October 11, 2019

Galane Gold Ltd (CVE:GG) to Unlock Known Exploration Potential of Tati Greenstone Belt

Midas Letter
Midas Letter
Galane Gold Ltd (CVE:GG) to Unlock Known Exploration Potential of Tati Greenstone Belt

Galane Gold Ltd (TSX-V:GG) (OTCMKTS:GGGOF) (FRA:25G) Chairman Ravi Sood joins Midas Letter to share the news of their joint venture with B2Gold. B2Gold Corp (TSX: BTO) have met its commitments with regards to Tranche 1 of the Earn-in Agreement for the Botswana prospecting sites and will start the second stage of its prospecting package around Galane’s Mupane mine. Mr Sood discusses the rising gold prices, its drivers and the impacts on the company and the sector.

Midas Letter
Midas Letter
Galane Gold Ltd (CVE:GG) to Unlock Known Exploration Potential of Tati Greenstone Belt

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James West: I’m joined now by Ravi Sood, executive Chairman of Galane Gold. Ravi, welcome back.

Ravi Sood: Pleasure to be here, James. 

James West: Ravi, gold has been performing very well. It’s, you know, it’s in an uptrend over the last ten years for sure, if not over the last twenty. Galane Gold is emulating that. You’ve made some great announcements; you’ve got this joint venture with B2Gold, you’ve reorganized your debt payments. Give me an overview and an update of what’s going on in Galane.

Ravi Sood: Yeah, look, we’ve spent the last – Galane’s been around for eight years now, and we’ve spent much of that time battling a declining gold price environment. And as a junior producer, that’s obviously a challenge. No access to capital, and very much reliant on our cash flows, which are, of course, directly tied to gold price. So we spent a lot of that time really just keeping the company moving forward and advancing our core operation, our producing mine in Botswana, and putting back into production the mine that we acquired in South Africa, and that’s, we’ve managed to successfully do that now, and it’s ramping up its production.

But now we can go into a different mode, if I’ll call it that. With rising gold prices, at the same time that we have increased production and lower production costs, we find ourselves quickly paying off our debt – the debt that helped us really advance those projects and keep the company moving forward during those leaner years, and start to look at new opportunities.

But two really key things that we’ve done in the last week, or that have occurred in the last week: we extended a bit of debt that we had; it was due in November. We prepaid about a third of it a few months early; you know, we found ourselves in a surprisingly cash flow position with these higher commodity prices, of course, and extended it for two more years. It’s very low cost of capital for us; it’s 4 percent interest, convertible at 100 percent premium to the market, so very good extension there; very good for freeing up cash flow for other opportunities.

Second thing, a very exciting thing that we announced last night was, about a year or so ago, we struck a deal with B2Gold. As a producer, we have mining licenses and prospecting licenses, and of course, we were focused on our mining operation and extending that operation, and our team is very much oriented to it; near-mine drilling and geologists focus on extending mine life, whereas B2Gold has a much broader team, huge resources to bear, and they took a lot of interest in our prospecting licenses surrounding our mines.

And so we did a deal where they could earn into 70 percent ownership on those prospecting licenses over a period of three years. Again, it’s a $4 million expenditure, and we found out this week that they had given the green light to move ahead to Phase II, another $2 million expenditure, and moving that JV forward, which is outstanding news for us. Hopefully they find something big, but if they find anything, it’s all positive for us.

James West: Looking at the chart of the price of gold, here, there’s a lot of sort of geopolitical reasons for gold to be moving forward – certainly the proliferation of negative-yielding government debt has got to be foremost among them, a phenomenon that markets have never had to deal with before. And that trend seems to be tied to general global economic fortunes, which are, by all accounts, becoming tougher and deteriorating. Essentially, a perfect storm for the gold price. And so, from where you sit, as a, you know, a bit of a macroeconomist besides just the executive chairman of a gold company, do you see that trend intact over the next five to ten years?

Ravi Sood: In fact, I mean, this trend has started years ago, and a lot of us would question whether we really ever came out of the financial crisis from 2008. The negative yielding bonds, I think, yeah, of course that’s a driver for assets like gold, which don’t have a positive carry to it, so you always had an opportunity cost to holding something with no yield. Where you could get a yield from another risk-free assets like treasuries or other government securities.

So yeah, but I look at that as more of a symptom, or an effect, not the cause of the move in gold. The real cause is, as you described, a change in narrative. In my eyes, we’ve seen a deterioration in the economy; all the signs have been there for many years. Really, the recovery, if you want to call it that, has been driven by debt, and we’ve seen the velocity of money crumple. We’ve seen the effect of each marginal dollar government borrowing fuel the throw on the fire have less and less effect, and the narrative is now changing.

So those facts and those fundamentals have been there for years, but of course, the flow of funds and pricing and markets are driven by what the prevailing view of those assets are, what the prevailing view, in this case, of the economy and the economy’s prospects. And now that narrative is really starting to change. And I think that the rate of that change is going to accelerate, and yeah, that’s something that we’re going to realize and become a lot more of a mainstream narrative over the coming years.

I think, as somebody involved in the junior gold sector for many years, and other ventures, just the talking to other investors around the world, yeah, you start to see some interest now perking up for gold. But given that it’s moved $200, almost $300, it’s amazing how little participation there is in the sector, yet. It’s almost nothing. We’re coming off zero, and we barely moved. So this is something that’s going to extend over many years, and we’re just getting started in it. And the fundamentals have been there for years; we’re just starting to see that creep into a mainstream narrative.

James West: Right. How does that acceleration in the gold price affect the acceleration of Galane Gold’s plans in terms of building out more production and the launch of the second mine?

Ravi Sood: It’s, you know, it benefits everybody in the gold sector, obviously. The sentiment changes, and the capital markets’ view changes, and we start funding things that we would never have thought of even a year ago. But for a producer, and particularly a producer like us, a small producer that has several forms of leverage, that in the bad times work against us, and the good times work in a huge way for us – financial leverage. I know as gold was declining, investors looking at us and saying well, they have some debt, that’s going to be a problem; how are they going to raise money if they have to?

Well, on the way up, that’s a torque for your equity, and it becomes very clear to see how that debt gets paid off very quickly.

James West: It becomes a moot point, really.

Ravi Sood: Being on the higher end of the cost curve, and our new mine will start to lower us, but we’re still, we’re not going to be a low-cost producer by traditional metrics, that hurts us more in a declining gold price environment. But it has a profoundly positive effect in a rising gold price environment. So every incremental $100 has a huge impact on us. I think our market cap now is about $20 million CAD; this year we should produce about 36,000 ounces. We did 36,000 ounces last year. Next year, as our second mine continues its ramp up, we forecast around 50,000 ounces. So you can see the impact of $100 on gold impacts our revenue by, this year, $3.6 million USD going to $5 million next year, and there’s no incremental cost associated to that. Of course, a bit more royalty and, eventually taxes, but not an operating cost; no additional CapEx. That all falls to the bottom line.

And if you’re talking about having an impact of $3 million and $4 million and $5 million USD per $100 on gold, for a company that has a $20 million CAD market cap, it makes a big difference. And we’re not alone in that; other junior producers are certainly in the same boat, and I think represent a great opportunity for investors right now.

James West: You bet. All right, Ravi, that’s a great update. Let’s leave it there for now. We’ll come back to you in due course. Thanks for joining me again.

Ravi Sood: Always a pleasure. Thank you, James.

James West: Brilliant!


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