Junior gold producer under the radar

Galane Gold (TSX-V: GG) has kept a low profile in the stock market for the past couple of years and it has not found it necessary to embark on any capital raising roadshows in the world’s financial centres. However now it feels it has perhaps been too quiet and is conducting briefings in London – but again not because it needs capital, but just so that it can fly a little higher above the gold investor radar. To this end it took on a London-based PR company earlier this year to help introduce it to the UK financial sector.Junior gold producer under the radarGalane currently has one operating asset – the Mupane gold mine, Botswana’s only primary gold producer. It was acquired from IamGold in 2011 following that company’s successful merger with Cambior as it was not seen as a core business as being too small an operation for the enlarged IamGold’s forward plans. (I am Gold retains a 41% interest in Galane.)

Galane has a current production capacity of around 40-50,000 ounces of gold a year and in terms of existing reserves and resources is a short life property, but again, as long as it is not looking for a transfer to the TSX main board – which it may wish to do in the near future – there is no particular pressure on it to spend the money to delineate a full blown resource assessment, but is happy to maintain perhaps a 3-year forward reserve, with new resources replacing depleted ones as mining progresses. If one goes back perhaps 30-40 years this was the way many mines would operate before ever-stricter stock market requirements began to demand more and more disclosure. However, according to chairman and acting CEO Ravi Sood he is confident there are major brownfield and greenfield prospects for significant life extensions within the highly prospective Tati greenstone belt which Galane controls.

Thus Galane Gold is Botswana’s only gold producer and has tied up virtually the whole of the Tati greenstone belt to the south of Botswana’s second largest city, Francistown. According to Sood, gold has been mined here since around the 12th Century and he reckons there is plenty more to come. There have been a number of small mines within the concession area in the past and the current concentration for exploration and expansion is mostly on areas around these brownfield sites.

Junior gold producer under the radar

Apart from a blip in Q2 due to lost production from a SAG mill motor failure, Galane is profitable at an operating level and has been generating free cash flow. Sood also reckons there is enough flexibility in its resources and operating plans to survive any likely further gold price downturn, although All In Sustaining Costs have been in the region of $1400 an ounce. But looking forward the company is confident it can bring these down to around $1000 or even lower as its current mining plan progresses. So far capital expenditures have been kept to a minimum and Galane has had no need to go to the markets for cash, although does have a forward gold sales agreement on generous terms with Samsung which netted it a loan facility of $5 million towards its development programme. It also carries a $60 million tax loss dating back to the previous operating company on its books which means it is not currently paying any tax.

Botswana is considered a great mining destination with a pro-mining stable government which is open to foreign investment – indeed it is consistently the most highly rated country in Africa in the annual Fraser Institute surveys. Also helping it is excellent power and transportation infrastructure including an international airport at Francistown only around 35 km from its main operating area.

Junior gold producer under the radar

Asked if the company proposes a listing in London, Sood was basically positive on this possibility although the costs of both obtaining and servicing a listing can be significant for a junior. He intimated that any such route would be preceded by a full board listing in Toronto – which would almost certainly require expenditures on developing a new NI 43-101 resource and reserve statement – and then perhaps applying for a secondary listing on AIM.

On dividend policy Sood suggested that once certain other commitments had been finalised the company could be open to paying a dividend, or perhaps to a share buyback and that given the poor share price performance of junior gold stocks the latter might be a more attractive route.

Galane is effectively unhedged (apart from its forward commitment to deliver a minimum of 1,607 oz/month gold to Samsung for a period of 2 years – but this is only at a discount to the prevailing gold price at time of delivery of 1.5% for the first 12 months and then 0.5% discount for the following 12 months.) With only 50.7 million shares outstanding and no plans for any equity raising, and as a producer with positive cashflow, Galane has excellent leverage to any pick up in the gold price, yet says it can cut its cloth to handle any further falls.