Galane Gold (GG) - African Gold Player with 50% Insider Ownership

September 21 2020, 15:17 GMT+01:00

Galane Gold (GG)

  • CVE: GG
  • Shares Outstanding: 236.82M
  • Share price C$0.22 (21.09.2020)
  • Market Cap: C$55.652M

Galane Gold is a gold producer and explorer that has experienced a bit of success recently, though the share price has tailed off in the last few weeks. Galane Gold has gold mining operations and exploration tenements in Botswana and South Africa. These are two of the better gold mining jurisdictions in Africa. Galane Gold was first listed on the CVE in September 2011, so this is a story 9-years in the making. The formation of the company was quite complicated, with Galane Gold acquiring Gallery Gold from IAMGOLD in August 2011, with Gallery Gold being the 100% owner of Botswanan gold producer, Mupane Gold Mining, which has been producing gold from the Mupane operation since back in 2005. Further acquisitions were made in 2015, as Galane Gold acquired Galaxy Gold, a South American gold player that restarted operations sometime in 2019.

The long-term aim for Sood and his experienced team is to turn Galane Gold into a meaningful gold producer that can create value across gold cycles. Mupane has produced 700,000oz of gold since 2005, and Galane will hope to continue in this vein, as the company targets exploration and development to increase the mine life and the size of the resource. Mupane looks promising and is situated within the Tati Greenstone Belt, which is part of the larger Zimbabwe Craton, a renowned and prolific area for gold production, producing in excess of 77Moz of gold historically. Over 120 exploration targets have been identified based on geochemistry and aero-magnetic work.

Back in March 2018, Galane agreed on a JV with B2Gold in the shape of an earn-in agreement. B2Gold would be enabled to acquire up to a 70% stake in the company by spending $4M over 3-years to bankroll 70% of the JV, and by targeting a 1Moz+ resource.

We Discuss:

  1. 1:41 - Company Overview
  2. 5:07 - The Foundation: Background & Business Model
  3. 7:39 - Hindsight Mining: Lessons Learned and Applied
  4. 11:55 - Company VS Market: Reasons for Share Price Increase
  5. 13:10 - All About the Money: Cash Position, Allocation, & Debt
  6. 15:10 - Impact of COVID-19: Reworking the Timeline
  7. 23:51 - Driving Growth & Funding it All: Why Not Raise Now?
  8. 30:24 - Guidance on the Future: AISC, Cash Flow, Warrants
  9. 34:55 - Mupane & Galaxy Projects: Plans and Timelines
  10. 39:51 - B2Gold Deal Terms and Upside
  11. 41:37 - Keeping Costs Low & Looking at M&A Opportunities

Matthew Gordon: Why don’t you kick off with that 1-minute overview of the business, then we will pick it up from there.

Ravi Sood: Galane Gold is a Gold producer. We started almost 10-years ago by buying what we called the Mupane Gold mine in Botswana from IAM Gold. IAM Gold was a seller at that time. They bought that company in 2006. It was an ASX-listed company at the time. It was an important asset to IAM Gold, it was very much relevant to them in terms of production and percentage of their total portfolio. By 2010/2011, we actually closed the acquisition in Ravi Sood: August 2011. It was too small for them and geographically isolated in their portfolio, so itmade sense forthem to sell it, but a great opportunity for us to buy it. We saw it as an asset that was, for a couple of years, anyways, very much under-managed.

Obviously, IAM Gold is a great company. they have great people. But being the smallest operating asset in their portfolio, it was a little unloved and there is a lot of opportunities to improve it through active management and fit-for-purpose management and to also extend the operating life. It was meant to close as an open-pit operation only 2-years after we bought it, but we saw an opportunity to transition to underground mining and dramatically extend the operating life.

We did that, that was the main order of business for the first few years of our company, then we saw an opportunity; we looked at many opportunities, as you can imagine, but an opportunity to leverage that platform in Botswana, and a team that had built and commissioned an underground mine and cut costs from an existing operation.

