Galiano Gold: Waiting For AGM To Restart (NYSE:GAU)

Introduction

Galiano Gold (NYSE:GAU) operates and manages the Asanko gold mine, or AGM, located in Ghana, West Africa, jointly owned with Gold Fields (GFI). Also, Galiano Gold owns the Asumura project indicated below (see map below).

Note: Galiano is the joint venture operator and receives an annual service fee from the JV. Gold Fields Limited owns a 45% equity interest in the AGM JV, with the Government of Ghana owning a 10% free‐carried interest.

On May 4, 2023, Galiano Gold reported its 1Q23 results.

Note: I have followed GAU quarterly since 2021. This new article is a quarterly update of my article published on April 6, 2023.

Note: Asanko Gold Mine is called AGM in its abbreviated version.

1 – Q1’23 Results Snapshot

Gold production was 32,678 Au ounces during 1Q23, down 22.8% from last year. The production of 1Q23 aligns with the 2023 production guidance of 100K to 120K Au ounces.

Gold revenue was $65.193 million, generated from 35,174 gold ounces sold at an average realized price of $1,850/oz for the quarter. The net income for the company was $8.49 million or $0.04 per share during the quarter, including the Company’s share of the JV’s net earnings for the quarter.

Note: 2023 Guidance for gold is between 100K and 120K Au ounces. GAU revised AISC to between $1,650/oz and $1,750/oz due to strong operational cost performance in 1Q23.

2 – Stock Performance

Galiano Gold has significantly outperformed the VanEck Gold Miners ETF (GDX) and is now up 42% on a one-year basis.

3 – Investment Thesis

My investment thesis for GAU is the same as the previous quarter, even if the miner has had a few recent hiccups.

That said, I do not think GAU is a stock well fit for the long term due to its extreme specificity, but it is an excellent tool for short-term trading using the LIFO strategy that I strongly suggest in my marketplace, “The Gold and Oil Corner.”

The central issue is that the stock is based on one single JV in West Africa, considered high-risk from a long-term investor’s perspective. However, Gold Fields’ potential to acquire Galiano Gold is a good incentive.

Meanwhile, any problem related to Asanko Gold Mine will materially affect GAU, which has no backup, and the West African location is another uncertainty compared to North America.

On the positive side, the company presents a solid balance sheet and excellent growth potential, significantly reducing the chances of short-term collapse. Galiano has over $100 million in liquidity (100% JV) or Cash and cash equivalents of $56.173 million as of March 31, 2023, while remaining debt‐free.

On March 28, 2023, the Company published an updated National Instrument 43‐101 (“NI 43‐101”) Technical Report for the AGM, which included the reinstatement of Mineral Reserves. It demonstrated an improved long‐term outlook for the mine.

Proven Mineral Reserves of 7.2 Mt at 0.67 g/t for 0.2 million ounces (“Moz”) gold contained and Probable Mineral Reserves of 41.7 Mt at 1.43 g/t for 1.9 Moz gold contained. Mineral Reserves were reported assuming a gold price of $1,500/oz.

Low cash costs: $905/oz average total cash costs and $1,143/oz average AISC over the LOM.

The mining at AGM is expected to restart during 4Q23 as scheduled in the 2023 Technical Report.

Finally, insiders, notably the independent chairman Paul Wright, buy GAU regularly, another sign of confidence.

Thus, I recommend trading LIFO for about 60% of your overall position but keeping a small long-term position for a potential future acquisition offer in an all-share deal in 2023-2024.

Galiano Gold: Q1’23 Balance Sheet History – The Raw Numbers

Note: The Joint Venture is split 50/50 for the 90% economic interest, with Ghana Government holding 10%. Therefore, Galiano Gold owns 45% of the Joint Venture.

Click to enlarge

Source: Company M&A. Fun Trading files.

Analysis: Revenues, Free Cash Flow, Debt, And Gold Production

1 – Quarterly revenues were $65.193 million in Q1’23 (100% basis)

2 – Free Cash Flow was a $0.57 million loss In Q1’23

Free cash flow is cash flow from operations minus CapEx.

Trailing 12-month ttm free cash flow was $4.38 million, with a loss of $0.57 million in 1Q23.

3 – No Debt in Q1’23 and Total Cash of $56.173 Million

4 – Quarterly Gold Production Analysis

Galiano Gold reported that gold production at the Asanko gold mine in Ghana was 32,678 ounces during 1Q23 and sold 35,174 ounces. AGM processed ore from existing stockpiles during the quarter, and there was no mining activity. The AGM did incur $2.2 million of ore rehandling and mining overhead costs during the quarter.

As said earlier, on March 28, 2023, the Company posted an updated NI 43‐101 Technical Report for the Asanko Gold Mine, which included the reinstatement of Mineral Reserves.

The processing plant achieved a milling throughput of 1.566 Mt of ore at a grade of 0.9 g/t and metallurgical recovery averaging 73%. All those numbers are weak due to lower than prior years due primarily to processing lower grade stockpiles.

5 – Galiano Gold New Life Mine Plan

LOM is now 8.5 years.

Technical Analysis And Commentary

GAU forms an ascending wedge pattern with resistance at $0.64 and support at $0.56.

Ascending wedge patterns are bearish chart pattern that signals an imminent breakout to the downside.

I recommend trading LIFO for about 60% of your total position and keeping a tiny core long position for a test of $0.85-$0.95.

The trading strategy is to sell partially between $0.62 and $0.66 with possible upper resistance at $0.72 and buy/accumulate between $0.57 and $0.54 with possible lower support at $0.50.

Watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.