Galena providing a leading light

Galena Mining (ASX: G1A/FRA: GM6) is preparing to step into the spotlight as a new producer of the highest-grade lead concentrate globally, with its flagship Abra base metals project in Western Australia offering sector-leading returns.

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Galena providing a leading light Galena providing a leading light Galena providing a leading light Galena providing a leading light Galena providing a leading light

Galena Mining has moved from exploration to surface infrastructure construction at Abra in WA, targeting first production in 2021

The well-funded company is already in the initial construction stage at the permitted project in the Gascoyne, de-risking very quickly and on track for first production and cash flows in 2021.

Managing director Alex Molyneux reflected on the rapid progress the company has made since its IPO just over two years ago, from a maiden resource to a definitive feasibility study, getting the equity for the project from an investment deal with Japan's Toho Zinc, organising offtake for about 100% of forecast production and starting infrastructure construction works.

Now he is waiting for the penny to drop on the market.

Under a A$90 million deal struck earlier this year, Toho will gain 40% of the Abra joint venture company, AMPL, and have the right to purchase 40% of Abra's product on arm's length, benchmark terms.

The first $30 million from Toho has enabled Galena to fast-track progress, starting construction works in parallel with finalising project financing debt.

 
alt='Site clearing works began during the September quarter at Abra' Site clearing works began during the September quarter at Abra

Molyneux pointed out this was hugely beneficial for two reasons, enabling Galena to save money by doing works outside the main EPC contract and by having the works done early, it de-risked the potential for any issues with the items to become a hold-up for the main build.

In a further coup, Galena struck an offtake agreement in October with top-tier global base metals merchant IXM for the remaining 60%, covering 65,000 tonnes of lead-silver concentrates per year over a decade, at a premium to benchmark pricing.

Molyneux described the IXM offtake agreement, plus an associated US$12 financing back-up facility, as super-significant.

"In Galena's marketing process for our 60% share of production, we established the true value for Abra's concentrate, which is the highest-grade, cleanest lead concentrate available globally," he said.

"The deal we did with IXM ended up being on terms that provide a significant premium value for the concentrate.

"As a result, a significant extra cash flow stream will be made at the Galena level and this extra cash flow and value is in addition to the assumptions used for Abra's DFS.

"It's a very useful cash flow too because it will come to Galena as soon as Abra starts shipping product, whereas dividends from the project will typically come as the project financing debt is paid down."

Galena's July DFS had already envisaged outstanding results, putting initial capex at A$170 million, payback at two years, the post-tax NPV (8% discount) at $381 million and the IRR at 32%.

The 16-year project is slated to produce high-value concentrate grading 75% lead and 200g/t silver, averaging production of 95,000t of lead and 805,000 ounces of silver annually.

C1 direct cash costs were estimated among the lowest for global primary lead producers at US44c/lb.

Toho currently has a 13.3% stake in AMPL and will invest the further A$60 million once Galena signs a project finance debt facility, with Molyneux saying that process was going well.

"We have a mining-experienced bank that was retained by AMPL some weeks ago running a process," he said, adding an independent technical expert had been performing due diligence for the banks and an additional 10 banks had signed non-disclosure agreements to enable them to enter discussions.

"We have a very good mix of both Australian and international banks in our process and there's a lot of excitement from them to be in our debt syndicate at this stage."

alt='Site works are underway at Galena’s Abra in WA ' Site works are underway at Galena's Abra base metals project in WA

Since releasing the DFS, Galena updated Abra's resource in October to 41.1 million tonnes at 7.3% lead and 24g/t silver, adding about 8% more lead and 10% more silver than considered for the study.

"The indicated resource grew more than 10% with that growth coming mainly from the north-western quadrant of the deposit where the first mining activity will take place," Molyneux said.

"However, what's more exciting is the fact that the overall resource grew and Abra continues to grow.