We acquired the Galaxy Mine in South Africa out of a restructuring process. This is a mine that has produced in some shape or form, almost continuously since the 1880s, if you can believe that. It was a huge opportunity with lots of infrastructure, well-understood geology. At the time, it came with a 1.6Moz resource, all categories. It was, what I call, a hot restart. It was a shutdown mine, effectively on care and maintenance, but the Wi-Fi was on, the lights were on, skeleton staff, everything was ready to get going, so I call it a rolling start or a hot restart. That acquisition closed for us in December 2015 - almost 5 years ago. While we muddled through the very low Gold price period in 2015,15,16,17 and started to see the light at the end of the tunnel in 2018, we made some incremental progress to restarting that mine. As we got higher Gold prices, we completed small financing, primarily debt, in 2018. We started the restart in earnest and started to see some production in 2019 and in 2020, but we were definitely affected by COVID. We are now seeing the near completion on phase 1 of production, which is 23,000oz to 24,000oz p/a.

Matthew Gordon: When you acquired these things, that you were getting the cheaper? Was that part of the allure?

Ravi Sood: Definitely. My background: I spent the first half of my career as a fund manager, is based in Canada, of course, there is a heavy focus on natural resources. I spent a lot of time evolving my thinking on how you create value for yourself as an investor. Of course, that then had to evolve further as I jumped to the side of the desk and became the person asking for money as opposed to the person doing it out. I still had that frame of reference very much in my mind. When I look at these opportunities, most of the money to be completely plain, in any highly cyclical business-like Gold, is made on how you ride your cycle. We closed out first acquisition in August 2011, which you may recall, was the month Gold topped USD$1,900 and did not see it again for approximately 9 years. That was a brutal time to close that acquisition, but that was us entering the game so our mantra for 5 or 6 years was; batten down the hatches, don’t blow up the capital structure, keep ourselves afloat under our own steam, fund ourselves and come out the other side. I don’t know when the other side is going to appear or what it will look like, but Gold will go higher or back to where it was, as long as we're in the game and we're intact, it's going to be fine, it's going to be great. That was the key thing to do.

The last thing we wanted to do was look at where we were going to buy something and plough USD$100M or USD$200M, the CAPEX. When there are opportunities to buy things - a little trickier - they all have their twist to them, but where you have literally in both of our assets, over USD$100M had gone in, in terms of infrastructure. That's something we would never have been able to fund, certainly at that time, it would take years, and we got it like that. We just showed up and it was there. Huge opportunity to leverage that infrastructure base and really generate returns for ourselves.

Matthew Gordon: What do you think you have learned from that first acquisition? Do you look back and go, we should have paid a lot less? Looking back that you would have done?

Ravi Sood: It's hard to put a clear lens on it because that is what got us into the game. Of course, I wish I had bought it 6-months later, never mind 2-years later. If we had waited for 2-years in that case, the asset would have been shut. The primary thing is how do you ride this cycle? It doesn't mean you don't do deals on the way up or even at the peak, but it should be a different deal. We structured that deal in a way that was, it was a USD$30M purchase price of which USD$10M was cash, so that was money right in the door. USD$5M note, so we did pay that out of cashflow. We paid IAM Gold over a period of a couple of years. We didn't have to do a financing to do it. It was under our own steam. The other half was in the paper in NewCo. There was no Royalty. There was no residual ownership at the operating level. That was a way of back-ending it, to de-risk it and leave some upside if Gold had done something different, for IAM Gold. Structurally we can deal with that, but, yes, of course, if I had a time machine, I'd say let's put this asset in 2013, not 2011.

Matthew Gordon: What were the lessons you applied to the next deal which you did in 2015?

Ravi Sood: There are similar aspects to it. That one already had debt on it. Then when it appeared in that process where it was on our desks and we were the beneficiary then of a couple of years of the bear market in the Gold market and buyers’ market. We were able to put a minimal outlay of stock, almost nominal outlay of cash: less than USD$1M, really just covering people's bills. Then an assumption of debt, which we restructured substantially to be heavily in our favour; unsecured, subordinated, no cash interest, very flexible terms on repayment. That was one that we picked up, what was at the time, 1.6Moz of all categories, now 2.4Moz. If you look at our acquisition costs per lb, it was almost 0 in terms of equity and cash funds. In deferred debt, we paid a couple of dollars p/oz. It was a fantastic acquisition, one that could only be done at the bottom of the cycle.

