Galane Gold Ltd (CVE:GG) Reports Financial Results for Q2 2019

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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.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

Galane Gold Ltd (TSX-V:GG) (OTCMKTS:GGGOF) (FRA:25G) Chairman Ravi Sood joins James to discuss some of the company highlights following their Q2 financials reported on August 15, 2019. Galane successfully produced 8,692 ounces of gold, and sold approximately 8,700 ounces at an average price of $1,305 per ounces. Their operating cash cost was $966 per ounce and positive cash flows from operating activities was $2,889,443.

The company’s Mupane gold mine, the only major gold producer of Botswana, is continuing to target production for the year of 32,000 ounces. The project has produced over 700,000 ounces of Gold in its history.

Galane gold’s Galaxy project situated covering 58.6 km² of the prolific South African Barberton Greenstone Belt is now in steady state production on the existing refurbished plant, and plan to reach full commercial production in the second half of 2020. According to the Chairman, all internal targets were exceeded for refurbishing the plant, mining from the Princeton mineralized body and producing concentrate. Galane Gold are targeting 2,300 ounces of payable gold to be produced in 2019 from Galaxy, but continue to target steady state annual production to average 25,000 ounces of gold at an operating cash cost per ounce of less than $800.

Mr. Sood also discusses the renewed interest in the gold industry as gold has stabilized at a price of level around $1,500.

Transcript

Narrator: Galane Gold is an unhedged gold producer and explorer with mining operations and exploration tenements in Botswana and South Africa.

Galane Gold’s management team is comprised of senior mining professionals with extensive experience in managing mining, processing operations, and large-scale exploration programs.

Galane Gold is committed to operating at world-class standards, and is focused on the safety of its employees, respecting the environment, and contributing to the communities in which it operates.

Galane Gold trades on the TSX-Venture under the ticker GG.

James West: Ravi Sood joins me now, Chairman of Galane Gold. Ravi, welcome back.

Ravi Sood: Always a pleasure, James.

James West: Ravi, you guys pumped out some financials the other day, and they are pretty impressive, considering these are from the second quarter of 2019.

Ravi Sood: Exactly. Exactly. We produced in the second quarter; we released it recently: 8,700 ounces, approximately, of gold, and that was, we achieved an average selling price of 1,305, had a cash cost for the quarter of 966, and, as a result, had cash flow from operations of approximately $2.9 million USD for the quarter.

And that’s significant for a company like us, with a very modest market cap. But we were really keen to highlight the fact that it was 1,305 was the average realized price for the quarter. Well, looking at Q3 – we’re obviously not all the way through it, yet, we’re two months into it, almost – but we’re looking a much higher average price, like maybe even approaching 1,500 if things stay where they are. And that has huge, profound implications for a company like us as a gold producer.

Of course, all gold companies benefit from a higher gold price in terms of sentiment and future cash flows and that sort of thing, but it’s very real and present for us as a gold producer making gold each and every day. And if you extrapolate from our results from Q2 and pick your gold price for Q3, you can see the kind of impact it can have on our business.

James West: Yeah. If you had $200 more per ounce, you said 8,700 ounces?

Ravi Sood: Right.

James West: So that’s another 1.74 million.

Ravi Sood: Of incremental cash flow, right?

James West: Right.

Ravi Sood: Not our cash flow, not our revenue; that’s an incremental cash flow from what was already a very good quarter.

James West: Interesting. So that puts you on track, then, for four eights 32,000, 35,000 ounces for the year?

Ravi Sood: Yeah. We’re forecasting for 2019 approximately 32,000 ounces – sorry, 34,000 ounces. Most of that is from our core operation in Botswana, the Mupani Gold Mine, and the additional bit is from the Galaxy Mine, our operation that we just commissioned this year in South Africa. That’s in the process of ramping up; the highlights there are that we’ve got concentrate being produced, we’re mining, we’re milling, we’re shipping the concentrate on a weekly basis, and we’re basically in the process of an underground mine of getting into the key orebody, the Galaxy orebody that’s very important for us to get into.

