Shares in Galileo Resources have enjoyed a significant boost in recent weeks as the company moved to consolidate its ground position in Zambia, where it holds licences for the Star Zinc and Kashitu projects.
Galileo’s chief executive Colin Bird describes those developments more as a ‘mopping up exercise’ than as anything drastically new.
A more significant departure came with the subsequent acquisition of a major copper exploration portfolio in Botswana, although it remains to be seen how much value the market will attribute to those assets in the near-term.
Galileo Resources moved to consolidate its ground position in Zambia
Still, one way or another, Bird has made it very clear that Galileo is a company that is on the move, and that however unfortunate the wider circumstances may be during the coronavirus crisis, there are nevertheless opportunities to be had.
The company’s shares spiked up to just over 1p earlier in May, and are now trading at around 0.84p, a higher level than they have been for the past 18 months. To put it another way, all the ground that was lost during the worst of the coronavirus market crash has been made up, and the shares have risen by an additional 100 per cent for good measure.
But there should be more to come. Following completion of the earn-in requirements on the Zambian projects, Galileo now owns 95 per cent of Star Zinc and all of Kashitu.
With the ownership structure of the project now finalised, the company is ready to start getting down to some real work, subject only to the granting of a small-scale mining licence by the Zambian government.
The granting of such a licence would normally take around 90 days, although under the circumstances of the coronavirus crisis it may take a little longer.
Even so, it is certainly realistic to expect that Star will be up and running and producing ore within a few months, shipping across the project boundary to Galileo’s sister company, Jubilee Metals, which owns the Sable zinc smelter next door.
The current thinking is that selling ore from Star into the Sable smelter should generate around $10million per year in cash flow for Galileo over a period of six years.
The resource is constrained, at around 400,000 tonnes, and is unlikely to grow much bigger even if more drilling is completed, so we’re not talking about a long-term operation here.
What we are talking about is a project that will provide plenty of wherewithal for Galileo to get on and work up the Kashitu project, and the new copper projects too, down the line.
‘Kashitu is a much larger animal,’ says Bird. ‘BHP came up with an estimate that it contains 50million tonnes at (grades of) at least 3 per cent, but that could be upgraded.’
One reason why he thinks so is that within that unofficial estimate BHP drilled out several areas with much higher grades. Bird’s judgment on matters like this is worth taking seriously, as seasoned investors will know.
He was the driving force behind Kiwara, which was sold to First Quantum for $260million during the middle part of the last mining boom, and he was also the progenitor of Galileo’s neighbour at Star, Jubilee Metals, which has now built up a strong track record of cash generation.
Galileo is a different proposition again, but there is no reason it can’t be built up using the standard old model: use cash flow from a smaller operation to build something bigger.
Everything is in place: following a recent fundraising, there’s enough to get going at Star, which is a shallow orebody with high grades and nothing at any great depth. Contract miners will be used, so overheads will be low, and at a corporate level Bird is keeping a tight rein on costs too.
Whether anything of the current cash pile will be left over from the re-start at Star for exploration at Kashitu remains to be seen. But with cashflow likely within the year, that latter point is somewhat moot – either way, there should be cash to drill Kashitu before too long.
Bird knows this, and it gives him a certain confidence. ‘I can’t wait to get it underway,’ he says.
Others are confident too. The vendors of the Botswana copper projects were quite happy to take the bulk of their payment in Galileo shares, and have already done well out of that decision.
It is a precedent that bodes well for the future, and marks Galileo out as a company to watch as we begin to emerge into a post-lockdown world.
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