Galiano Gold Inc. – As Good As Gold
We learn how Galiano has built a proud reputation by investing in local communities, transitioned to delivering free cash flow and hear about their recent rebrand.
Galiano Gold manages and operates the Asanko Gold Mine in Ghana, a 50/50 joint venture between themselves and Gold Fields. The mine has been in production since 2016 and is currently expected to produce between 225 and 245,000 ounces of gold this year.
Ghana is a substantial gold mining country with over 2 million ounces a year produced in the country. There are a number of large companies operating here so there is competition for talent,” explains Greg McCunn, CEO of the company. “By building a mining company that is focused on its social license to operate we are able to attract and retain top talent across the organization.”
The mine completed construction in 2015, ahead of schedule and within budget, and poured first gold in January of 2016, and within three months had commenced commercial production.
In both 2018 and 2019, the mine had record gold production of 223,152 ounces and 251,044 ounces, respectively. In 2020, with a target of 225 and 245,000 ounces at AISC of $1,000-$1,100/oz the company remains focused on generating free cash flow.
With that level of success comes responsibility, and Galiano Gold has shown itself to hold a strong commitment to the very highest standards of health & safety, human rights, and environmental management, for its employees and its host communities.
Bringing Value to Communities
McCunn credits Galiano’s repeated success to the extra mile the company will go to when contributing to local communities. Galiano Gold is deeply committed to being a good neighbour to its host communities. The company boasts an experienced, all-Ghanaian Community Affairs department, based at the Asanko Gold Mine, who are dedicated to building and sustaining positive relationships with the local communities. Through this department, the Asanko Gold Mine focuses on improving sanitation, health, education, and community infrastructure. All of these investments seek to provide benefits that will be sustainable beyond the life of the Mine’s operations and include contributions by local communities – generally in the form of communal labour – to engender shared responsibility and commitment to the investment.
“The thing that differentiates us is our social license,” McCunn says. “We discovered this mine. We built it back in 2014 to 2016, and when you’re a junior mining company in a well-known mining jurisdiction there’s a lot of expectation from local communities when it comes to corporate social responsibility. But with limited budgets compared to the larger companies in Ghana we are focused on carefully managing how we make our strategic investments. We contribute directly to community improvement programs and growing local businesses. In addition, to leverage our investments we enter into partnerships so when we contribute our portion, we are able to leverage up to ten times the value of the investment. It’s something we’re proud of. On top of the financial aspect of these partnerships, our partners also bring expertise in those areas that we are investing in. Some of our partnership programs include literacy training, access to capital to support the expansion of local businesses and improving health services.”
This level of involvement is also reflected in the company’s environmental stewardship, with the Company showing real dedication to minimising environmental impacts associated with their operations. The Asanko Gold Mine complies with all Ghanaian legislation and regulations and appropriate international standards.
The responsibility for this environmental stewardship rests with the very highest levels of the company, and their Environmental Management Plans have been designed to ensure continuous improvement in the management of resources while creating environmental awareness among the Company‘s employees and contractors through training. There are also numerous monitoring programs which are reviewed on a regular basis and adjusted according to changing needs and best practice.
The standards that Galiano draws on to guide their environmental management and monitoring includes IFC Performance Standards, Ghanaian Environmental Protection Agency, World Bank Environment, Health, and Safety Guidelines, World Health Organization Guidelines for Drinking-water Quality, and International Cyanide Management Code.
Following the standards assures that not only has Galiano achieved great things but that they can be proud of their achievements.
Mining Company of the Year
Indeed, although Galiano is a relatively small gold company compared to some of the corporations in the field, they’re able to punch above their weight, winning Ghana’s Mining Company of the Year Award for the second year in a row in 2019.
The Mining Company of the Year Award is awarded every year to the mining company that has achieved the highest aggregate results in the five categories of Occupational Health and Safety, Financial Performance, Corporate Social Investment, Local Content, Environmental Management and Innovation.
“We are elated that for the second year in a row Asanko Gold Ghana Ltd has won such a prestigious award from the Ghana Chamber of Mines against very intense competition,” said McCunn of the award. “As a relatively young mine within Ghana, this award recognizes the commitment that our team continues to demonstrate through its leadership in innovation in the workplace and ensuring we operate in a safe, socially and environmentally responsible manner.”
“I am incredibly proud of our team for receiving these awards,” added Fred Attakumah, Executive Vice-President and Managing Director of Asanko Gold Ghana Ltd. “This is the highest recognition in Ghana for a mining company in the areas of health & safety, social and environmental responsibility and innovation and shows the tireless efforts and dedication of the entire Asanko Gold Ghana Ltd team. We will continue to seek further innovative ways of excelling in health and safety performance, respect for the environment and relations with our community partners.”
