Galiano Gold (GAU) - An Impressive Gold Turnaround Story

Galiano Gold (formerly Asanko Gold) is a mid-tier gold producer. It operates the Asanko Gold Mine in Ghana, which is jointly owned (50:50) by Galiano and Gold Fields (JSE, NYSE: GFI).

The Asanko Gold Mine is a large scale gold asset that was constructed in 2015. Gold production started in January 2016 and commercial production commenced in April 2016.

Galiano Gold is currently producing cash and will be looking to use it to add value for shareholders in 2020. The primary deliverables in 2020 are targeting 225,000-245,000oz of gold production at a lower AISC: between US$1,000-1,100/oz.

Matthew Gordon interviews Greg McCunn, 12th June 2020

Galiano Gold released its Q1/20 operational and commercial results towards the start of May. What were the key highlights?

Operational

1. Record quarterly gold production: 66,333oz at a record AISC of just $805/oz
2. The Asanko Gold Mine delivered its 'best financial performance' ever.
3. Gold sales of 67,820oz at an average realised price of $1,542 /oz. This has generated 'record gold sales proceeds:' US$104.6 million.
4. Galiano Gold has strong cash flow generation, with operating cash flow standing at an impressive US$37M. The company's free cash flow is: US$27M.
5. Galiano Gold's JV with Gold Fields has cash of US$55.6m, US$9.6M in gold receivables and US$0.5M in gold inventory.
6. The company has drawn down a revolving credit facility of US$30M as a buffer to protect the company from current COVID-19-induced volatility.
7. Much to the market's appreciation, Galiano Gold filed a 43-101 technical report for Asanko with an updated mineral resource and mineral reserve estimate.

Commercial

1. Galiano Gold had a net income after tax of US$21.8M and an adjusted EBITDA US$21.9M.
2. Galiano Gold is currently has an enormous amount of cash and receivables to make things happen: US$53.7M.
3. The company has continued with its normal course issuer bid (NCIB) program, repurchasing nearly 2.5M common shares and cancelling them for US$2M.

There have been some big changes to the management team. Paul N. Wright was appointed as the company's Chairman in May. Todd Romaine, also appointed in May, is the company's new Executive Vice President, Sustainability. Paul Klipfel became the Senior Vice President, Exploration, in April. Lastly, Judith Mosely became part of Galiano's Board of Directors at the turn of the year. All of these changes are representative of a wider change of strategy, generated by McCunn's shift from ounce producing to cash producing.

The company has paid US$65M in dividends to shareholders. Will this pattern continue? The company has clearly started the rebuild its corporate strategy, and investors can expect the company to continue in this vein.

The big question is how exactly McCunn plans to add accretive value for shareholders now with the cash position; it does little for investors when it is in the bank. The real focus right now is to deliver on the 3-5 year strategic business plan at Asanko. McCunn wants to be delivering this kind of cash flow every single year. The JV will also be exploring at Asanko, and this could be an additional catalyst for share price growth. The near-term objective is to replace depletion from mining activity in 2020 and 2021. In the medium-term, the plan is to enhance the business plan by delineating gold reserves with superior economics by the end of 2022. The long-term vision is to advance exploration targets with +1Moz potential, which will be in production by 2027 in order to replace Esaase.

We were also interested to hear about the motives behind Galiano Gold's name change. It's clear that McCunn wanted a fresh start, given the fresh management team and new strategy. Galiano Gold is no longer channelling all its money into making Asanko a behemoth of a deposit. Instead, the focus is on sustainable cash flow.

Company Website: https://asanko.com/