ASX:GAL
Last Price:
$0.620
Date of Initial Coverage
01-Mar-20
Initial Entry Price
$0.247
Returns from Initial Entry
152%
GAL increases the size/scale of its Norseman PGE discovery to a stage where the project/company is acquired by major shareholder IGO Ltd (or another major miner) for over $1BN.
Opened: 09-Feb-2022
Closed: 30-Aug-2022
Shares Held at Open: 1,935,000
Shares Held at Close: 2,161,544
Reason Memo Closed: New Memo created
What does GAL do?
Galileo Mining (ASX: GAL) is focused on the discovery of base metals in Western Australia. The company is particularly focused on nickel deposits in the Fraser Range region.
What is the macro theme?
Nickel is a critical raw material in the production process of electric vehicle batteries. Nickel makes batteries energy dense so that cars can run further on a single charge. We expect that the electrification of global car fleets will result in exponential increases in Nickel demand globally.
[Memo Assessment - 30-Aug-2022]: Grade = A
Nickel remains a critical raw material in the production of electric vehicle batteries. The conflict with Russia/Ukraine has created more supply side issues, given Russia produces ~11% of all nickel supply. GAL’s new discovery also produced an unexpected surprise, with the company now an exposure to palladium-platinum-rhodium.
Why did we invest in GAL?
Aiming for a large metals discovery
GAL holds highly prospective grounds in the Fraser Range region. The Fraser Range nickel belt in WA hosts the $1.8 Billion Nova Nickel discovery and more recently the Silver Knight discovery (65% sold for $45M). We are invested in GAL to see it go and replicate a discovery of this magnitude.
[Memo Assessment - 30-Aug-2022]: Grade = A
Whilst GAL didn't make a discovery at its Fraser Range project, its PGE discovery at its Norseman project has seen its share price go from ~18.5c per share to now trade at $1.30 per share. We view this as success in delivering a “large metals discovery”.
Tight capital structure
Mark Creasy currently owns 24.61% of the company whilst Independence Group (Capped at $9.3 billion) owns 8.9%. Creasy was behind the Nova nickel discovery which was sold to IGO for $1.8B. After those two large holders (who hold ~33.5% combined), there aren’t many more shares to go around - which means GAL could re-rate significantly off of a discovery being made.
[Memo Assessment - 30-Aug-2022]: Grade = A
Mark Creasy continued supporting the company with purchases on market and then again in the company’s capital raise. With broader market sentiment relatively negative, we think GAL’s tight capital structure contributed to its almost 1,000%+ move to a peak of ~$2 per share earlier in the year.
Experienced management team
GAL’s Managing Director Brad Underwood leads a team that has worked alongside Mark Creasy when they made the Silver Knight Discovery in the same region, Silver Knight’s nickel project was also sold to IGO. The team knows the region and what to look for when it comes to a large nickel discovery.
[Memo Assessment - 30-Aug-2022]: Grade = A
We think that the discovery and subsequent capital raise of ~$20.4M in a tough market is a testament to the quality of the management team.
Active explorer
GAL is an active exploration driller running multiple drilling campaigns every calendar year. With $9M cash in the bank, GAL is well-funded to conduct more drilling programs throughout 2022. The more drilling, the more shots on goal when it comes to making a discovery.
[Memo Assessment - 30-Aug-2022]: Grade = A
GAL continued drilling its projects despite market sentiment turning negative. Normally in a tough market, junior explorers go into “go slow” mode where they look to preserve cash. GAL continued drilling despite the market conditions and its persistence paid off with the Callisto PGE discovery.
What do we expect GAL to deliver?
Objective #1: Drilling in the Fraser Range nickel province
We want to see GAL run more drilling campaigns in the Fraser Range on well defined targets over the course of 2022.
[Memo Assessment - 30-Aug-2022]: Grade = A
Since we launched our Investment Memo, GAL has run at least one drilling program across its Fraser Range projects. Given that soon after that program, the PGE discovery was made at its Norseman project, it is understandable that for now GAL’s focus is on growing that discovery.
Objective #2: Define additional Fraser Range drill targets via EM surveying
We want to see GAL run additional EM surveys across its Fraser Range projects as part of target generation work which will give GAL compelling drill targets to hit.
[Memo Assessment - 30-Aug-2022]: Grade = A
GAL has run several target generation programs since we launched our Investment Memo. In its most recent quarterly, GAL confirmed EM surveys were ongoing across its Fraser Range projects refining future priority drilling targets.
Objective #3: Drilling at the Norseman project (for nickel)
GAL to drill the highest priority targets generated by the recent air core drilling program and any follow-up EM surveys.
