Galantas Gold – Do Delays Outweigh Drilling News?

I hope readers know that investing in emerging and developing miners – while promising better returns than the big boys if you pick the right period in their evolution from start-up to actually producing – is also a very long and roller-coaster slog. So a share where that journey looks like being shortened has to be worth a look.

One such is Galantas Gold, who although primarily listed in Toronto (TSX:GAL; also on AIM:GAL) has an already producing – although stopped while undergoing a major upgrade – gold mine at Cavanacaw near Omagh in western Northern Ireland on the so-called ‘Dalradian Belt’. This is a thousands mile long geological feature dating from before the Atlantic opened up, extending from Norway, through Scotand and Ireland, to Newfoundland where there are prolific gold mines. Scotgold’s Cononish gold mine in the Grampians is on the same belt and closer to full production than Galantas and although slightly larger, doesn’t. I think, offer the same scope for investors.

Known about only in the last 50 years or so, Dalradian gold grades can be very high, although in veins which need detailed exploration, and the mining savvy Canadians have latched onto a potentially world class mine at Currighanalt, 20 miles north of Cavanacaw. Curraghinalt is known to contain some 6 million gold ounces but, unfortunately for investors, its prolonged development led to it being bought out of a listing by private equity instead of remaining the attractive public investment it would have been.

Galantas’s Cavanacaw had been producing gold in a small way since 2006 initially from an open pit mine, but although a professional report in 2014 had shown the possibility of a highly profitable expansion of what was measured to be c 500,000 gold ounces of resource, the then private owner couldn’t afford the cost and the mine closed for a time. That 2014 report was when gold was 2/3rds its present levels and although mining costs have risen markedly it can be estimated to be even more profitable now.

In 2017 however Galantas started attracting some significant mining investors, including private group Melquart; Miton UK smaller cos fund; Ross Beaty; and Eric Sprott described as one of the world’s premier gold and silver investors. They have provided funds to upgrade the mine and its capacity and have taken stakes which now account for 57% of the shares, while more support has come from gold trader Ocean Partners with an offtake agreement for part of the production once it restarts.

Following that support and planning permission, Cavanacaw started developing underground access which can be more profitable from targeting the high grade veins, but encountered various delays – now resolved – including police concerns about the security of its explosives storage; the Covid 19 effects; shortage of local trained labour and, now, problems and rising costs in the global mining equipment supply chain.

In 2021 a new CEO had joined from Canada with a remit to step up development, since when, while continuing to upgrade the mine’s capacity, the emphasis has been on drilling the surrounding area which has similar geology to that at Dalradian’s Curraghinalt.

This drilling has been highly successful, such that Galantas expects to publish what could be a significant increase in the gold (and silver) resource by the middle of this year, and would markedly increase the mines life beyond the 6 years it had when mining stopped.

These delays however have been expensive and the key shareholders have had to put up more funds, partly explaining why the shares have been relatively weak . The re-start of full production has now been delayed by a year since the company announced that it expected to produce some 5,000 gold ounces in 2022 and to increase to over 17,000 ounces in 2023, and there has been little news from the company explaining why that has been missed and what to expect. Hopefully, the year end report due next month will do so and will re-iterate the 24,000 oz per year that the larger mine was expected, last year, to eventually produce.

With its market cap now at £25m, that revenue, once achieved would make a big impression, especially as the balance sheet, following that shareholder support, has remained fairly healthy. As well as an increased gold resource, it is possible the company will, later, publish an update on the only detailed economic study available so far, dating from 2014 which showed exceptional profitability and would have been even more so with a gold price now 50% higher. But too much has happened since it was produced to make it feasible to tweak the numbers now, so we must wait for a completely new study.

The lack of up-to-date detail has also made it impossible for analysts to make forecasts, and in any case GAL’s shares are too few in circulation to make it worth while to do so even for the company’s own brokers here and in Canada.

So this recommendation is on the basis that the delays will soon, surely, be explained and resolved; that a revised gold resource in itself will be seen to warrant a better market value; and that with gold seemingly on an uptrend (at last) the high profitability the mine promised once in production will make that £25m market cap (at 29p) look silly. But I would remain a little cautious until that upcoming end year report confirms that the plans are properly on rack.