Mr. Michael Hodgson reports

SERABI FORMS EXPLORATION ALLIANCE WITH VALE

Serabi Gold PLC has signed a strategic exploration alliance with Vale SA, through its subsidiary Salobo Metais SA, focused on its Matilda prospect and other large regional targets in the Tapajos region of Para, Brazil.

Highlights

• Exploration alliance focused on the discovery of large-scale copper projects within Serabi's Palito complex tenement area;
• Vale represents an excellent partner being Brazilian based and one of the world's largest diversified mining companies.

• Exploration alliance structured over a number of phases:
  • Phase 1: Vale to sole finance up to $5.0-million (U.S.) exploration program;
  • Phase 2: Vale may elect to continue exploration activities and to sole finance one or more selected copper projects to prefeasibility study (PFS) stage;
  • Phase 3: Vale will have an option to acquire a 75-per-cent shares of a legal entity to be incorporated by Serabi. Immediately after the incorporation of the JV company, Serabi shall transfer to the JV company the copper project. Serabi shall sell 75 per cent of the JV company ownership to Vale for $5-million (U.S.). Vale will continue to sole finance the JV by capital contributions to completion of a definitive feasibility study (DFS), while Serabi retains a 25-per-cent interest;
  • Phase 4: Vale can acquire an additional 15-per-cent interest in the JV company or a further payment of the higher of $5-million (U.S.) or 1.5 per cent of the net present value of the project, taking its interest to 90 per cent. Serabi then has a put option to sell its remaining 10-per-cent interest in the JV company for a further $10-million (U.S.) and a 1.5-per-cent net smelter royalty (NSR).
  • The JV company may acquire additional copper projects from Serabi, in which case Serabi will be entitled to additional payments of the higher of $5-million (U.S.) or 1.5 per cent of the net present value of the project for each, when a DFS (definitive feasibility study) has been completed.

Michael Hodgson, chief executive officer of Serabi, commented:

"Making the discovery of the Matilda porphyry prospect in 2022 was a major milestone for Serabi. However, bringing in a partner with the expertise and resources of Vale will enable us to properly evaluate Matilda and the other significant targets within our tenement area, and move them forward more quickly. The exploration alliance is focused on large-scale copper projects and allows Serabi to maintain its attention on its gold exploration targets.

"Vale represents an excellent partner for Serabi and we are delighted to be working with them to begin unlocking the potential of the Tapajos region."

Key elements of the exploration alliance

The exploration alliance is primarily focused on opportunities for the discovery of copper deposits within the exploration tenements held by Serabi around the Palito and Sao Chico mines, which cover more than 61,000 hectares. This follows the discovery of copper-molybdenum porphyry mineralization at the Matilda prospect in July, 2022 (see news release dated July 5, 2022) and the identification of a number of other high-priority exploration targets.

Phase 1

Vale will finance an exploration program of up to $5.0-million (U.S.) over the Palito complex tenements. Phase 1 is expected to last no more than 12 months and the budget is anticipated to be sufficient to finance up to 15,000 metres of diamond drilling during that time.

Phase 2

Following on from the results of phase 1, and if Vale decides to continue exploration activities, Vale will finance all further work to progress one or more copper projects identified in the Palito complex tenements to the stage of a PFS.

The phase 2 program is for a minimum of two years but may be extended (i) annually up to five years, provided the average annual financing by Vale over that period is $2-million (U.S.) of more, or (ii) to 10 years, if financing by Vale during the first five years is $20-million (U.S.) or more.

Phase 3

After completion of a PFS, Vale may notify Serabi that it wishes to progress the relevant copper project. In that case Vale will incorporate a JV company into which it will transfer the mineral rights relating to that copper project. Vale will pay to Serabi $5-million (U.S.), for a 75-per-cent share of the JV company. Vale may require the JV company to acquire further copper projects that have completed a PFS, for further payments of $5-million (U.S.) each, fully financed by Vale.

