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A “Golden” Opportunity Across Two Continents

Dave Jackson Dave Jackson, Stockhouse
1 Comment| October 19, 2021

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When we last net up with Canada-based gold producer and explorer Galane Gold Ltd. (GG) (TSX-V.GG, OTCQB: GGGOF, Forum) in January, company CEO Nick Brodie introduced our Stockhouse investor audience to its advanced operation of gold mining properties in the Botswana and the South Africa. Today, Mr. Brodie is back and joined by Stockhouse Media’s Dave Jackson to give us a full operational update on their properties there…and now in New Mexico.

(Click image to play video)


SH: To start off with, can you tell us a little bit about yourself and the history of the company?

NB: Sure. Dave, look myself, my background is finance. I'm a qualified accountant. Originally started as the CFO of Galane Gold and progressed my way up to the CEO. I've worked in various CFO roles across Africa and in the UK.

If we talk about Galane Gold itself, it was set up back in 2011 and it was set up to acquire the Mupane asset in Botswana. Now, when we acquired it, that company only had one year's life but we saw an opportunity to build a new management team and to take the operation underground and extend life. Here we are 10 years later still operating that asset. Now what we wanted to do, once we put that asset back into production at Mupane was leverage of that management team and we were looking for similar opportunities to Mupane. Shall we say un-loved assets and in 2015, we found such an asset called Galaxy Gold in South Africa and it was in care and maintenance, but it was a huge opportunity. We put together a new mine plan, extended the resource to two and a half million ounces raised financing and now we're putting that back into production. We are ramping up production around 43,000 ounces a year at an all in of less than $750. Then at the beginning of this year in May, we saw another opportunity for our management team another asset in care and maintenance called the Summit mine in New Mexico. That asset again, un-loved but it had a great opportunity in front of it. Production wise around 22,000 ounces and all in of around $730 per ounce. Now we can continue to look for similar assets but what we don’t want to do is take the management team of our goals, which is to continue producing at Mupane, ramp up at Galaxy and now put Summit into production.

SH: Can you update our investor audience and your Galane shareholders on any new company developments, especially in the wake of COVID-19?

NB: Okay, well let's start COVID, you know what, It's fair to say COVID has had a detrimental effect on our plans, but we're fortunate that we built strong teams in Africa that can operate without, shall we say an expat oversight and they have been doing that to minimize the effect on both our employees and our production. I mean, just to give you an idea at this moment in time at both sites, we actually have set up vaccination centers and use our own medical teams. They're giving both sets of employees’ vaccinations but there are things that stop us from operating. So you've got to consider social distancing and when you're underground and you're charging a face in a four by four meter hole, it's difficult to create a social distancing. You can only have two guys in there and it slows us down. We're not as fast as you're used to but we’re putting work arounds together and we believe we have the plans in place and procedures in place to take care of the health of our employees and keep production at the same levels. When it comes to the updates of the three assets, maybe we could just progress on the conversation on each one and I'll give you an update as we go through it.

SH: Galane acquired the aforementioned Summit and Banner Mill mines in May 2021. Can you expand on this initiative for our investor audience?

NB: Well, I kind of addressed at the beginning when we had the first question, if Summit falls into a category of un-loved asset that we believe our management team could take advantage of and we believe it's very accretive for our shareholders. Just to remind people of the actual transaction, we acquired just over a hundred thousand ounces in gold in an asset for around $17 million. The resource statement and the technical report that sat around that was talking around an NPV of around a hundred million dollars at $1700 gold and $25 an ounce silver. So you've got a great return there already for your shareholders and we as a management team believe we've got a real opportunity to make it even more accretive. Now we could just look at it as a silver mine and we can look at it either way because of the way the gold and silver price workout, it can produce around 1.4 million ounces for seven years with silver, at an all in cost of around $13 an ounce and silver is obviously way above that at this moment of time.

If you want to turn around and call it a gold mine and we can do because we produce gold in our other assets. It's a 22,000 ounce producer at an all in cost of around $730 an ounce. So as you can see a great opportunity. That's just on the existing resource and the seven year life, it's got much more potential than that and for once we aren’t just talking about it being open at depth because this is an adit entrance and started off half way down and it is open above us and below us. So there's great opportunity to extend the resource.