[Memo Assessment - 30-Aug-2022]: Grade = A
GAL has now done aircore, RC and diamond drilling across its Norseman project and, most importantly, made the Callisto PGE discovery.
Objective #4: Cobalt and palladium exploration at Norseman
As a side bet, we want to see some more progress on Norseman’s cobalt and palladium potential. The project already has a cobalt JORC resource of 25Mt nickel-cobalt laterite. Previous exploration has demonstrated the presence of palladium in soil sampling.
[Memo Assessment - 30-Aug-2022]: Grade = A
GAL followed up the previous exploration here and made a new discovery underneath its nickel-cobalt laterite JORC.
What could go wrong?
Exploration risk
GAL is an early-stage explorer, a lot of the exploration work currently underway is prospective with no discovery formally announced at any of its projects. There is still the risk that GAL makes no discovery and its projects are considered stranded.
[Memo Assessment - 30-Aug-2022]: Grade = A
GAL has mitigated this risk by making its Callisto PGE discovery.
Financing risk
GAL is currently well funded ($9M in cash on Dec 31st, 2021) but inherently needs capital markets to stay open to providing finance for high-risk drilling programs. With no revenues or profits, GAL will continuously need to tap investors for more funds.
[Memo Assessment - 30-Aug-2022]: Grade = A
GAL has mitigated this risk by raising $20.4M in cash at $1.30 per share. At last notice, GAL holds $26.4M in cash as of 21 July 2022 and so this risk has now been addressed for at least 6-12 months.
What is our investment plan?
We have been holding GAL since May 2020, with an average entry of 25.5c. We still hold 95.1% of our total investment in GAL
GAL hasn’t really had a big share price run yet as it hasn't delivered any material results from its drilling. We are awaiting some positive drill results or anticipation of positive results which lead to a share price re-rate, where we would look to sell about 25% of our position.
[Memo Assessment - 30-Aug-2022]: Grade = C
We gave ourselves a C on executing our Investment plan because we did NOT stick to our usual Investment plan after GAL ran to $2 on its discovery announcement. On a material share price re-rate we would usually look to Free Carry and Take Profit by selling around 25% of our position, but in the case of GAL we held, then increased our position in the placement at $1.20. We believe there is more to come in proving out GAL’s discovery, and we back managing director Brad Underwood to deliver and believe there is a strong chance of a takeover in the future if positive drill results keep coming in.
Disclosure: The authors of this article and owners of Next Investors, S3 Consortium Pty Ltd, and associated entities, own 1,935,000 GAL shares at the time of writing this memo. S3 Consortium Pty Ltd has been engaged by GAL to share our commentary on the progress of our investment in GAL over time.
Opened: 30-Aug-2022
Shares Held at Open: 2,161,544
What does GAL do?
Galileo Mining (ASX: GAL) is focused on expanding its PGE discovery in the Norseman region, WA whilst also chasing a large scale nickel discovery in the Fraser Range.
What is the macro theme?
Among the rarest metals on earth, PGEs face constrained supply and very strong demand growth amid the ‘greening’ of economies globally.
Palladium, platinum and rhodium are critical components in catalytic converters that turn toxic auto emissions into less harmful waste products.
Nickel and cobalt are critical raw materials in the production of electric vehicle batteries. We expect that the electrification of global car fleets will result in exponential increases in nickel demand.
We hope that GAL will continue to expand its recent PGE discovery, hit more high grade zones, prove commercial potential and ultimately be taken over, possibly by IGO Ltd (8.3% GAL holder) based on its previous track record.
Mark Creasy (26.8% GAL holder) was Sirius Resources largest shareholder when it was sold to IGO in 2015. We really like IGO and would love to one day acquire IGO shares to hold as a dividend play.
Why did we invest in GAL?
New PGE discovery in WA
GAL made a major palladium-platinum discovery in May 2022 at its Norseman Project. The “Callisto” discovery has over 5km of known prospective strike length and has drawn comparisons to South Africa’s Platreef deposits, which are said to contain over 80% of the world's known PGE deposits.
Well-funded for exploration
GAL is an active explorer, running multiple drilling campaigns every calendar year. With $26.4M in cash (at 21 July 2022) GAL is well-funded to expand its new PGE discovery whilst also pursuing additional discoveries.
Tight capital structure & potential to re-rate
Mark Creasy is GAL’s largest shareholder with 26.21% after participating in a recent placement and buying on market. Creasy was behind the Nova Nickel Discovery which was sold to IGO for $1.8B. IGO, capped at $9.1B, who also participated in the raise, is GAL’s second largest shareholder. Together, the pair hold more than one-third of GAL’s shares on issue, leaving not many more shares to go around. This means that it doesn’t take much for GAL to significantly re-rate off positive newsflow.