One thing I do want to clarify - the MPONIE acquisition, it looked great for 2011/2012 - remember, Gold did hang in for USD$1,600+ for a year, year and a half. It looked very bad for several years, but we have continued to produce. We have continued to pay all our bills, continued to fund the acquisition of the Galaxy mine and the care and maintenance costs there for the first couple of years. Now, 9-years later, with Gold at USD$1,900+, the Mupane Mine is a huge contributor. It was an overnight success for 9-years in the making, but now the purchase price looks fantastic again.

Matthew Gordon: Do you think a more experienced head would have negotiated a better deal? or have you done something which the market has reacted to?

Ravi Sood: It's both. The market has gone up a lot but it's still below where it was when we acquired the first asset.

Matthew Gordon: Yes, inflation-adjusted, for sure.

Ravi Sood: This is an opportunity for those buying now and this underscores your point that we have to look back and learn from the past. To your second point about the share price - is it anything we've done or is it the market? It is clearly both. Our share price would not have moved anywhere near as much without that huge move in Gold. But from a management and execution point of view, this move-in Gold price has happened at the same time that we commissioned our 2nd asset, and our production profile is going up, our debt profile is going down, and it's been one of those happy intersections of good things happening internally at the same time they are happening externally.

Matthew Gordon: You are throwing off a lot more cash, what are you going to be doing with that?

Ravi Sood: We have 2 pieces of debt. Just to give you a more complete answer on what we are doing with our cash, we are generating free cash at this point - quite a bit of it. The first priority is repaying debt. We have 2 series of debt: one is a secured loan with a South African lender. We are paying that down at USD$200,000 per month in principle. It's a USD$5M loan. That will get paid off in 1.5 years. We have another USD$6.5M piece of debt. We are paying down USD$250,000 per month there. Those pieces of debt will be paid off by 2022, but our cash is also increasing in excess of what we are using to pay down debt. On a net basis, at some point in 2021, we will have a net debt of 0.

Second priority: funding the growth at Galaxy. We are self-funding. All the primary CAPEX, with the exception of some development drilling, is done at Galaxy, but we have a Phase II expansion which we release the details of in June, and we can fund that out of our cashflow. It's highly accretive for us to do that.

Matthew Gordon: What has the impact been on you and output?

Ravi Sood: We have been impacted in a number of ways: as COVID started to evolve, we started to expand our inventory of critical stores. Our working capital consumption went up. That was more of a precautionary measure, particularly with Botswana being a landlocked country. In Gold mining you need cyanide, you need oxygen, grinding media, all sorts of things you need to come in on a regular basis. We managed that as compact a supply chain and minimised our working capital, but we took the advantage of higher Gold prices, more cash flowing to increase our stores and build up that buffer. No major supply chain disruptions. I was a little worried in March/April, but nothing serious hit us.

Secondly, outright shut down, which we did have in Botswana and South Africa for a while. We lost about 1-month in total, plus or minus, in both jurisdictions. That was in both places that we have deemed a critical industry, so we were able to go on operating, but as that evolved and regulations and protocols were determined, we did have a period of shutdown. That hit our Q2, and we discussed that in our disclosures. Now, looking at us here in September, Botswana hasn't been heavily impacted. South Africa has had a large number of cases and the situation continues to evolve there. We are operating with strict protocols in place, which as an underground miner, has affected our ability and throughput underground. It reduces our headcount and trying to maintain social distancing in those compact spaces is a challenge. In Botswana, it continues to be an impact, but it is limited. We are able to get most of our throughput on the mining side is little reduced. On the plant and processing side, we don't have so much of an issue. That is not the bottleneck, it's definitely on the mining side.

At Galaxy, in South Africa, there is a little bit more of an impact there, no real bottleneck on the processing side, we have excess capacity there, so we are getting slowed down on the mining. The ore is not going anywhere, it is still in the ground, we wish we could get it faster but as of now, we are just following the protocols as strictly as we can and watching the situation evolve. We don’t have specific dates but I'm optimistic that by 2021 we will be back at normal staffing levels.