From the Ground Up
That Galiano has achieved so much is all the more impressive given how recently work began on the mine. Putting a new mine into production, getting it started up and running properly is no small task.
“It was initially a $300 million construction project, and we continued to invest in capital projects over the first three years of operations to get the mine to where it is today, where it’s generating substantial cash flow,” McCunn tells us. “The biggest challenge in the start-up of the mine was reducing the variability of the operations and achieving consistency. Over the last year, we’ve really found our stride and exceeded our production guidance in 2019.”
Galiano Gold is guided by the vision to build a sustainable business capable of long-term value creation for its stakeholders through the organic growth of their production, exploration and the disciplined deployment of financial resources. Through Galiano’s collaboration with Gold Fields, their jointly owned gold mine has established itself as a large scale, multi-pit asset which Galiano is successfully operating.
Maintaining that consistency means carefully balancing and managing Galiano’s available resources to ensure no downtime.
“Fundamentally, we’ve got six open pits. We mine at any given time from three of them. It’s about building adaptability and flexibility into the business, maintaining operations through the inevitable challenges,” McCunn explains. “Consistent production has been the main focus for the last three years. Now we’re really into the second phase of optimisation, which is improving our margins by driving down our costs.”
The outlook at Galiano is bright, as McCunn pointed out during the release of their latest Mineral Reserve Estimate, saying “The updated Mineral Reserve Estimate for the Asanko Gold Mine is in-line with the development plan that we announced in August last year which targeted 8-10 years of mine life at a production rate of 225,000 to 250,000 ounces per year,” said Greg McCunn, Chief Executive Officer. “2020 and 2021 are both expected to be good years for the mine with projected strong free cash flow. Using this updated life of mine plan as a baseline, we are launching a major cost reduction initiative at the AGM and increasing focus on exploration on our prospective 21,000-hectare land package. When we look at our 50% share of the Asanko Gold Mine cashflow at today’s gold price, we estimate that we continue to trade at a discount to our net asset value. As a result, we are continuing with our share buyback program. As of the end of March, we had purchased and cancelled 3.5 million shares, returning approximately $3.0 million to Galiano Shareholders.”
Through all of this, Galiano Gold is guided by its vision to be a gold producer that creates a sustainable business that is capable of long-term value creation for all stakeholders. It’s a vision the company will achieve through providing a safe and healthy working environment for their employees, developing and implementing the organisational capability required to achieve and sustain their business and growth objectives, and making responsible, competitive and efficient use of all their assets. Galiano will foster cooperation and participation with all stakeholders to achieve these shared goals, with a particular emphasis on the environment and local communities.
Galiano Gold has made a real success of itself by managing the infrastructure and resources available to the business, but there is one more element that is absolutely essential to their continued prosperity – people.
”Our business is built on three pillars,” McCunn says. “They are mineral resources, infrastructure, and people, systems and processes. The third pillar is perhaps the most important as without people, systems and processes even the best mines and processing facilities will fail to be successful.”
Fortunately, Ghana is as rich in skilled human resources as it is in mineral ones. The country is a well-known mining jurisdiction with a long history of gold production which has led to the growth of a highly trained workforce. Ghana is Africa’s largest gold producer and the world’s eighth-largest and is appealing to international countries because Ghana is a stable and functioning democracy.
“There have been big mining companies operating here for over 100 years. It means we’re not required to source ex-pats to any great extent. We have approximately 2,600 employees including contractors, 99% of whom are Ghanaian. On a local scale, about 50% of the workforce are people who live within commuting distance to the mine,” McCunn points out. “There’s a good labour pool of skilled engineers and metallurgists. One of the things that attract people is how we approach social licence, and also paying attention to how we do business and our values and vision.”
A New Brand for a New Era
Today Galiano is about to embark on a whole new phase for the company, building on what they have while transforming into something new.
“We’ve got two main focuses over the next two years. The mine has a ten-year mine life on paper, so the two objectives we have are first and foremost improving our margins and driving down costs. In an industry where you can’t control the price of your product, you need to control costs. Secondly, we want to add value for the company and our stakeholders through exploration,” says McCunn. “We have got a wonderful land package on one of the main gold belts in Ghana, and it’s largely unexplored. Due to the challenges of raising money and building a mine, there hasn’t been capacity within the company for exploration, so 2020 will be the first year we really focus on our exploration efforts. I think we’re going to be mining gold here for a lot longer than ten years.”
Ventures into exploration are only the beginning, however. The entire company has just completed a rebrand from Asanko Gold to Galiano Gold following shareholder approval on April 30, 2020.