Experienced management team
GAL’s Managing Director Brad Underwood leads a team that has worked alongside Mark Creasy when they made the Silver Knight Discovery in the same region, Silver Knight’s nickel project was also sold to IGO. The team have experience at all stages of an exploration projects lifecycle from discovery to eventual sale.
Fraser Range nickel potential
GAL still holds highly prospective grounds in the Fraser Range Nickel Belt in WA in a JV with Creasy Group (67% GAL / 33% Creasy). This is the location of the $1.8 billion Nova Nickel Discovery and more recently the Silver Knight Discovery. This was the original reason we Invested in GAL over two years ago and still think the projects have discovery potential.
What do we expect GAL to deliver?
Objective #1: Execute drilling campaigns at Norseman (Callisto) PGE Discovery
We want to see GAL continue to explore the potential for a large mineralised system. GAL has five kilometres of untested strike length along with good potential for more mineralisation of the same style.
Milestones
RC drilling to test for continuity of mineralisation along strike and at depth. We want to see GAL’s deposit extend in all directions (north/south/east/west).
Diamond drilling to test for extensions at depth.
Assay results: (Bull case = over 3.0 g/t, Base Case = over 1.0 g/t, Bearish case = grades start to fall below 1g/t.)
BONUS: High grade zones or massive sulphides discovered.
Objective #2: Collect data to support mine development studies
Collect data to support mine development studies at Norseman Project.
Milestones
Step out drill campaign discovers new zones
Preliminary JORC resource released
Positive Met work results released
Commence an economic feasibility study (economic assessment/scoping study).
Objective #3: Exploration at Norseman regional targets
Exploration across the regional targets at the Norseman project (Jimberlana and Mission Sill) which sit on a combined prospective strike of over 15km.
Milestones
Planning and commencement of exploration programs
Objective #4: Drilling in the Fraser Range nickel province
We want to see GAL run more drilling campaigns in the Fraser Range on its highest priority drill targets over the course of 2022.
Milestones
Target generation works - geophysical/geochemical surveys to put together high priority drilling targets
Drill testing highest priority targets
What could go wrong?
Development risk
Now that GAL has made a discovery, the major risk is that the project is not deemed commercially viable. Having an established discovery is not always enough to get it into production and there is no guarantee the discovery turns into an operating mine.
Financing risk
GAL raised over $20M in July 2022, yet as it does not generate revenues or profits at some point it will need to tap investors for more funds to continue its exploration programs.
Market risk
The economic potential of GAL’s projects are reliant on supportive commodity markets, including positive supply/demand dynamics and supportive market sentiment.
What is our investment plan?
We have held GAL in our Portfolio since May 2020, with an average entry of 24.7c (prior to our participation in the last placement at $1.20).
We DID NOT execute our previous Investment plan to sell 25% after GAL ran to $2 on its discovery announcement.
On a material share price re-rate we would usually look to Free Carry and Take Profit by selling around 25% of our position, but in the case of GAL we held, then also increased our position in the placement at $1.20.
We believe there is more to come in proving out GAL’s discovery in the current drilling campaign. We back Managing Director Brad Underwood to deliver and believe there is a strong chance of a company takeover in the future if positive drill results keep coming in.
We delayed execution of our initial sell down plan, but we may look to execute on a 25% sell down on the next significant re-rate from current levels if/when that occurs.
General updates from GAL
Disclosure: Disclosure: S3 Consortium Pty Ltd (The Company) and Associated Entities own 2,161,544 GAL shares, and the Company’s staff own 14,000 GAL shares at the time of publishing this article. The Company has been engaged by GAL to share our commentary on the progress of our Investment in GAL over time.
✅ Initial Investment: @24.65c
✅ Top Slice
🔲 Free Carry
✅ Increase Investment: @23c
🔲 Free Carry
✅ Increase Investment: @29c
🔲 Free Carry
✅ Increase Investment: @26c
🔲 Free Carry
✅ Increase Investment: @$1.20
🔲 Free Carry
🔲 Take Profit
✅ Price increases 300% from initial entry
✅ Price increases 500% from initial entry
✅ Price increases 1000% from initial entry
✅ 12 Month Capital Gain Discount
🔲 Hold remaining Position for next 2+ years
General updates from GAL
👀 Mark Creasy purchases $1.74M in shares on market [16-May-2022]
📰 AFR: Fund managers tipping GAL as IGO’s next takeover target [07-Jun-2022]