So, while we have some modest production over the next several months, it’s about April 2020 that we hit the important part of that orebody and get into what we would consider a steady-state production level in what we call Phase I. So, about 25,000 ounces a year; a lot more detail available for investors with the technical reports filed on CDAR, of course, but in round numbers, that’s the objective. And then lots of room to expand from there, but that’s our important first milestone with the Galaxy project.

James West: Sure. And you guys have, you know, on a look-forward basis, you have a lot bigger plans for Galaxy, don’t you?

Ravi Sood: Exactly. Galaxy has been mined, on some basis, going back as far as 1888, if you can believe that. It’s one of the first gold mines or discoveries in South Africa, and it kicked off a whole gold rush to the region 100-plus years ago. So these orebodies are well understood, they’re huge, there’s a large resource there. And we also have neighbours, particularly Pan-African Resources; it’s about 30 kilometres away from us. Very similar style orebodies and deposits, they’ve been operating producing 90,000 to 95,000 ounces a year for many years. Very profitable operation, really the core of that business, and contributing huge cash flow to their company, and they’re much deeper than we are or that we’ve even explored with our existing orebody.

So we have a high degree of confidence that we’ll be there for a very long time. 1888 is already a long way to look back.

James West: Sure.

Ravi Sood: But there’s no reason to believe that we won’t be there for a very long time into the future. and in terms of increasing the production from that initial Phase I that we talked about, the 25,000, the run rate that we will hit next year, two main things: Number One is what we’d call a Phase II expansion. That’s two things, doubling the milling capacity. We’ve already built the mill to have a much higher capacity as it is; of course, we’d just have some additional CapEx as we ramp up to that. That’s relatively simple, it’s, you know, linear expansion, if you will.

Second thing is doubling the mining capacity. And, the nature of the orebodies, the nature of the infrastructure of the mine, we can do that. Additional working capital required, but at these gold prices, our business is generating a lot. So that’s the next big growth opportunity, that’s basically doubling the potential output there. We still need to the bankable feasibility study on that, but all that work has commenced and in progress.

The next one would be going to actually recovering more of the gold. So right now, the approach we’ve taken is to ship concentrate, and we have an excellent offtake partner that is paying us a percentage of the contained gold. So we’re not doing, you could say, the last one or two steps of the processing, and we’re getting 75 percent of the contained gold. Our neighbours who have the similar metallurgy to their orebodies, that refractory ore, other issues around it, they’ve got a biox plant running and they’re achieving 90-percent plus recovery. 

James West: A biox plant is?

Ravi Sood: A biox is basically a bio-oxidization, so use of bacteria do what you would otherwise do through a chemical process or a physical process, to extract the gold from complex ores.

James West: Wow.

Ravi Sood: And it’s been working very well for many years. We do have an old biox plant at our operation; we chose not to try to commission it during the Phase I or early in Phase II. Reason being is, they’re notoriously difficult to start up. Additional capital required, and certainly looking back over the last couple years, capital has been scarce in our sector.

And finally, and very importantly, you need a continuous, stable source of ores to feed to that biox plant. You need to feed those bacteria a consistent food supply, and then they can achieve great results. But that leap to 75 percent recovery to 90-plus, again, huge impact, very short payback on commissioning that biox plant, and that’s something we’d definitely be looking at a couple years out. 

So two, you know, not just getting into the steady state of Phase I, huge impact on us as a, you know, 30,000 to 34,000 ounce a year gold producer. Adding another 25,000 ounces of production is a big deal, but doubling that again and then adding, potentially, 15 percent on top of that with relatively low-risk, incremental investments in an existing operation. Not having to do an acquisition, not banking on some discovery or fundamentally changing anything else about our company.

James West: Okay, so since the gold price has sort of started to be solid at 1,500, have you noticed a great influx of interest from the investment community into your company?

Ravi Sood: It’s a 180-degree reversal, James.

James West: Six months ago, nobody cared?