"I guess overall we would say the impacts of the new resource are: (a) it's served its purpose to de-risk the early years of the mine plan; but (b) it's come up with numbers that indicate the 16-year mine life envisaged in the DFS can probably be extended."

He said Galena was also using its unique knowledge of the Edmund Basin for further exploration.

"Abra is the only commercial base metals deposit discovered so far in the basin and it's obviously quite a beauty, so the game is to find one or more Abras," he said.

"As Robert Friedland used to say, ‘there's never just one, these things tend to be like pearls on a string'.

"Abra was a ‘blind' discovery, i.e. it does not outcrop and geophysics was the key discovery tool."

He said Galena had 100%-owned tenements 25-80km west of its flagship project, where there were a number of "interesting looking coincident magnetic and gravity anomalies" with similarities to Abra.

"We're now at the point where we will selectively drill those anomalies to help us build out our knowledge and work towards any additional potential commercial-scale deposits in the area," he said.

"We're actually doing a small drilling programme now on one of our targeted anomalies and will see what comes of that."

Back at Abra, works being done before Christmas are expected to cost about A$15 million, about 9% of the total DFS capex.

A 24-person camp has been set up for the people working on civil engineering works including site clearing, roadworks, installing water pumps and a wastewater treatment plant.

"I expect once they're done, the current team and sub-contractors will likely move onto the remaining civil works required for the project," Molyneux said.

The company's progress has been helped by the support of a board with extensive mining, finance and mine development experience.

It is chaired by mining executive Adrian Byass and includes well-credentialled mining engineer Tony James, investment advisor Tim Morrison and geologist Jonathan Downes, while Molyneux had previously been at the helm of the recent Paladin Energy turnaround.

Galena's share price has more than doubled in value over the past year as it starts to appear on investors' radars. 

Australian billionaire Tim Roberts increased his beneficial interest in the company in September to about 14.7%.

However Molyneux believes Galena is still largely unknown, a factor which has kept its relative value low for its progress.

"We only IPO-d just over two years ago (and still only have about 800 shareholders!) but we have achieved so much in our short existence," he said.

 
alt='Galena Mining MD Alex Molyneux' Galena Mining MD Alex Molyneux

"Our shares are basically trading at half of the attributable net present value per share based on the DFS numbers… and that excludes a number of things: (1) the fact the change in spot commodity prices and currency since the DFS would apply an approximately 25% increase in that value; and (2) the premium on the offtake was never factored in.

"I see this as a share that's extremely cheap relative to various ways to look at the value.

"Often companies trade this cheaply when there's a big risk of dilution that shareholders are uncertain about, but our $90 million Toho deal brought in the equity for the project.

"We have $33.5 million cash today plus another $60 million coming in the next Toho tranche so when you consider our overall capex is $170M and we're running a debt financing process, I think we're in good shape.

"We're getting closer and closer to cash flow generation," he added.

"I've no doubt the penny will drop eventually but in the meantime, I see Galena as a great opportunity for those who are maybe more research driven and look at companies based on fundamentals rather than follow the herd."

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HEAD OFFICE:

DIRECTORS:

  • Adrian Byass
  • Jonathan Downes
  • Tony James
  • Timothy Morrison
  • Alexander Molyneux

QUOTED SHARES ON ISSUE:

  • 376.47 million

MARKET CAP (at October 29, 2019):

  • A$130 million

MAJOR SHAREHOLDERS:

  • Board and management 25%
  • Tim Roberts/Warburton Group 15%
  • Other institutional investors 31%
  • Retail investors 29%

 

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category-img

HEAD OFFICE:

DIRECTORS:

  • Adrian Byass
  • Jonathan Downes
  • Tony James
  • Timothy Morrison
  • Alexander Molyneux

QUOTED SHARES ON ISSUE:

  • 376.47 million

MARKET CAP (at October 29, 2019):

  • A$130 million

MAJOR SHAREHOLDERS:

  • Board and management 25%
  • Tim Roberts/Warburton Group 15%
  • Other institutional investors 31%
  • Retail investors 29%