As Gold Prices Rise, Pay Attention to Galane Gold Ltd (CVE:GG)

Alessandro Bruno
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In 2018, Galane Gold Ltd (TSX-V:GG) (OTCMKTS:GGGOF) (FRA:25G) enjoyed one of its strongest years to date, since it acquired the Mupane and Galaxy properties in Botswana and South Africa (in 2011 and 2015) respectively. Simply put, Galane has moved beyond the exploration stage. It’s a proper gold miner, and the next year will be all about ramp-up. Mupane in Botswana has been in production since 2005 and is targeting 32,000 ounces this year and going forward. There’s plenty of upside with the recommencement of production at Galaxy in South Africa, as the investments made to refurbish and bring the plant up to date and recommence underground mining are ready to deliver revenues. Concentrate production has started with production of 3,000 ounces targeted for 2019 with the prospect of 26,000 ounces in 2020. That makes potential production in 2020 of over 50,000 ounces of Gold.

There’s much potential in Galane Gold, yet, rather than extrapolating  exaggerated price targets, it’s more useful to consider some of the solid fundamentals, which make Galane such an appealing gold play – and not just because the company is poised to have  two full-productive, revenue generating assets by 2020. Moreover, there are the gold price prospects for 2019-2020, and, these are highly favorable. The Federal Reserve’s rate cut, the Deutsche Bank debacle, the slowing economy (even in Germany), the intensifying trade war between the US and China, and assorted geopolitical risks-such as the US (and UK) naval blockade of Iran, threatening to cause oil and gas blockages and energy shortfalls, have been driving up the price of gold. It has already reached and surpassed the ‘psychological’ barrier of $1,500/oz. None of these issues present easy solutions. Therefore, gold should continue to rise over the next six to twelve months. At this point a price of $1,600/oz. may not be farfetched.

Traditionally, when the cost of the Dollar drops, gold prices appreciate. Analysts already expected an appreciation, albeit a minor one, when the Fed announced it would cut the nominal interest rate. But, now that gold has beaten all expectations (Goldman Sachs predicted about $1,450 an ounce), the saying all bets are off has rarely made more sense. And it’s only August. Who knows what the risks, urging for a retreat to safe-haven assets like gold, will be by December?

Galane Gold Ltd Chairman Ravi Sood on Increasing Gold Prices

The Junior Play with Two Producing Properties

While most gold companies benefit from a bullish precious metal course, those that can produce cheaply and efficiently, benefit the most. Galane, a former IAMgold property, is one of these. And it boasts an impressive operation, it’s a ‘junior’ only because it trades on the Venture exchange. Its operations, however, are major. Mupane is a 1.1. million tonne facility, which Galane transformed from an open-pit to underground mine, which has many years of production left in it. At an ore grade of 1.5-2.0 grams per tonne, gold production can reach some 36,000 ounces. Meanwhile, at the Galaxy property, production is ramping up by mid 2020, it too should be operating at 30,000 ounces per year.

Galaxy has a resource of 1.5 million ounces measured, indicated and inferred. It has a 100-year history of mining, yielding over 1.3 million ounces. Clearly, it presents an opportunity. In order to offset the relatively high presence of refractory ore, typical of sulfide deposits. Refractory ores contain particles of gold as well as those of other metals, finely disseminated in the ore, and requiring more complex extractive methods. Usually, this means a bigger processing facility is needed to ensure the particles don’t end up in the residue after treatment. Indeed, Galane doubled the processing capacity from 15,000 to 30,000 tonnes, adapting its ‘model’ to suit the geology: sell the concentrate instead of gold. The result is a much lower operating cost and higher recoveries: better economies of scale.

Finally, it’s important to consider what sorts of political risks Galane is facing in Botswana and South Africa. While many investors are familiar with South Africa and its mining friendly culture – and mining dependent economy – few are aware of Botswana. Some may link the country to the Hollywood movie: ‘Blood Diamond’, which depicts a civil war centered around the diamond mining trade. That may have led many viewers – and we all know the power of pop culture – to infer that Botswana, famous for its diamonds, has also endured violent conflicts centered around its resource sector. However, the events of that movie were based on the situation in Sierra Leone and Liberia in the mid 1990’s. Botswana has never endured any conflict, even remotely similar in scale, to Sierra Leone. Indeed, the “Index on investments in Africa”, compiled by independent research firm Quantum Global Research, has repeatedly ranked  Botswana as the best country in Africa in which to invest. Botswana has minimal sovereign debt, political and economic stability, an experienced workforce and a popular and attractive location for foreign direct investment.

Midas Letter will continue to follow Galane Gold with great interest.

Alessandro Bruno

Alessandro Bruno

Alessandro Bruno, born in Naples, (BA and MA in International Relations, University of Toronto). Alessandro is a research analyst and writer in various business sectors and international politics. He was a Programme Officer for the UN in North Africa and a senior for one of the first international sustainable investment...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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