This report is an updated version of the report published on 23 May 2022 at 8:30 AM GMT+1.

Serabi Gold PLC (LON: SRB)

Serabi Gold PLC (LON: SRB) is an FTSE AIM All-Share index listed mining company based out of London, which is engaged in the production and exploration of gold in the Brazilian region. The Company holds 100% interest in Palito Mining Complex and has interests in the Coringa Gold Project located in the northern Brazil-based Tapajos region.

Growth Prospects

• Encouraging Palito Complex Production: SRB managed to produce 2,919 ounces at the Palito Complex in April 2022, the highest monthly level so far in 2022.
• Solid Exploration Progress: On 12 May 2022, SRB had updated regarding a positive exploration drilling from the Matilda prospect. Moreover, the Company had demonstrated excellent underground development at the Coringa project during Q1 FY22, particularly on the first of the five ore zones, the Serra Zone.

Key Risks 

• Trimmed FY22 Production Guidance: SRB had trimmed its production guidance from the previous (36,000 to 39,000 ounces) to 30,000 ounces for FY22.
• Record UK Inflation: The rise in regulated household energy bills led to UK inflation leaping to 9% in April 2022, the highest level since 1982. It may adversely impact UK equities.
• Bank of England Warning: The Bank of England had trimmed its economic growth forecast for 2023 and is expected to show a contraction of 0.25% from a previously estimated growth of 1.25%. Moreover, it had also warned of UK inflation reaching around 10% very soon.

Gold Industry Dynamics

• Weakening of US Dollar Index: The weakened US dollar would continue to support the greenback-priced yellow metal as the gold price reached a more than one-week high, despite of rising U.S. Treasury yields.
• Global Economic Scenario: The steep fall in the global equities had enhanced the safe-haven appeal of the metal amid worries about the global economic health.
• Rising Energy Price: The rising energy prices may fuel gold demand as it is considered as a hedge against inflation.

 (Source: REFINITIV; Analysis done by Kalkine Group)

On a daily chart, COMEX Gold Futures' price (USD 1,845.80) is sustaining between the lower Bollinger band and the middle Bollinger band, indicating an upside direction for the commodity. At the same time, the 14-days RSI remained around ~43.69.

Key Fundamental and Shareholders Statistics of Serabi Gold PLC.

Fratelli Investments, Ltd is the most significant shareholder as it holds nearly 19.32 million shares.

Q1 FY22 Operational Review (for the three months ended 31 March 2022, released on 19 April 2022)

(Source: Company Website)

• Declining Production Volumes: The Company’s gold production witnessed a significant year-on-year fall of around 13% during Q1 FY22.
• Cash Balance: SRB had reported a cash balance of USD 6.9 million at the end of Q1 FY22.

Financial and Operational Highlights (for the three- and nine-months periods ended 30 September 2021 as on 30 November 2021)

(Source: Company Filings)

• Decent Revenue Growth: In the first nine months of FY21, the revenue witnessed a marginal increase of around 2.95% from USD 45.40 million during 9M FY20 to USD 46.74 million during 9M FY21.
• Net profit: The Company’s net profit remained USD 7.66 million for the first nine months of 2021, while it was USD 7.42 million during 9M FY20.
• Balance Sheet: SRB had strengthened its balance sheet by showing a significant increase in the net cash from USD 6.60 million as of 31 December 2020 to USD 15.20 million as of 30 September 2021. 

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 20 May 2022, SRB’s shares were closed at GBX 40.50, up by around 3.85% from the previous day closing price. Stock 52-week High and Low were GBX 80.00 and GBX 35.00, respectively.

On a daily chart, the 14-days RSI of ~46.01 indicates a neutral price momentum.

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Business Outlook

SRB reported mixed operational results for the first quarter of 2022. Nevertheless, the Company had showcased a decent year-on-year growth in top-line revenue and bottom-line profitability for the first nine months of 2021. SRB remained on track to begin initial production at the Coringa gold project by 2023. In a nutshell, the Company aims to boost production and strengthen its top-line business through accelerated mine development and ongoing exploration programs.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong financial ratios, several exploration projects, robust operational progress, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Serabi Gold PLC at the closing market price of GBX 40.50 (as of 20 May 2022), with lower-double digit upside potential based on 9.65x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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