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Galantas Gold should be in production in the third quarter of this year

Gold production is set to return to the island of Ireland within a matter of weeks

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Newly developed underground access to the Omagh mine

It’s probably only a matter of weeks now until gold ore starts coming out of the ground at Galantas Gold Corp’s (LON:GAL)(CVE:GAL) Omagh mine in Northern Ireland.

The company has been working steadily towards developing a new underground operation at Omagh after mining out all the near-surface ore from an open pit.

READ: Galantas Gold highlights continuing improvements for Omagh mine development

The new development lies directly under the old pit and in recent months the company has been working its way closer and closer to the ore.

“It’s going very well,” says chief executive Roland Phelps.

“I’m very happy with it. We expect to be in production early in the July-to-September quarter.”

Initially, the amount of ore produced is likely to be low, as Phelps explains.

“We’ll start at a relatively low production level because this production will come from development ore. We won’t be stoping until late in the year or early in the new year, but we have expectations that this will give us cashflow.”

Once stoping is properly underway next year, Phelps expects the mine to produce around 15,000 or 16,000 ounces and for the cash flow to grow more significant.

In due course the plan is to invest more capital into the operation to boost production up to around 30,000 ounces.

But one thing at a time. As a major shareholder in Galantas himself, Phelps is more than cognisant of the dangers of dilution.

Accordingly, the development of Omagh has taken place within very tight budgetary constraints, and has involved the judicious acquisition of equipment through rental purchase and lease finance agreements.

A US$1.6mln loan from off-takers Ocean Partners has also allowed the company to keep dilution to a minimum. Ocean has taken the place of the previous off-taker Glencore, and Phelps professes himself very pleased with the engagement of this new partner.

“Ocean Partners came up with a deal which meets our requirements and enables us to get into production,” says Phelps.

As a small cap gold miner, you can’t ask for much more than that.

Looking ahead, there remains the unanswered question of where the extra capital to ramp up production will come from.

“It depends on the market,” says Phelps. “We’ve made no secret of our what we want to spend, but how we raise it has yet to be decided. Don’t expect it necessarily to be equity.”

That conforms with a pattern already set, and should allow significant buying momentum to get behind the shares once the market wakes up to production at Omagh.

And more interest may follow once investors see that the Omagh project is supported by cash flow.

After all, it seems likely that the resource base at Omagh is much greater than the 500,000 ounces or so that’s currently been delineated.

Galantas’s discovery costs per ounce are a relatively modest £10 per ounce, but even so to prove up a million ounces resource would cost more than the company’s current market capitalisation.

With production and a bit of traction in the share price, though, Phelps is hopeful that Galantas will in time be able to allocate spending towards a significant resource upgrade.

He outlines a hypothetical programme in which the company could spend a significant five figure sum to boost the resource, which could then in turn be used to underpin a further increase in production from the mid-term target of 30,000 ounces to a longer-term one of 50,000.

There remains the small niggle of a judicial appeal against Galantas’s planning permission. But so far the company has an  record of winning this legal fight. Permission to mine is in place, and development is continuing on that basis.

Perhaps more to the point, Ocean Partners took a look at the legal situation and still decided to front up US$1.6mln. That, combined with Galantas’s own continuing commitment to development tells its own story about the company’s expectations.

What will be more interesting will be to see how long it takes the company to ramp up to that initial 15,000-16,000 ounce level, and how the market reacts to the arrival of a new gold producer in Ireland.

 

Quick facts: Galantas Gold Corp

Price: 20.98 GBX

AIM:GAL
Market: AIM
Market Cap: £6.78 m
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