Matthew Gordon: How much ore is sitting at the surface for processing in South Africa?

Ravi Sood: We have no bottleneck there, so no issue with the processing. It is really the number of people that we can have underground at once and on the throughput side. We don’t have any build-up or anything like that, we are just trying to maximise what we can get out on the mining side.

Matthew Gordon: What percentage of your staff are working underground at the moment?

Ravi Sood: In certain parts, we are down to 2 people where otherwise we would have 4 or 6. It is impacting us, we can mitigate that by running more shifts, doing other things to automate the process, so it's not a linear reduction: we don’t have 1/3 or 1/2 of throughput but it is affecting it. We saw it in our Q2 numbers, we discussed it a little, it's in our Q3. The production is starting to go up because Galaxy is contributing more and with Mupane we didn't lose a whole month as we did in Q2. But it is impacting us and will continue to do so throughout the year. We would expect to lose 15% to 20% of our production at the margin.

At Mupane, we can get it back and have a lift in 2021, at Galaxy - no. Its just time-shifted out, so a little bit of a deeper bite. As I said, with these Gold prices we are still self-funding. We are still generating cashflow and we are doing our best to operate within the protocols.

Matthew Gordon: What's 15%-20% production as a percentage of your margin?

Ravi Sood: In our normal course, we would be operating Mupane at 35,000oz this year. So you take 15% off that, we might do a little better than 15%. It might be closer to 10% but we will see. If it had been Gold prices of 2018, that would have been very painful for us, but now, instead of having an All in Operating Cost that would have been more like USD$10,50, we will come out with around USD$11,50 at Mupane so it does hit us. Of course, we have reduced staffing and there is less mining activity; we pay per metre, per ton, so there are variable costs that have come down, but it does impact our total cost and margin. Now, we are talking about instead of USD$800 p/oz/USD$900 p/oz margin, it is USD$700 to USD$750 p/oz now. Negative impact - no question. At Mupane, hopefully, we can get that back in 2021 with an accelerated production schedule.

Matthew Gordon: The number I'm trying to get it as how much less free cashflow will you have from operations before the debt is paid?

Ravi Sood: You take off 3,000 to 4,000oz from Mupane, say we would have had USD$750 to USD$800 p/oz margin on that. You are talking on the order of USD$3M of operating margin we would have had. The numbers are going to look amazing at the year, they would have looked more amazing if we hadn't had COVID, but then Gold price wouldn't have moved up so fast either.

Matthew Gordon: What are your expectation for Q1?

Ravi Sood: Phase 1 was to complete our previous guidance, pre-COVID, this was August/September. Where that flows from is when we hit Galaxy, we call it a constellation of 21 ore bodies. For our phase 1 production most of the contribution was from the Galaxy ore body, hence the name Galaxy. As we developed into Galaxy, we are getting incidental production from the development work, but also mining from another ore body called Princeton and also some production from Old Mineral Sands, which we are reprocessing through the plant we built there. We are getting production along the way, month by month, but not in that full swing, 24,000oz p/a primarily from Galaxy until we get into that ore body. That September timeframe has now been shifted to January. We have pushed everything out for 4-months. That was the month we lost plus delays on the way, giving ourselves buffer for other issues that may crop up with COVID.

For 2021, for that year, we will be in full phase 1 production at Galaxy. Huge contributor of in the order of 23,000 net oz of production to Galane.

Our original plan 3-years ago, assuming the market would be like it was where we couldn't really access capital on anything other than absolutely horrific terms; super-dilutive and very expensive debt, if you could get it, we had planned to just pay down debt out of cashflow, accumulate cash and fund our transition to phase 2. We had already built the plant to accommodate phase 2 so it was basically doubling mining capacity and everything that went with that it. Because of the much higher Gold prices, we can fund that internally, no financing, no debt, and do it under our own steam in 2021. We will start work on phase 2 as soon as we have completed phase 1. We expect to get phase 2 production levels as soon as 2023.