“The rationale behind the name change is that we are focused on creating a new entity, a company that is building a sustainable business to create value over the long term,” McCunn says proudly. “In conjunction with changing the name, we have been refreshing our Board”
One of the most pivotal of these new appointments announced the day we speak with McCunn, is Paul N. Wright who was appointed to the board and following the Company’s annual general meeting of shareholders on April 30, 2020, was appointed Chair of the Board of Directors.
“After a thorough search process that began last year, we are very pleased that Paul has agreed to join our board and to take on the role of non-executive Chairman following the AGM,” says Gordon Fretwell, former Chair of Galiano’s Nominating and Governance Committee.
“I’m looking forward to having Paul lead the board as we enter into an exciting time for the Company,” adds McCunn. “Paul’s extensive business and leadership experience will be extremely valuable for Galiano Gold as we seek to build a sustainable business capable of long-term value creation for our stakeholders.”
McCunn is right about the levels of experience and expertise Wright brings to the role. Wright served as Chief Executive Officer of Eldorado Gold Corporation from October 1999 to April 2017. After joining Eldorado Gold in 1996 as Vice President, Mining, he moved on to become Senior Vice President Operations in October 1997. In these roles, Wright led the company through a period of intense activity through which was created a leading international gold company. Exploration discovery and acquisitions during this period enabled Eldorado to successfully develop and operate mines on three continents, creating a well-valued and respected company. He is a graduate of the University of Newcastle Upon Tyne and brings over 40 years of international experience in the development of open and underground mines to his role. He is also a member of the Canadian Institute of Mining and Metallurgy, the Institute of Materials, Minerals and Mining, and is a Chartered Engineer (UK).
And Wright is inheriting a company that is undergoing some revolutionary changes that go far beyond a simple rebranding exercise while its performance has been extremely strong. Over the first quarter of 2020 Asanko Gold Mine’s highlights included a record quarterly gold production of 66,333 ounces at all-in sustaining cost1 (“AISC”) of $805/oz, as well as gold sales of 67,820 ounces at an average realized price of $1,542/oz, generating gold sales proceeds of $104.6 million. The Asanko Gold Mine enjoyed strong cash flow generation with operating cash flow of $37.0 million and free cash flow of $27.0 million.
These are trends that had continued through the 2019 financial year, with the Asanko Gold Mine generating record proceeds of $342.4 million generated from gold sales of 248,862 ounces at an average realized price of $1,376 per ounce, and producing record quantities of 251,044 ounces exceeded their original upper end of guidance of 225,000 – 245,000 ounces. The Asanko Gold Mine generated operating cash flow of $120.4 million and free cash flow of $44.0 million, and on December 31, 2019, the JV had cash of $43.8 million, $9.1 million in gold receivables and $2.8 million in the ore.
“2019 was a transitional year for the Asanko Gold Mine as it shifted focus from investing in significant capital projects to generating positive free cash flow and began distributing capital to the JV partners,” said McCunn of the release of the Company’s Q4 and full-year results. “The mine achieved record production of 251,044 ounces, exceeding our guidance expectations for the year, while costs were slightly higher than expected as a result of a higher-than-expected reliance on lower grade stockpile feed during Q4. Importantly, the development plan for the life of mine was agreed by the JV partners in August and the updated Mineral Resource and Reserve estimates are expected to be issued by the end of Q1. Looking to the year ahead, the Asanko Gold Mine is expecting 2020 to be very similar to 2019, targeting 225,000 to 245,000 ounces of gold production at AISC of $1,000 to $1,100/oz. We also expect to continue to focus on exploration with a $10 million exploration program for the year. Our priority targets are located close to existing infrastructure.”
In 2020 Galiano plans to source ore primarily from Cut 2 at Nkran, and Esaase, while the development of the Akwasiso pit is also expected to recommence and contribute approximately 30% of the planned ore tonnes for the year. The AGM will augment these ore sources where necessary with run-of-mine stockpile material. The development capital is forecast at $24 million, primarily for the Tetrem village relocation.
In addition, $10 million is budgeted for exploration, mainly around the highly prospective Tontokrom – Miradani – Fromenda mineralised trend. Exploration is an area that Galiano is very keen to provide a renewed focus on, with plans to make the most of their considerable land resources. The business holds the largest land package on the highly prospective and underexplored Asankrangwa Belt, and the Galiano exploration team are very excited about the prospects of delineating a third significant ore body to complement Nkran and Esaase. Galiano plans to channel this increased focus on exploration with the aim of unlocking the potential within this 21,000-hectare land package.
Galiano Gold has a gold standard future ahead of it.