Ravi Sood: Six months – even, look, well, even three, four months ago, nobody cared. And looking back over, there were a few small pockets of interest, but looking back five years, nobody has cared. And in the last few weeks I’ve got lots of inbounds from friends and family, inbounds from brokers and high net worth individuals, and inbounds from institutions. Small or opportunistic ones; we’re not talking about Fidelity calling, but I haven’t had any of that for years. So, going from zero to something is a huge move, and I think my observation as a former fund manager, and somebody who is really closely follows flow of funds, and that certainly is going to have a huge impact on this sector, people are virtually at zero. People have been caught flat-footed on this move in gold and precious metals, and the shift in narrative has been so quick that it’s not like you’re seeing most investors, even the savvy leading-edge hedge fund guys or thought leaders out there, really well-positioned on gold and ready for this.

James West: Except Eric Sprott, of course.

Ravi Sood: Except – well, he’s just been phenomenal.

James West: He’s never wavered.

Ravi Sood: He’s had one setting for a very long time, and he’s been mostly right. So, good for him.

James West: [laughter] That’s right, that’s right. So Mark Mobius, 30 year veteran, you know, strategist with Templeton, he was on Bloomberg yesterday and he was saying that they asked him, what about gold? Where does gold figure into this negative interest environment in bonds. And he says, Well, you should be buying gold at any price, at any level. Just buy it! Just buy it!

Ravi Sood: It was a great sound bite and a very quotable line.

James West: Yeah.

Ravi Sood: I mean, distilling it, I think what he meant was, you shouldn’t be distracted by, was it up 1 percent or 2 percent or down 3 percent; the trend is clear. 

James West: Yeah.

Ravi Sood: It’s upward. And that the move from 1,200 to 1,300 and then this sprint from the 1,300s to 1,500s, that’s great, but it could actually be a very small part of the ultimate move, and that’s certainly what we believe and what I personally believe.

James West: Sure. So investors obviously are going to be clamouring for gold and gold companies if this price advances. How many companies are there in the entire market like Galane, that are super-undervalued. Qualitatively forward-looking statement small print here, but how many companies are there like yours out there that are actually producing gold at a profitable rate, and have expansion potential, and yet have a low market cap where there’s lots of upside in it, especially in terms of a beta to the price of gold, should the price of gold continue to rise?

Ravi Sood: There are some, and I think you’ll find that if you looked at today’s gold price and assumed that was the going rate for the next few years, you could find a few that were actually really quite dramatically undervalued. But not that many. And I’ve, you know, in my narrative, I’ve been telling people, this cycle is going to look very different than the last big gold run and mining run, and why is that? A few reasons.

The last time we had a big move in the 2000s, and gold went from 250, 300 to ultimately peaking at $1,900-plus, you had a huge inventory of projects, discoveries, that were made in the 90s, even going back to the 70s and 80s. Things that were on the shelf. A lot of them in good jurisdictions, even: Canada, Australia, US and elsewhere, and savvy guys who knew where they were, knew where to find them, and knew what to do in the capital markets, opened the window for them. Did something about it.

A lot of those projects got built, acquired by majors. They’re in some process of development or already running today.

James West: Right.

Ravi Sood: Since then, despite a huge amount of money spent on exploration in the 2000s and in the, ten years ago, very few major discoveries. And what you’re going to see in this next cycle is less things to pull off the shelf as development projects, and especially less things to pull off the shelf in what you’d call a good or Tier 1 jurisdiction. It’s going to be harder and harder to find. So there’s going to be more scarcity to actual gold production, and there’s going to be more scarcity  to projects that are operating in stable jurisdictions. Harder and harder to have interesting scale discoveries at this point, and even harder still to pull something that was already discovered and not yet develop, and turn it into a gold mine.

So that’s – all those things were quite different than what we experienced in the 2000s.

James West: Right. All right, Ravi, let’s leave it there for now, that’s a great update. Congratulations on a good quarter – can’t wait to see you the next one. Full disclosure: I’m a shareholder and I am buying the stock. We’ll come back to you soon. Thanks for joining me today.

Ravi Sood: I look forward to it. Thanks, James.

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.

Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.

Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.

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