To the Galaxy and beyond

Galane Gold comprises two main assets: the producing Mupane mine in Botswana, which is now focused on production from Tau underground, and the Galaxy mine in South Africa, which is on care and maintenance but expected to restart production by the end of Q119. Together these two mines could take Galane group production to over 50koz of gold at on-mine operating cash costs of around US$950/oz by 2020.

This operating mine in Botswana is focused on the exploitation of Tau Underground, supplemented by processing of low-grade historic stockpiles

With funding now in place, Galane plans to restart the Galaxy mine by the end of Q119.

Nick Brodie (CEO) and Wayne Hatton Jones (COO) were appointed in November 2014, with Nick Brodie moving from his previous CFO role at the company to continue to steer Galane Gold’s operational and financial recovery following a difficult period in early 2013 when issues with a mining contractor saw cash costs rising to over US$1,500/oz in a falling gold price environment. Both bring extensive experience in African mining, including previous roles at Katanga Mining (Democratic Republic of the Congo), Metallon (Zimbabwe), Harmony Gold (South Africa), and Randgold Resources (Mali). CFO Gavin Vandervegt, brings over 15 years of mining experience.

Galane Gold is listed on the TSX-V (GG) and OTCQB (GGGOF). It reports in US dollars, and all figures in this report are in US$ unless otherwise specified.

The Mupane mine is located in north-eastern Botswana, 30km south-east of Francistown. The mine has been in production continuously since 2004. When Galane took over Mupane from Iamgold in late 2011, production was from multiple open pits at grades averaging 1.8–2.2g/t (supplemented by the processing of lower-grade stockpiles).

However, in early 2013 production hiccups relating to a change of mining contractor and the mining of higher cost ounces from Golden Eagle saw operating cash costs spike above US$1,500/oz. Coupled with a sharply falling gold price, this triggered a comprehensive review of the mine plan, and Galane suspended production at the low-grade Golden Eagle pit and began development of higher-grade Tau Underground (measured and indicated resource grade of 2.9g/t; company annual information form, December 2017).

First development ore was mined from Tau Underground in May 2014 and stoping began in Q315. The chart below shows the impact that the ramp-up of Tau underground has had on average mined grades at Mupane. With mining at the small Tekwane pit completed n H118, Mupane is now mining at Tau underground only, supplemented by processing of historic stockpiles.

Exhibit 2 below shows the impact the transition to Tau Underground has had on the cost profile of the Mupane mine. Given the variability in quarterly figures, we consider rolling 12-month cash costs to be a better measure of cost performance; from a peak of US$1,438/oz in Q313, Mupane’s rolling 12 month average operating cash costs (before royalties) have fallen to just US$871/oz in Q218. After taking into account Botswana government royalties (at 5% rate) and sustaining capital of US$1.6m in H118, Mupane’s H118 all-in site sustaining costs ran at US$1,077/oz.

In 2017, Galane Gold updated the mine plan for Tau Underground, extending the previous (2014) mine plan by 20 months and 44koz. Based on the December 2017 Tau resource and assuming a further 1.1Mt of low-grade stockpile and/or other resources are available for processing over the next three years, we estimate that Mupane could continue to produce at a rate of at least 28koz per year until at least 2020, with cash costs of between US$950/oz and US$980/oz and all-in sustaining site costs below US$1,100/oz. Based on Edison’s standard gold price deck, Mupane could generate more than US$4m in pre-tax cash flow a year in 2018e and 2019e to help fund the restart of the Galaxy mine, corporate overheads, interest and debt repayments.

Beyond 2020, the ability to sustain Mupane production at similar levels would be dependent on:

Following the September 2018 C$2.7m private placement together with the US$5m Barak loan facility (subject to satisfaction of the remaining conditions precedent), Galane now plans to begin refurbishing and re-developing the Galaxy mine imminently with first production before the end of Q119. The company estimates that Galaxy could produce more than 25koz of gold a year at cash operating costs of below US$800/oz (Galane Gold company announcement 17 September 2018).

In November 2015, Galane Gold closed the acquisition of Galaxy Gold Mining, which owned the mothballed Galaxy mine in South Africa’s Barberton Greenstone Belt. Galaxy comprises 21 east-west trending orebodies and prospects at depths of 600–2,000m. Gold has been produced at Galaxy since the 1880s with 75 historical adits on the property. The mine was placed on care and maintenance in 2007. Following completion of the acquisition in 2015, Galane began refurbishing and restarting the Galaxy mine to produce a flotation concentrate. However, a weak gold price environment meant the required capital to complete the commissioning was not available to the company and activities were placed on hold in early 2017.

With funding in place for re-development, Galane now plans to restart production at Galaxy within the next six months, targeting a production rate of 30ktpm (>25koz per year). The mine will initially focus on two orebodies: Galaxy (measured and indicated resource of 124koz at 3.11g/t) and Princeton (measured and indicated resources of 171koz at 4.87g/t).

Key activities required for the redevelopment of Galaxy are:

Galane estimates that the capital cost to complete the restart of Galaxy totals US$5m (company announcement 17 September 2018). In addition, we estimate that US$3–4m would be required for working capital and contingencies.

The company estimates that cash operating costs for Galaxy could be at or even below US$800/oz (which in a small, underground mine environment will require rigorous attention to efficiency). The table below provides an indicative view of what the economics of the Galaxy Mine could look like once in production – assuming a production rate of 25koz per year of payable gold, cash costs of US$800/oz and sustaining capex of around US$0.3m, the all in site sustaining cost of Galaxy would be US$920/oz. At Edison’s gold price forecast of US$1,482/oz for 2020e, the mine could generate US$14m in pre-tax free cash flow that year. Measured and indicated resources of 602koz for the Galaxy property would support a mine life of 15 years.

Longer term, there is potential to double mine and plant capacity to 60ktpm (>50koz per year).

On 1 October 2018, Galane Gold announced the completion of a private placement of 54m units (comprising one share and one warrant) raising C$2.7m. Post this placement, the company has approximately US$5.8m in cash (30 June 2018 adjusted for 1 October placing). A US$5m Barak loan (announced in March 2018) is also now available for draw-down following the finalisation last week of an offtake agreement for Galaxy concentrate which was the last remaining condition precedent on this facility). Together with existing cash and cash flow from Mupane over the next six months, this should provide sufficient funds to cover the US$5m estimated capital cost and all working capital requirements for the restart of the Galaxy mine by the end of Q119.

Galane Gold has US$14.8m in debt (as at 30 June 2018), consisting of: