Interactive Investor

Insider: rare director buying of these two AIM stocks

1st November 2021 08:40

Graeme Evans from interactive investor

There are high hopes both for this junior gold miner and a small-cap whose safety controls are used over one billion times every day.

The top two executives at Serabi Gold (LSE:SRB) have followed up on a “milestone” quarter for the Brazil-focused miner by purchasing shares in the AIM-quoted company worth £58,461.

Their move follows the start of mine development at Serabi's Coringa high-grade complex, which is part of a medium-term target of being a 100,000 ounce a year gold producer.

Blasting into hard rock at Coringa is now well underway and the company hopes to intersect the first ore zone during the current quarter. Analysts at house broker Peel Hunt have a “buy” recommendation and said Serabi is now well on the way to de-risking as a two operation company.

Serabi's main Palito complex is 200 kilometres to the north and has weathered 2020's Covid-19 related issues to deliver third-quarter production of 9,000 ounces of gold, an increase of 34% on last year. This brought the total so far in 2021 to 26,510 ounces, keeping the company on track to meet its target for the year.

Serabi's most recent production update was published on 13 October and helped consolidate the 16% recovery in share price seen since mid-August.

The stock closed the week at 71.5p, but Peel Hunt believes there's the potential to reach 175p, noting that the start of exploration drilling at the Sao Domingos licence means a potential third operating site might emerge in 2022.

Chief executive Mike Hodgson and finance director Clive Line bought shares on Wednesday at 70.4p, the first time any director has done so since 2013. Line has been with the company since it listed on AIM in 2005, when a placing price of 30p gave a £31 million market capitalisation.

Serabi's operations are focused on the Tapajos region of northern Brazil, an area of about 100,000 square kilometres roughly equivalent to the size of Belgium. The original investors in Serabi commenced operations in 1999, with the objective of finding hard rock gold deposits unknown or too difficult for artisanal miners to exploit. 

The Coringa gold project was acquired by Serabi as an advanced stage development in 2017. Hodgson, who has worked in the mining industry for more than 25 years, recently described the start of mining operations as a “real milestone”, with the potential to deliver further economic benefits as understanding of the development improves.

When in full production, Coringa is expected to double current annual production to about 80,000 ounces a year. In early March, Hodgson oversaw a fundraising at a placing price of 75p that secured £12.5 million towards growth opportunities, and also attracted “some very strong names” to the shareholder register.

The company's results for the first six months of 2021 showed revenues of $32.5 million (£23.6 million) and an improved post-tax profit of $6.35 million (£4.6 million), based on an average gold price of $1,807 an ounce for production in the period.

The gold price has stayed close to this level in recent weeks, having softened earlier in the year on expectations for interest rate rises in the US. However, dollar strength against the Brazilian Real means the gold price in local currency terms remains strong.

Bargain hunting at Strix

Kettle controls business Strix Group (LSE:KETL) came to the boil on AIM last week after the launch of two new appliances was followed by the £25,000 purchase of shares by a non-executive director.

Mark Kirkland's acquisition of shares was his first since the company's debut on AIM in 2017.

His move followed the launch of instant hot water products Dual Flo and Aurora, which meet the company's aim of helping to reduce energy consumption and harm to the environment.

The Dual Flo appliance — a standard kettle with one cup capability — will address an estimated £300 million wasted on boiling excess water in the UK alone. The Aurora water station is a kettle, chiller and water jug, all-in-one appliance.

The launches helped Strix shares to climb 6% over the week to 292.5p, which compares with 385p at the beginning of September. The stock has fallen despite half-year profits of £13.2 million being 15% higher than two years earlier and in line with full-year City expectations.

It also remains on course to deliver medium-term targets to double revenues over a five-year period, primarily through organic growth in its water and appliances categories.

In response to the results, broker Peel Hunt raised its price target from 330p to 380p and said that the company's high margin and renewed growth momentum was deserving of a higher rating of 22 times projected earnings.

Strix estimates that its safety controls are used over one billion times per day by consumers, amounting to over 10% of the world’s population.

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