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VIDEO: Galane Gold Inc (CVE:GG) Botswana Project Generates Soaring Revenue

MidasLetter Live
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Galane Gold Inc (CVE:GG) (OTCMKTS:GGGOF) (FRA:25G) Chairman Ravi Sood shares details of the company’s mining operations in Botswana and South Africa. Galane Gold is targeting between 33,000 to 35,000 ounces of gold annually from its Botswana operation and has transitioned that mine underground, expanding its footprint significantly. Galane Gold’s new mine in South Africa has all-in costs underneath $900 an ounce with an expected return of 50,000 ounces per annum. Sood addresses the company’s low valuation relative to its quarterly revenue, which stood at $2.3 million USD last quarter. The segment wraps with a discussion on the gold sector and the likelihood of a gold comeback in the near future.

Transcript:

James West:   Hey, welcome back to Midas Letter Live. My guest in this segment is Ravi Sood. He’s the Chairman of Galane Gold, trading on the TSX Venture under the symbol GG. Ravi, welcome back.

Ravi Sood:    James, always a pleasure to be here.

James West:   You bet! Okay, let’s start with an overview on Galane Gold: what’s the production profile look like?

Ravi Sood:    We’re a producer, we’ve been a producer since the company was formed in 2011. So last quarter we did just over 10,000 ounces; that was a very good quarter for us, though. So we’re targeting from our existing core operation in Botswana about 33,000 to 35,000 ounces a year. That’s an operation that we bought from IAMGOLD seven years ago; it was a very high-cost, short-life mine, and not core to IAMGOLD anymore, and that’s why they sold in. but in the subsequent seven years, what we’ve done with it is get the costs down, manage it as a small company would, and transition the mine underground, so really adding a huge amount to the operating life of the mine.

The other big thing that we’re doing in terms of our production profile is, we’re adding or we’re commissioning a second mine, and that’s scheduled to start no later than Q2 of next year. And that, in the first phase, will add an additional 25,000 ounces per year of production, and then in the second phase, two years later, an additional 50,000, or a total of 50,000 additional ounces per annum from that mine.

James West:   Wow, okay. So then, what are your all-in cash costs of production now, as in the profile, and where do you see it once you’ve brought on all of this additional production?

Ravi Sood:    So, when we took on this mine it was about $1,450 all-in costs. Now, this was 2011, and gold was $1,600; it actually was over $1,800 when we closed the acquisition. But what we’ve got it down to now is about $1,050 all-in. so that’s where it’s going to be, it’s at a steady state right now, it’s doing very well.

The new mine that we’re commissioning, that’s a bit lower in terms of the all-in cost; we just put out a press release this morning that we expect that to be under $800 an ounce cash cost on that one; all-in costs underneath $900.

James West:   Very cool. Okay, and what is the CapEx requirement to bring on all this extra?

Ravi Sood:    This is similar to the last mine that we bought; this one, we acquired an existing mine. It’s actually quite historic – it’s been in production since 1888, in some shape or form. It’s one of arguably the first site for commercial gold mining in South Africa, so there’s a lot of infrastructure in place. We closed the acquisition in December of 2015, so for the last few years, from our own cash flow, we’ve added to the infrastructure, we’ve advanced the project, and now we’re closing a debt financing and a small equity financing we press released today, and that allows us spend the last $5 million, which completes the processing plant and gives us the working capital to, you know, fund the start-up of that second mine.

James West:   Brilliant. Wow, it sounds amazing. Now, the market cap of the company doesn’t really reflect the fact that this is, essentially, a profitable gold mining operation.

Ravi Sood:    Yeah, and last quarter we put out a net income of $2.3 million USD. Meanwhile, our market cap right now is about $7 million CAD. So yeah, the share price is very low relative to the asset value, to the cash flow generation potential. I think that’s not that unusual in the gold sector right now, unfortunately; there’s no interest in it. The sentiment is like pretty much zero, the sentiment on gold itself is terrible. And as an investor myself, and one of the largest investors in the company, look, you’ve got to have a view on gold, and you have to back a good management team and have an asset that’s got growth embedded in it, and we have all those things.

I think we can change that share price, but really, yeah, you do have to have a view on gold, and we have to get ourselves through this time period where the sentiment is so poor, make sure that we’re funding ourselves through our cash flow and not have to go to equity markets to fill in any gaps when the sentiment is so poor, and make sure that we’re in the game and we have that great package for investors to look at with that earning potential and cash flow leverage, for when the sentiment does change. And I think, look, we can’t pick bottoms and tops, but I really have a strong feeling that we’re getting very close to that change in sentiment.