Matthew Gordon: Why not go and raise money in the market now? You like a bit of M&A? You have projects outside of Galane, has that been a consideration or conversation that you guys have had?

Ravi Sood: Absolutely. There are a few factors at work: our company is quite unusual in the management, board and immediate family members own over 50% of Galane Gold, so that's a level of insider ownership that you just don't see in almost any company, certainly not a junior Gold miner. We treat our shares as though they are very precious. Offsetting that, we are a growth-minded group; my way for the past 10-years has been growth by acquisition, so we get a lot of deal flow. Our management team; our CFO, our CEO are ex-Glencore. Our COO worked at all of the largest Gold mining companies in Africa and several others. There is a lot of experience with M&A and integration, and there's a lot of opportunities for us to leverage our platform, especially as we have that cashflow from our assets and phase 2 taken care of and our debt paid off, we have a lot of capacity to fund something ourselves so what we are looking for is something with not much upfront dilution, not afraid of a big deal, especially if the dilution will hit us later on after we can show more value and a way to leverage the skillset of our management team and the cashflow from the existing assets. We are definitely looking at other opportunities.

Matthew Gordon: How are you going to fund it all? The last I saw; you have about USD$3M in cash. How much debt have you got?

Ravi Sood: We have a net debt of USD$12M to USD$13M.

Matthew Gordon: What are you doing about the growth component?

Ravi Sood: I wouldn't describe it as hand to mouth, we are generating millions of dollars every month.

Matthew Gordon: How do you spend it?

Ravi Sood: The priorities; 1 - pay down debt. 2 - fund the CAPEX for phase 2 at Galaxy. After that, in 2022 when we have free cash, and the numbers aren't so small; when you are talking about exploration, these are operating mines so when you talk about extension drilling we are talking about spending a few hundred thousand dollars - that's easily funded out of our existing operations. I wouldn't call it small: Galaxy is 2.4Moz all categories. That is not a small resource. It's been going since the 1880s. We do have a lot of cashflow.

What kind of deals are we looking at? Is it a mine with some infrastructure that we can buy that need USD30M to USD$40M to put into production? That's something that when we are looking at taking 1-2-years to do a bankable Feasibility Study which we can easily fund, and spend USD30,m 40M, even 50M where we can contribute half of that in the equity component of funding that CAPEX from our cash flow, we can get the rest through debt, we have a lot of opportunities. We would love to do a bigger deal. Some of those are coming across our desks, and we will use capital markets but, as I said, our shares are very precious to us. Even though they have moved up a lot, and we could access markets, we are not going to do it unless the opportunity is accretive. We have a great thing with what we have. We spent almost 10-years getting to this point and now we have a Gold market hitting us at the same time that our production is going up, so now is the time to take advantage of that, prove what we are doing is working and let that value be shown in the market.

Matthew Gordon: To bring the inferred into M&A, you are going to need to spend money. It is not a few hundred thousand dollars, is it?

Ravi Sood: Actually, we released a new PEA in June where we increased the measured and indicated to 970,000. To put that in perspective, our phase 2 production rate averages 43,000ox p/a. We have a huge mine life off what we already have. The inferred is over 1Moz at Galaxy. We will convert that as we go. Converting it for a mature mine that is already operating, where we are already underground, that is not millions of dollars, that is hundreds of thousands of dollars of expenditure. It is not a burning priority - if we go to the market and say, we got a good life and the market reacted positively when we went from 1.6M to 2.4Moz all categories, but that also came with a PEA for the expansion to phase 2. With a 10+ years mine life with double the production - 440,000oz over 10 years, so the market reacted to that. If we add another 300,000oz-400,000oz, which I can say with some humility we can easily do, It won't have much impact, certainly in the short to medium term, on our mining plans. It is really academic. That is not a focus for us at this point. Even if we were able to make it 3.5Moz - it sounds good, but it won’t have any short-term impact, in the next few years, on anything we are actually mining. I don't see it as a huge part of the value equation, it will not be a huge drain of our resources to continue to expand and backfill our resource as we mine some of it out.