In fact, I visited the mine after our last call as I've got a national interest exemption which allows me to go from the UK to America now because they see this as a very great opportunity for New Mexico to restart this gold mine. I was just totally blown away by the condition of both the mine and the mill there. We had M3 engineering who did the initial technical due diligence for us and they said it was in a great condition but I'm English, I'm skeptical. I didn't believe them but no, they are a hundred percent correct. The first thing, I visited was the underground mine and it hadn’t operated for six years but it looked like it had operated the day before. Yeah, the day they close down, they just closed the gates, all the electrical reticulation was still in place, all the ventilation and the pumps and everything all still there and all ready to go. In fact you entered by a 12 by 13 foot adit straight into the mine and there is about 15,000 feet of development there. The one thing that it did bring onto me when I got there, which I hadn't quite realized on paper, there's two years of pre-development already done. So we can go in and start stoping tomorrow with no development and have two years’ worth of ore in front of us which is an amazing opportunity and that opportunity has been given to us just because when they closed the mine down, when gold price have fallen away, they had done the development, they just didn't have the money to get it and then do the processing. So to me that's great and also in total if I take the silver and the gold grade and combine it together, we're talking about a resource that runs at about eight grams a ton of gold equivalent. So very high-grade, so great opportunity again, really to restart the mine, you probably just need a one megawatt generator because there is no power to the mine and we need to get a mining contractor in. Now the mining contractor might be difficult. There's a lot of competition in America at the moment, so we may need to procure a mining fleet. If we do, it'll be similar to the mining fleet that we have at one of the ore bodies at the Galaxy asset. So we know how to do that and we know how to operate it. So again, very similar.

The mill itself, is in full working order, I mean the only thing that you need to do to restart the mill was to get a new a white metal bearing for the ball mill which costs around a hundred thousand dollars, but otherwise it's ready to go and ready to operate. Then finally the cherry on top of the cake if you want, is that it's fully permitted. So I don't have to look for water permits or the deposition permits or environmental permits, they already exist. So literally just from my visit, I think it’s obvious to me that if I had the mining fleet in place, the generator in place, I could start mining tomorrow. Which is an amazing opportunity and I hadn't really appreciated that when we acquired it.

We are now starting off on a slower process and that and there's things that I still need to do. Yeah. So this week we've commenced survey. We have a contractor and that is doing our survey because it’s obvious from my visit that there is a lot more development done than were in the plans that were presented to us and we'll finish that in a couple of weeks. Secondly, we're starting metallurgical work. The original guys only saw it as one ore body. We have done a lot of work on mapping what was there we actually see three ore bodies. So we want to see if they are metallurgically similar, if they're able to do different processes to process, et cetera. So we get the best recoveries out of those ore bodies and then finally, what we need to do is build a new economic plan once we have all that information and we're doing that and we've talked to the market maybe about coming back before the end of this year and presenting a new plan for the restart of operations at Summit.

SH: For company shareholders and potential investors, what kind of future development and progress can we expect at Summit and Banner Hill?

NB: Look, as I kind of alluded to the realities, what we need to do is put the plan together. Now the plan that sat in the original technical report at a golden equivalent was around 22,000 ounces a year and an all in of $730 running seven years from just the initial one that we've done. We see a much longer life than that. We need to build a drilling program around that. There's also other resources around us where we could do some exploration, extend life that way as well. Once we have that plan together, then we'll be coming back to the market before the end of this year and we'll be telling the market about what we think we can achieve. We think this opportunity, has a much bigger life than originally presented to the market.

SH: You’ve had some operational issues at your Mupane mine in Botswana. Can you update us on what’s currently happening here?

NB: Yeah, well David, it’s a fair comment to raise, this year 2021 has been challenging at Mupane and the reality, it just started off very badly. We had three times the annual rainfall in one month and we just weren't prepared for it. It flooded the underground, flooded out some of the equipment of our mining contractor. The mining contractor is just a small contractor, difficult for them to recapitalize bringing in new equipment, we’ve had to spend a lot of this year, working with them, helping them to get back into production and we believe they are there now. In fact, we've just placed some orders to have some new equipment for the new mine that we're setting up at Golden Eagle, so they're in a good position. On top of that with the high rains it caused issues with power that made our transformer fail, our main transformer.

Now transformers are not something you just buy off the shelf. Unfortunately, we've had to work closely with BPC, the Botswana Power Company to help us. We've now put back that new transformer just a week ago, that new transformer I should say and we believe we have resolved those issues and the technical issues around the plant. So the third quarter unfortunately, isn't going to be much better than the first two quarters. We're hoping now the fourth quarter, we're in a position where we solved all those issues and we'll be back into production but you know, you've got to imagine that Mupane when we acquired it back in 2011 had been operating since 2005 and was already a second-hand piece of processing plant when we acquired it. That's an old machine now, yeah? It needs a lot of love. We didn't have all of our skills in country because of COVID. We now got Wayne, our Chief Operating Officer there, he's assisting, he's providing guidance and we believe we're in a good position now to turn around what has been a bad year so far and put ourselves back on track for next year. We'll probably give some guidance towards this at the end of this year about where we are going to be with Mupane next year.

