It’s partly a matter of time horizons. Serabi is still chasing a resource, and although it can show mineralisation and grade, it can’t yet show ounces in any serious quantity. And the market is in an uncertain frame of mind. It wants to know why it should invest in tomorrow’s potential discoveries, when gold is at US$1,740 today? After all, there are plenty of opportunities on the table. The Australian junior Integra, for example, has just announced that it’s soon likely to hit cash margins of A$1,000 per ounce on production of 100,000 ounces of gold. And that’s hard for any exploration junior trundling around with drill bits to compete with.
But there’s more to it than that. Integra’s share price may be up over 12 months, but it’s down over the last six. Just like Serabi. It seems that the people who are buying gold at the moment are simply not buying equities too. What’s wanted is gold, not gold companies. Because, after all, and contrary to what it says on the tin, gold companies don’t produce gold, they produce dollars. And the dollar, or at least the US variety, is hardly flavour of the month at the moment.
So what’s a gold exploration junior to do in a skittish market like this? The answer, in Serabi’s case, seems to echo that old maxim of British wartime propaganda: Keep calm and carry on. The markets may be in a fickle mood, but over the long term companies that create value will always be rewarded. As far as exploration is concerned it’s helpful, of course, if there’s cash in the bank. But Serabi has enough money to complete its current exploration programme, and in the shape of Eldorado Gold Corp also has a major gold producer with deep pockets on the register, even if Eldorado’s intentions are uncertain at this stage.
Serabi laid out its plans pretty clearly earlier in the year, and has since been working steadily to deliver on them. So far, so good. “There’s been a steady spate of drilling results coming out”, says Serabi’s finance director Clive Line, “most of which have been encouraging.” The company’s been on the ground for some years at Jardim do Ouro, and for a while tried mining its flagship Palito project as a standalone operation. In the end, though, Palito couldn’t deliver enough volume to justify the expense of mining it. The operation became undercapitalised and had to be shut down, with near catastrophic consequences for Serabi itself.
The company weathered the storm, though, partly on the strength of some straight talking mea culpas that were appreciated by the market, but largely on the strength of Jardim do Ouro. No-one doubted the ground was mineralised. The question was: what was the right approach to it?
The Serabi team, under the guidance of chief executive Mike Hodgson, took the view that geophysics would be more than useful in uncovering further mineralisation in the vicinity of Palito that could be brought into part of a bigger, bolder operation. “The aim”, explains Clive Line, “was to discover a couple more Palito-style discoveries.” For reference, Palito currently hosts around 600,000 ounces over one kilometre strike length. A couple more of those, and the company would rapidly start to generate the critical mass required for a profitable mining operation. One fear in the market is that the veins Serabi is working on are too narrow to be mined profitably. But narrow-vein gold mining is hard-wired into the South American gold mining psyche, and Clive believes it can be done properly, with scale. Certainly, Eldorado thinks it’s a realistic possibility, and the drill results to date go a long way towards supporting the idea that the necessary scale is there.
Still, Serabi is some way yet from establishing a new resource. “The concept is being proven”, says Clive. “We’re getting very good grades, although in peaks and troughs. But it’s not really possible to join up the dots at the moment. There’ll be a second phase of drilling in which we’ll start looking for commercial resources.” One possibility is that one of the target zones the company has drilled most recently, Currutela, actually joins up with Palito in a single, larger structure. If that’s true, it would transform the economic potential of Jardim do Ouro, and surely, at last, lead to the re-rating of Serabi’s shares that patient investors have been waiting for.