Matthew Gordon: What else did you talk about in terms of forwarding guidance in the last quarterly? With regards to AISC or cashflow?

Ravi Sood: Because of COVID, we backed off giving formal guidance, but I can tell you what our previous guidance was, we are not going to meet it this year, the primary reason being COVID. We are expecting to be into Galaxy by August/September, now that is pushed out. That was an asset that was going to produce 18,000oz this year, that has been backed off as most of that production was coming from September through to December. It is going to come in at 3,000oz to 4,000oz there, for that production, we hit that run rate for 2021. Mupane has bounced between 30,000 and 36,000oz and we are going to continue there.

Mupane is mature. We have taken every bit of cost out of it that we can. For example, when we took it over, it had 611 direct employees, now it has 147 - so a very different way of operating. We didn't get rid of 75% of the people but we converted it from a primarily fixed-cost business with everything internalised to a 65%-70% variable cost business, which has certainly helped us with COVID as our AISC hasn't soared when production came down because some of those costs melt away as our throughput goes down.

There we got to about USD1,050 to USD$1,100 All-in Sustaining Costs. You can see in the dark days of USD$1,100 to $1,200 Gold, that was truly handed to mouth. Now at USD$1,900 Gold, that is a fabulous contributor. It's a huge funding source for us. Galaxy, as it hits full phase 1, and we have the technical report we released in June and phase 2, it's in the mid-USD$800s in 2021, as we get to phase 2, it is mid-USD$700s. It is not at the low end of the cost curve, but it is dragging down our overall costs. Again, hand to mouth for 2020 and 2019, but at these Gold prices, a fantastic contributor going forward.

Matthew Gordon: Do you have some warrants coming up soon?

Ravi Sood: Yes, we have only done one financing since going public, which was 2018. We had a debt piece for USD$5M which had a precondition precedent of raising USD$2M of equity alongside or contemporaneous with closing that debt. We did that. Most of that was purchased by insiders, almost all of it, 85% were purchased by insiders and family members. Even just 2-years ago, no-one really cared for Gold. That came with a warrant which is expiring in 3-weeks. About USD$5M of the USD$54M warrants have been exercised. About half were exercised last year. Those came in in December. They have been trickling in, they accelerated over the Summer. It put a little pressure on our stock; none of the insiders is selling or close holders, but we have a few million shares, and people on the watch, obviously. There have been a few million shares of selling. I would expect that all the warrants are exercised in the next 2-weeks or sooner, 1-2-weeks before the deadline. They expire in October. We are seeing some of that pressure now which I expect to be burned off by the end of October.

Matthew Gordon: With regards to exploration at Mupane, it has a short life of mine, and it is a small resource so what is the plan there in terms of building that out?

Ravi Sood: Just going back in time, the primary pit was called Tau, that was open-pit and was mostly what IAM Gold mined. Most of the last 5-years is us having transitioned that to the underground. That opened up additional resource, it was supposed to be a couple of years, but we have added year after year to that. We are coming to the end of what was known, we found even more so we will get some more contribution there. We can't talk to the market in a compliant sense about how much more we think is there. We started a new underground mine adjacent to Tau, which is an area we mined previously as open-pit, called the Golden Eagle. Going back to the early; 90s, that was an underground mine operated by Phelps Dodge, if you can believe that. we reopened that as an underground mine, and we are starting production there. It only has about 1.5-years of contribution, however, it is open at depth. The last significant exploration that was done there was over 20-years ago. In the context of today's Gold prices, we expect to extend that. It won’t be a monster for us, but in terms of incremental contribution - yes. There will be more there. We have our Jim’s Luck asset, which we drilled up in 2012 and have sat on for the better part of 10-years. That is something we will come back to and possibly have a contribution there.

Third - we did a JV about 1-2-years ago with B2Gold. They approached us. We farmed out to them, we basically had the entire Greenstone belt in Botswana under our prospecting license, we farmed most of it out to B2Gold. They approached us. The had an idea, maybe they know something we don't, they were looking for bigger targets, something to fit their size requirements. We have a deal where if they find something - great, we are carried to a bankable Feasibility. They will have a great asset and maybe they will want to buy out our infrastructure to have an operating mill and could be in production tomorrow. Or, if they find 100,00oz, 150,000oz or 500,000oz, a huge contribution for us, and they will walk away because it doesn't move the needle for them.

