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Going for Gold

Dave Jackson Dave Jackson, Stockhouse
0 Comments| January 18, 2021

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In a recent Q&A article with Stockhouse, Nick Brodie, Chief Executive Officer of Galane Gold Ltd. (GG) (TSX-V.GG, OTCQB: GGGOF, Forum), sat down with our editorial staff to explain how his company is Company advancing its operations to meet the potential spike in value of gold…already above the $2,000 / Oz. level entering 2021. With Phase 2 of its South African Galaxy expansion plan initiated to take production at over 43,000 ounces per year with an objective to increase production to 60,000 ounces annually in Phase 3 – all at an all in operating cash cost of less than $750 per ounce – it’s go time at Galane Gold.

GG is a Canada-based gold producer and explorer. It is principally engaged in the operation of gold mining properties in the Republic of Botswana and the Republic of South Africa. The company holds the interest in the Mupane property which is located in the Northeast district of Botswana approximately 30 kilometres south-east of Francistown in Southern Africa. Its Galaxy gold mine is situated approximately six kilometres west of the town of Barbeton.

The company’s management team is made of senior mining professionals with extensive experience in managing mining and processing operations.

We reached out, once again, to CEO Nick Brodie to update us on the Company’s latest update from its Galaxy property, the Company’s general strategy and business model, and all things Galane Gold.

SH: Nick, to start off with, and for our audience that may be discovering your company for the first time, can you please give us a little background history about yourself and a brief overview of Galane Gold’s operations?

NB: My background is in finance, a qualified accountant, having worked previously in senior finance roles at Total and Glencore. When I started at Galane back in late 2012 it was just as the last gold bull cycle was finishing and the reality was the single asset we had, Mupane in Botswana, was a high-cost producer with a short life. We however saw the opportunity to extend life by progressing to an underground operation at the existing open pits and also reduce costs by restructuring the operations and improving efficiencies. I built a team to do this and here we are 8 years later still operating at Mupane, having reduced the operating costs by over $400 per ounce and now commencing a second underground operation this year. Mupane now produces annually around 30,000 ounces of gold at an all-in sustaining cost of $1,050 per ounce.

In 2015 we had achieved our initial targets at Mupane and wanted to utilize our proven management team to create value by turning around another asset. We turned up an opportunity in South Africa called Galaxy and acquired it at minimal cost in relation to the resources it held, in all categories, of almost 1.5 million ounces of gold. It was once again an asset that was overlooked and undervalued, this time because of the refractory nature of the ore. We saw the opportunity to unlock value by transitioning the operation to mechanised underground mining on the larger wide bodies and producing a saleable concentrate. We put together a plan called Phase 1, financed the project and are now currently implementing the plan to take production to over 26,000 ounces per annum at an all-in cost of less than $900 per ounce.

We now have two profitable operations running in Botswana and South Africa with the potential to triple our annual production by implementing our full plans for Galaxy while pushing down our operating costs in the process.

SH: Can you update our investor audience and your GG shareholders on any new company developments, especially the Galaxy Property and the recent announcement that you’ve initiated Phase 2 of its expansion plan?

NB: In December we announced three important milestones for Galaxy. Firstly, we had commissioned and completed the upgrade of the processing capacity at the plant at Galaxy from 15,000 tonnes per month to 50,000 tonnes per month. Secondly, that the new mining fleet acquired from Rham had been delivered to site and was now mining at both of the major ore bodies at Galaxy. Both important steps towards the completion of Phase 1.

Finally, we announced the commencement and acceleration of Phase 2 of the galaxy project. In July last year we issued a new Technical Report and PEA to support Phase 2 of our expansion plans for Galaxy. The report increased the resource, in all categories, to almost 2.5 million ounces and this increased resource supported the Phase 2 expansion to take production to over 43,000 ounces per annum at an all-in cost of less than $750 per ounce. The new Phase requires no further external funding and the company redesigned the mine plan at Galaxy to combine Phase 1 and Phase 2 of the mine plan to accelerate the implementation of Phase 2. Galane is currently forecasting that Phase 2 will be completed by the fourth quarter of 2022.

SH: What can you tell our metals & mining investors about this production program, overall, and what to expect looking forward into 2021?

NB: Like many miners in this current environment, we are reticent to provide any forecasts for 2021 as we still can’t be sure of the risks to our operations of the current pandemic. What we can say is that at the current gold price, with the ramping up of production at Galaxy and our current plans for Mupane, if all things remain equal, it has the potential to be one of Galane’s best years.

SH: What are the advantages, from an investor’s perspective, of being an un-hedged gold producer and explorer?