James West:   Sure. I don’t want to dwell too much on the change of sentiment in gold, but I do share your conviction that the change is imminent, though it might not be temporally imminent. I think the confluence of the, you know, relative instability at the top of the food chain in the US government, combined with the demise of the crypto-bubble, and eventually a flattening of the exuberance in the cannabis space, will bring investors back to the hard assets, because that’s always where it ends up.

Ravi Sood:    Absolutely, and the cannabis space is one sector in particular, but looking at the US market and the broader market and the FANG stocks, the FANTA stocks, they’ve just delivered spectacular returns now for so long, and there’s just so much complacency in the market – even though we see this political instability, we see the debt problems, the giant debt bubbles, and all the math is just impossible, there’s no fix to it; and it’s the train wreck you can see coming miles away, and everybody’s just sitting there and they’re complacent because we’re still making money off of Facebook and Netflix and so forth.

That’s, I think, one of the pieces of the puzzle that needs to come into play, is like a – whether it’s the cannabis sector or the broader market, to just shake investors out of their complacency, and then, when we start focusing on this political instability, these giant debt bubbles, all these huge issues, absolutely massive issues with no solution, then investors will start to wake up to gold. And it can move really fast; we’ve experienced it a few times in past cycles; when it moves, it moves.

James West:   Right. Okay, so let’s focus a bit on the geological setting of where you’re building your new production as well as the old mine. Is this part of the same Witwatersrand Reef that has been the largest producer of gold in the world for centuries?

Ravi Sood:    We’re slightly separate from that, so while we are in Botswana and South Africa, the existing mine in Botswana and the new one in South Africa, we’re not one of the ultra-deep, massive mines that sort of characterized South African production for the last 100 years. We’re in a different part, we’re in the Barberton area, and that’s greenstone belt. So it’s a different style of deposits, and let’s say it’s some positive and negatives about them. So, one of the negatives, okay, you don’t have these 30-million ounce giant deposits that are huge and go on for miles and miles.

The positives: you have smaller operations, they’re typically highly mechanized, so you don’t have a huge labour force. They’re not ultra-deep, so you don’t have this huge power cost for de-watering and cooling, and thes sort of things. These are the typical things that have brought down South African mines. So, unions, workforce industrial relations issues, power issues, you know, unstable power and high-cost power. So we don’t have any of those.

So this is something that’s performed, it’s produced 1.2 million ounces historically – that’s the South African one. We’ve got the plant, we’ve got the people who’ve worked there in the past. We know it can come back online and do something similar with very few people, so small workforce, small footprint. And similar in Botswana; also greenstone belt, there we have almost the entire greenstone belt for Botswana, so we have all the potential gold-bearing ground, or certainly we think we do. And again, we’ve taken, it was an open-pit mine operated by IAMGOLD; we transitioned it underground. We have a relatively short reserve life, as underground mines often do, but every year we just keep extending that. So we’re confident that we can keep on doing that.

The other piece to the Botswana side is, we recently announced a deal with B2 Gold, which is a farming agreement; they’re farming onto our prospecting licenses, so not our existing mining licenses, not our mill and all the infrastructure around that, but what we’d call our extra exploration properties, which we had a large area, and they approached us and we structured a deal where they’re going to earn-in spending $4 million on those properties. And that may amount to very little or nothing, or it could be a tremendous find for them and potentially for us, as well.

James West:   Sure. Do you think that the low valuation of the company, apart negative gold sentiment aside, do you think part of that comes from the fact that there’s a perception that South Africa is somewhat, you know, challenging to say the least, in terms of issues like power and unions etcetera, and that the lack of understanding of the geological sort of area has contributed to a lack of faith and confidence in what you’re doing?

Ravi Sood:    It’s part of it, for sure. The general Africa discount, and South Africa in particular. But I think for us, the bigger issues have been, one: general sentiment on gold, and gold juniors; and second, the fact that we’re a bit of an unusual beast in that we’re a producer, and having net income is a great thing even in a low gold price environment – being able to generate cash flow and fund your operations under your own steam is fantastic – but we don’t have this sort of big bang potential where hitting, you know, big drill holes and then maybe a major comes along and buys us. We’re producing, we’re going to produce 33,000 to 35,000 ounces a year from that operation. That’s great, but it lacks the sex appeal that some other opportunities might have. So that’s worked against us in this kind of market.

I think that can reverse in our favour very quickly, as I said, when gold moves and moves fast. When it does, we have tremendous operating leverage to gold price. So we have huge leverage, not only from our existing operation, but remember, our organic growth: going from 35,000 ounces, adding 25,000 more, and then in two years another 25,000, and fully funded to do so, even at these gold prices.

James West:   Well, it’s a story that I’m certainly going to keep my eye on. Let’s leave it there for now. We’ll come back to you in a quarter and see how you’re doing. Thanks for coming in today.

Ravi Sood:    Thank you, James.

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