One last thing I'll add: we have been producing, and IAM Gold has been producing in aggregate at Mupane since 2005. We have tailings with something like 180-190,000oz. once we hit the end of life on our mine and we can say, look, we are done at this price. We are years away from that, we are going to go back at those tailings, in round numbers - we don’t have a complaint report on this - we can recover about half the Gold in there and do it about 1-year. We have some CAPEX associated with that to reconfigure the mill to process tailings - it's a different process, but we have all the nuts and bolts that are there. that will be the single biggest year contribution in the history of Mupane because we will get 70-80-90,000oz from it in 1-year at minimal operating costs. We have no mining or trucking costs; it is all tailings right next to the plant. That's the final act at Mupane. It will be a great one, but that is still years out.

All that stuff I listed; we are still talking about hundreds of thousands of dollars of expenditure because we are mining at Golden Eagle. We have a compliant resource at Jim’s Luck. We are mining at Tau. We are talking just incremental expenditure for a little bit of exploration that is all near mine.

Matthew Gordon: Why wouldn't you just sell that now?

Ravi Sood: The other thing is you would want to use our plant or the nuts and bolts of our plant which we need for processing. If I was to pick anyone on earth who knows the situation the best, who knows how to get the most economic value out of it, it would be us. We are not hurting for cash. we are funding it as we go. It makes sense for us to keep that margin for ourselves and be greedy about it. It will be a few years from now but when it comes it will be a big contributor.

Matthew Gordon: On B2 Gold - what is the upside there? What happens if they discover something more there?

Ravi Sood: At only 30%, and especially with us now in a stronger position than we were when we signed the deal, not so easy to bully us around, but if they find something big, using their methods and capabilities which, from an exploration side, clearly exceed ours. Then we have 30% of it and we can try and fund or they buy us out of 30%. The most likely outcome is we try and do a deal where they buy our plant because anything within the Greenstone belt is trucking distance to that plant, and you have a 1.2M ton plant and you could be in production overnight, in a mining sense, obviously not overnight. That's the most likely outcome in that scenario. Realistically, the most likely outcome overall is they find some promising things, maybe a few hundred thousand ounces, and they walk away. That's not very good mining promoter speak on my part, but that is the highest probability outcome. That's not negative for us either in the sense that we have spent nothing, and a couple of hundred thousand dollars is absolutely meaningful to us at Mupane.

Matthew Gordon: It has been interesting. A new story to us, I wanted to understand how you guys think about it. You are obviously keeping costs nice and tight, you are not rushing to do any M&A. I guess if the right thing comes along, you think you can finance that.

Ravi Sood: Yes. Again, in the world of the realistic, I would love to do a great, big open-pit with a strip ratio that is in Canada or Australia.

Matthew Gordon: So would 100 other people.

Ravi Sood: Ravi. Probably, we are not the lead bidder or if we won, it would be at a price which is exorbitant but put a few twists on that - maybe it is underground - you lose 80% of your audience there. Maybe there's an issue with Metallurgy, Sulphides, refractory ore, stuff that we already deal with - you lose half your audience again. Maybe there's a jurisdictional twist? Our whole management team has worked in interesting, colourful places for most of our career so we can realistically and credibly look at opportunities that have a smaller universe of people that we are competing against. It's bigger than it was 1-2-years ago but still small. That's a sweet spot for us. It doesn't preclude doing deals in Canada and Australia but they are most likely going to be underground and also be sub-100,000oz, once you get over that level, we will be competing with your man at IAM Gold and things. That's not a place we want to be but 50,000oz p/a mine in a great jurisdiction? That's something we would love to add to our portfolio.

Matthew Gordon: I like that - a great finish to the conversation. Ravi - thanks so much. We will speak again. Stay in touch, pick up the phone if there's more news.

Ravi Sood: Fantastic. Will do.

Company Page: http://www.galanegold.com/

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