SH: How is the expansion at Galaxy progressing in South Africa?

NB: Galaxy's moving ahead really great. Since we last spoke, there's been a couple of updates I think out to the market. Most notably for me, we started stoping in the Galaxy ore body and just to remind you we have two ore bodies there, one called Princeton, where we're already mining. We're already stoping that's five meters wide runs around five and a half grams a ton. That is just going to generate around 10,000 tons a month production, but the big ore body, which we wanted to get into, was the Galaxy ore body that's 40 meters wide, a hundred meters strike runs a four and a half grams a ton but we had to complete a 1.8 kilometer adit into that mountain side to reach that ore body. Yeah, we completed that at the beginning of this year, we've now done the pre-development, we're now in a position where we can start mining and stoping there, and that's going to produce around 20,000 tons.

That takes us all the way to the first phase production around 27,000 ounces a year, at an all in of less than $950. We're looking forward to talking to the market at the end of this year, we've completed phase one and then we're hoping then to talk about the fact that we're already commenced phase two. We've already started the development and we're much further ahead than we considered we would be at this point with regards to phase two, which takes us up to 43,000 ounces at an all in of less than $750. Galaxy in a great position and we're really looking forward to pushing that ahead as a project.

SH: I have to mention your stock has been on a bit of a roller coaster ride the past 12 months. What can you tell our investor audience regarding the current valuation of your stock and why you think it’s a good buy right now?

NB: Well Dave, you're raising the question as why is it good value? I'm going to tell you it is undervalued like every other CEO. Okay, well, look, you're right and you know the last month has been a disappointment with us with regards to how the share price has come off but I don't think we're alone in this. I think it's fair to say there's a general malaise in the junior market at this moment in time and not just the junior market, all markets all the way up to the seniors as well. They've all seen a drop off in the price. In fact just talking to people and reading and going on my Twitter and everything. It just feels to me, the sentiment in the market at the moment is probably as bad as it's been since March, 2020, when COVID first attacked and everyone was very concerned about how mining was going to progress, you know? So I don't think we're alone in seeing a movement in the share price. Look, I can't see any fundamental reason why we've seen such movement. You know, to me gold is still above 1700, take me back two years, it was the 1300, the market has changed fundamentally. I still believe we're in a bull market and I still believe gold is going to go up. So I see a lot of opportunity there but I think if I have to hold my hands up, I think is fair the shareholders could look at what's been happening at Mupane and say we are all slightly concerned, can that management turn it around? Well as a management team, we took it from a one year life and we're still producing there. We took it from a 1450 producer down to 1,050 all in sustaining. We've worked very hard and we know what we're doing. We understand that asset very well. So we'll turn it around.

We look at Galaxy, and we're progressing really well. You know where completing phase one, we're pushing ahead on phase two, already. We take a look at Banner Mill, we bought a hundred million NPV for a fraction of that cost. There's a lot more opportunity, it is in a much better condition than I originally thought and there's a good chance that we get it into production much earlier then I thought.

To go back to your original question. I think we are undervalued for all of those reasons. I think we're just a victim of the market as it is at the moment and you're going to see another roller coaster ride, but hopefully just upwards at this point.

SH: Finally, Nick, what’s the long-term strategy for the company moving into 2022 and beyond, and what should retail and institutional investors be looking out for?

NB: I kind of touched on everything already but we can run over it again. Towards the end of this year, I guess if I was an investor, what I will be looking out for is that update on Summit. When we come out and tell you what we believe the real economics of the project are, what our mine plans are and when we're going to be able to put it back into production, that's going to be a key thing to watch out for. Look at Galaxy, you're going to be looking out for us to complete phase one and be talking about where we're at with phase two and that's going to be a fundamental change in this business. That's bringing it on phase one, it’s putting it on 27,000 ounces and under $950 an ounce, wow. These gold prices, it's going to be a big cash generator for us.

And then if we talk about a Mupane, then we'll be updating the market about what our forecast is for next year and hopefully we'll be talking about how we've turned things around and is back to where it was a year ago. I guess the last thing I put on top of all of that as a management team, we want to keep on looking for other opportunities similar to this. This is what our plan is. So as a management team, we can continue to look and hopefully we can find other assets similar to Summit, similar to Galaxy, similar Mupane which can add value and be a creator for our shareholders in their long term.

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

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