NB: We believe that investors seek out junior gold miners for levered exposure to the gold price and that is what we provide. We provide leverage as a producer in three ways: by consistently growing our production, by reducing our unit costs as our production grows; prudent use of financial engineering. By adding the element of exploration, we can create substantial value at the drill bit, adding ounces that more directly translate to production and cash-flow, and unlike junior explorers without production, we can do this using cash-flow from operations instead of continuously diluting shareholders for funding.

SH: Your investor deck states that the primary objective is to “reshape the Company into a long-life and low-cost operation that can produce positive returns for investors across commodity cycles.” What does this really mean and how do you plan to achieve it?

NB: It means exactly what it says. I think objectives should be clear to understand both with regards to the vision and the benefits.

In its simplest from we took a high-cost low life asset like Mupane and extended its life while reducing it costs. This enabled it to survive the last bear cycle in gold and has put it in a strong place to now take advantage of the new bull cycle. We then added another asset Galaxy which has already operated for 100 years and has another 100 years in front of it. We have recommenced operations at an operating cost that will be $300 less per ounce than Mupane. We have therefore taken one high-cost low life asset and turned it in two assets with a long life and a much lower cost. As a management team we have proved our ability to do this twice now and we continue to look for assets that we can add to our portfolio where we can achieve the same again. We believe that we can create substantial value for the company and its shareholders with this formula.

SH: It would be remiss of me not to mention your stock has had a very nice bump over the last nine months…over a four-bagger since mid March 2020. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s still a good buy right now?

NB: Our stock performed well in both 2019 and 2020 and we are optimistic that there is much more to come in 2021 as we continue to execute on our organic growth plans and the market increasingly recognizes the potential of our company.

For many years, during the bear market for gold and junior gold companies, our shares were depressed and materially undervalued. In 2019, with rising gold prices, we saw interest start to creep back into the market for gold juniors and we started to unlock some portion of the value already latent within our company’s shares. However, as gold price has increased, the pace at which the value of our company has increased much faster than our share price.

Looking back a year, we were perceived as having a lot of debt and Galaxy was mostly a series of slides, we spoke to in our presentations. Looking at us a year ahead, we will have little or no debt, and Galaxy will have completed Phase 1 of its development and we will be well into our Phase 2 expansion programme. Our production will have increased, our operating costs per oz will have declined, and our debt substantially reduced or even eliminated on a net basis. At the same time, we will have been producing at much higher gold prices than in recent years which has a profound effect on the profitability of our operations.

So, while our shares have appreciated significantly from their bear market lows, we believe that they do not realistically reflect the current value of our company and certainly do not reflect the material positive milestones that are in our near future.

SH: The price of gold reached an all-time high of USD$2,069 per ounce on August 6th, rising by 35% since the start of 2020 and 40% from the March lows. While the market softened during the autumn of 2020, it’s been on the bounce-back since early December. Can you tell our investor audience where you see the gold market heading in the next year or so?

NB: We are in a period of unprecedented levels of debt and money supply creation. Sound money policies have long since been abandoned in favor of populist policies designed to maintain the status quo. At this point, the debt situation has become an intractable problem. There is no conceivable way to repay the debt through growth, or austerity in the form of reduced spending and/or increased taxation. The two choices are default or inflation on a scale that we have not seen since the second world war, and the latter is the more palatable and more likely. In either scenario however gold will appreciate dramatically.

So while we do not make any specific forecasts on the future price of gold, we are of the view that it will be higher in the coming years and likely substantially so. A large part of the ultimate move may very well happen in a very short period of time. Periods of relative weakness in gold, such as the pullback from $2,000 in recent months, are an excellent opportunity for investors to add to their positions in the sector.

SH: What sets Galane Gold apart from other junior precious metals companies in this space, and what makes your business model attractive to investors?

NB: Mining, and gold mining in particular, is a historically risky and very capital intensive industry. As such, very few companies have substantial insider ownership. Most executives and directors work primarily for their salaries and the potential gains from their option positions – there is certainly nothing wrong with this, it is completely normal. Galane insiders and other immediate family members however hold a majority stake in the company and are therefore completely aligned with other shareholders. That is no guarantee that we won’t make mistakes or encounter unanticipated issues but it does guarantee that we are always focused on long-term value creation. We have built our management team and organization around a formula for value creation which is taking assets with substantial value, in the form of resources, infrastructure, or both, that are underappreciated and therefore undervalued, creatively financing their acquisition, and putting them into production.

We believe that this approach can produce substantial shareholder value across price cycles and that our success with both Mupane and Galaxy are proof of our ability to execute on this strategy.

SH: And finally, Nick, if there’s anything else you’d like to talk about that I’ve overlooked, please feel free.

NB: I think this is a comprehensive review on Galane and Gold so not for now but I hope we will get the opportunity soon to talk further on the future for Galane and our growth strategy.

Galane_Gold_Overview from Contentmachine on Vimeo.

(Click image to play video)


For further information, head to GalaneGold.com.


FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.



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