
- It will concentrate on mining 'blocked out' stopes (those already
available for mining) to maximise short term cash flow, with reduced
development activity. It is expected that, at most, this will
generate production of some 5500 ounces of gold equivalent production
between now and the end of November, at which time all available
stope ore will be exhausted.
- In the period between now and the end of November, the Directors
will explore opportunities to raise additional funds that will allow
the company to operate the mine in the required development mode for
a 12 month period. It will also evaluate opportunities for the sale
in whole or in part of the project.
- In the event that it is unable to raise additional capital or
identify a potential purchaser, the Directors will undertake to place
the Palito Mine into a state of care and maintenance at or before the
end of November, whilst seeking to continue exploration activity.
Mike Hodgson, Chief Executive of Serabi, stated that: "delays in the
delivery of new equipment have seriously reduced our ability to
develop the mine. In turn this has hampered our production capability
and we have been unable to improve this significantly.
Notwithstanding that the equipment is now on site and operational, we
are now finding it extremely difficult to recover the development
metres we lost during the first six months of the year. Given the
position the mine is now in, the only solution would be to put the
mine under a sustained period of mine development and reduce
operating costs accordingly. Unfortunately, the Company does not
currently have the financial capacity to maintain such a development
programme either through the use of our own mine crews alone or by
the introduction of contractors.
It is with great reluctance that we have taken the decision to
restructure the operations in this manner. At the current time the
Company has the cash resources available to manage this
re-structuring. The Board's priority is to safeguard the existing
asset base of the Company. I continue to believe that the Palito
mine, when it has been sufficiently developed, will represent an
excellent opportunity. The results of the helicopter-borne
geophysical survey indicate potential for the immediate surrounding
area to host additional ore bodies that could be developed in the
future.
We have already commenced preliminary discussions with other parties
regarding their future participation in the Palito mine. We are also
actively looking to enter into joint venture agreements on our
remaining exploration properties to ensure ongoing value can be
generated from these".
Further developments will be reported to the market as and when
information becomes available.
Enquiries:
Serabi Mining plc
Graham Roberts Tel: 020 7246 6830
Chairman
Clive Line Tel: 020 7246 6830
Finance Director Mobile: 07710 151 692
Robyn Hodson Tel: 020 7246 6830
Investor Relations
Email: contact@serabimining.com
Website: www.serabimining.com
Numis Securities Limited
John Harrison Tel: 020 7260 1000
Nominated Adviser
James Black Tel: 020 7260 1000
Corporate Broker
Farm Street Communications
Simon Robinson Tel: 07953 340 107
Public and Media Relations
4C-Burvale Limited
Carina Corbett Tel: 020 7559 6710
John Carrick-Smith Tel: 020 7559 6710
Investor Relations
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