Galantas building a credible gold presence in Northern Ireland the old fashioned way

By his own admission Roland Phelps, the chief executive of Galantas Gold (LON:GAL, CVE:GAL), is doing things the old fashioned way.

He and the team are building the Omagh Mine, in Northern Ireland, from the bottom up by investing the cashflow from production into exploration.

This in turn is laying the foundations for a much larger operation – an underground mine with the potential to produce 50,000 ounces of the precious metal a year.

This would represent a significant step-change for the group, which in the quarter to September 30 sold 1,766 gold equivalent ounces.

A £2.7 million cash injection in 2010, via a placing and loan, means the group is well funded.

The cash call brought aboard a significant shareholder in Kenglo One, the investment vehicle of former Williams de Broe analyst Chris Brown.

Brown of course was behind the huge success that is London Mining (LON:LOND), though he has taken to investing some of his personal fortune in promising companies such as Galantas.

Kenglo bought into the placing and has warrants which vest at 10 cents a share. If exercised they would give it more than 30 per cent of the company.

Kenglo also provided the £1.25 million loan, which Phelps said carries a coupon of two percentage points above the base rate.

If that sounds fairly generous, then the repayment terms suggest that Brown is a big fan of Galantas.

“The loan is repayable with warrants Kenglo already has,” Phelps explained. 

The injection of funds along with the company’s own cashflow from production has allowed the company to embark on a pretty aggressive drilling campaign.

The current programme will total at least 15,000 metres. The focus is on 15 targets that offer the potential of early payback, including the highly promising Joshua vein.  

“I would be very, very shocked if we don’t get a substantial upgrade to Joshua,” said Phelps.

“This is a statement based not on hope but on the data already in the public domain on Joshua, where we have had some excellent results.”

A drilling update on October 20 gave some insight into the potential of Joshua. It included a 3.4 metres section at 9.6 grams per tonne, which contained a bonanza grade 0.4 metres at 34 grams per tonne.

Results from five holes were published, and most contained narrow sections of reasonably high grade ore. There were also silver and lead credits.

The data will help compile an interim NI-43-101 resource statement, which analysts hope will double the current resource base to around 600,000 ounces.

The ultimate aim is to push that figure north of 1 million ounces, though it is plausible, based on the potential of some of the exploration targets in and around Omagh, that the eventual resource could top 2 million ounces.  

“We are doing this the old fashioned way,” Phelps said.  “We have proved up enough ore to build a mine and we are using the mill to generate cash, which we are ploughing back into drill holes to develop the mine further.

“Today, this company is not about production. Production is the driver for completing a programme that will take the company forward.”

According to analysts, the potential costs of going underground and expanding the plant to process 50,000 ounces of gold a year could be in the order of US$20 million – which is modest by modern mining standards.

Phelps revealed he has already spoken to banks about the subject of debt finance: “I thought the banks would be closed. But I have held initial discussions and haven’t been kicked out the door.”

The Galantas boss believes he can raise the finance necessary “There is strong support from existing shareholders, providing we can get the resources drilled and remaining permits in place” revealed Phelps. 

There are two potential catalysts for the share price, the first being the interim resource statement, the second, and most decisive trigger, would be receiving permission from the local authorities to begin underground mining.

Galantas will be able to gauge opinion in applying to build a cut and cover concrete adit to run through the backfilled portion of the opencast. This will be a pre-cursor to going underground. The application was lodged just before Christmas.

Phelps believes there will be opposition to the company’s plans, but thinks it is possible to secure planning consent for an underground mine within a year of first applying for it.

He hopes the local politicians and planners will look at the potential contribution the Omagh Mine could make to the local economy.

“Unemployment is high in Northern Ireland and a project like ours could be a very important contributor to the local economy.

“There are naysayers who will object. They have in the past and we have got planning in the past.

“I don’t believe it is a matter of if, more a matter of when the planning will come.”

The current share price has been hurt  by the recent market shake-out and also, Phelps admits, by the uncertainty that exists in the planning approval process.

However the fourth quarter results suggest the company could post adjusted net profit almost double last year’s total of US$1.5 million, according to analyst Michael Franklin of City firm Beaufort.

“The shares should stand at significantly above their current level,” he said recently as he upgraded the stock to a ‘strong buy’. 

“Furthermore, the shares are technically very oversold so that, at least in the short term, a rebound from the current level can be expected.”