Phase 3 begins for each project upon transfer of the relevant mineral rights to the JV company. During phase 3, Vale will continue to finance all activities required for the production of a DFS for each copper project.

The phase 3 program requires expenditures of at least $3-million (U.S.) per annum with dilution provisions if the minimum expenditures are not met. Phase 3 for a specific copper project will come to an end upon the completion of a DFS for that copper project.

Phase 4

At the end of phase 3, and if both parties wish to continue, each will be required to finance its pro rata share of the expenditures of the JV company. At the end of phase 3, for 90 days from delivery of the DFS, Vale has a call option to acquire from Serabi a further 15-per-cent interest in the JV company for a payment of the higher of $5-million (U.S.) or 1.5 per cent of the net present value of the project (using consensus commodity prices and a preagreed discount rate of 11 per cent). Should Vale exercise its call option, Serabi has a put option to require Vale to purchase from Serabi, its remaining 10-per-cent interest in the JV company for a further payment of $10-million (U.S.) and the issuance of a 1.5-per-cent net smelter royalty over all projects held by the JV company.

During phases 1 and 2 Serabi is expected to be the operator of the exploration programs and will receive a 9-per-cent fee of the total amount paid by Vale for managing these mineral exploration activities.

Other details of the agreement

Following the incorporation of the JV company some other copper projects may still be within the phase 2 stage of evaluation and Vale shall continue to be responsible for the financing of these projects up to and including the completion of any additional PFS (end of phase 2) and DFS (end of phase 3). The JV company will have the option to acquire any additional copper projects following satisfactory completion of the respective PFS by paying Serabi a further $5-million (U.S.) as the option exercise price. The option exercise price payable by the JV company will be financed by Vale by a non-dilutive issue of equity in the JV company. Vale will continue to provide financing to the JV company for all the phase 3 activities for that copper project and for the completion of a DFS. Should Vale wish to continue with such additional copper project, Vale will finance the payment to Serabi of the higher of $5-million (U.S.) or 1.5 per cent of the net present value of the project (using consensus commodity prices and a discount rate of 11 per cent). In addition to all option payments, all phase 2 and phase 3 expenditures incurred by the JV company will also be financed by Vale with a non-dilutive issue of equity in the JV company.

The parties can elect, at any time, to exclude specific areas from the exploration alliance and those areas will revert to Serabi in full. If the exploration alliance has completed a PFS on any potential copper project but such project is not deemed to be a copper project (considered to contain a resource of more than 75,000 tons of contained copper and with copper plus molybdenum value being greater than the value of gold), Serabi shall be permitted to develop such a project at its own cost, in which case, Vale shall have a matching right on sales of the copper products that are generated from that project for a period of 15 years from the date of first commercial production.

During phase 1 and phase 2, the work programs will be overseen by a working committee, comprising two representatives from Vale and two representatives from Serabi. Vale shall have a casting vote over all the decisions made by the working committee. Upon the formation of a JV company all decisions will be delegated to the board of directors and management of the JV company.

The sum of all financing by Vale to Serabi equivalent to the mineral exploration expenses incurred for the conduction of the mineral exploration during phases 1 and 2 is considered as the acquisition price of Vale's earn-in option on phase 3.

Each of the parties has provided to the other, representations and warranties as would be customary for a transaction of this nature.

Qualified persons statement

The scientific and technical information contained within this announcement has been reviewed and approved by Michael Hodgson, a director of the company. Mr. Hodgson is an economic geologist by training with over 30 years of experience in the mining industry. He holds a BSc (honours) geology, University of London, an MSc, mining geology, University of Leicester, and is a fellow of the Institute of Materials, Minerals and Mining and a chartered engineer of the Engineering Council of United Kingdom, recognizing him as both a qualified person for the purposes of Canadian National Instrument 43-101 and by the Alternative Investment Market Guidance Note on Mining and Oil & Gas Companies dated June, 2009.

We seek Safe Harbor.