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Galileo Resources is just a few months away from generating US$10mln cash flow per year

Galileo Resources has a portfolio of assets in Southern Africa

Galileo Resources PLC -

Shares in Galileo Resources PLC (LON:GLR) have enjoyed something of a resurgence in recent days as the company moved to consolidate its ground position in Zambia, where it holds licences to the Star Zinc and Kashitu projects.

Galileo’s chief executive Colin Bird describes the most recent developments more as a “mopping up exercise” than as anything drastically new, but in the midst of the current market uncertainty it didn’t hurt for investors to be put on notice that things are still moving ahead.

The company’s shares have accordingly jumped by more than 50% over the past two weeks, and although they are still trading lower than where they were before the coronavirus crisis hit, they are at least now back within shouting distance of their pre-crisis levels.

To some extent, at least, that means the market is now beginning to look ahead and beyond the coronavirus crisis, which in any case, hasn’t to date hit Zambia that hard.

In the case of Galileo there’s certainly plenty to look forward to. Following completion of the earn-in requirements on the Zambian projects, the company now owns 95% 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’s 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 (LON:JLP), which owns the Sable zinc smelter next door.

The current thinking is that selling ore from Star into the Sable smelter should generate around US$10mln per year in cash flow for Galileo over a period of six years. The resource is constrained, ringing in 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.

“Kashitu is a much larger animal,” says Bird.

“BHP came up with an estimate that it contains 50mln tonnes at at least 3%, 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 US$260mln during the middle part of the last mining boom, and he was also the progenitor of Galileo’s neighbour at Star, Jubilee, which has now built up a strong track record of cash generation.

Galileo is a different proposition again, but there’s 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’s 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.

Quick facts: Galileo Resources PLC

Price: 2.23 GBX

Market: AIM
Market Cap: £18.89 m

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