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Palito Funded, Now Focus is on 4Q'i3 Commissioning

Contributed by Fox-Davies Capital

Serabi has raised £16.2m, principally from its largest shareholder Fratelli Investments which will allow it to bring Palito back into production with commissioning the plant in 4Q'13.

A total of £16.2m was raised at 6p/ sh by issuing 270m new shares. Although the deal was underwritten by Fratelli Investments 81,350,353 of the shares went to third parties. Following admission there will be 371,891,063,728 fully diluted Ordinary Shares with Fratelli Investments holding 52.46% of the Company. Ahead of the financing, Fratelli provided an interim short term loan facility of US$6m to continue development at Palito. To date Serabi has drawn down US$4.5m, which will now be repaid.

Serabi has now issued an operation update (see Page 2) which highlighted that dewatering the mine, probably the most time critical part of the re-development had been completed two months ahead of schedule. The immediate tasks are now to re-establish mine services (power, compressed air supply and ventilation) and to establish new stoping panels whilst the plant is refurbished. Plant commissioning is planned for 4Q'13 and will initially process high grade ore stockpiled during the development work. Post financing we have updated our model to also include our revised commodity prices. Despite our long term gold price increasing from US$950/oz to US$1,000/oz, our target price for Serabi only marginally increased to 8.03p/sh due to the initial 9 year mine life.

However, we believe this is only the start of the story and fails to recognise the near term growth opportunities in the current resource, further regional exploration successes and regional M&A which we believe will drive the valuation over the medium term.

Once Palito is generating positive cash flows, Serabi will start a resource drilling programme at Palito South, Currutela Creek and Piaui aiming to increase the current mine life. In addition the Company believes that having positive cashflow would put it in a very strong position relative to its regional peers and enable Serabi to be “a core part of any such consolidation" in the region.