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Galena Mining Ltd: THE INVESTMENT CASE

Galena Mining buoyed by positive economics in Abra Base Metals Project scoping study

The project has the potential to become a significant, long-life, high margin lead-silver producer.
Lead concentrate from Abra
INVESTMENT OVERVIEW: G1A The Big Picture
Lead concentrate produced in tests of high-grade ore from Abra

Galena Mining Ltd (ASX:G1A) has completed a scoping study which indicates strong positive economics for the Abra Base Metals Project in Western Australia.

The study confirms Abra as an economically and technically robust opportunity, with potential to become a significant, long-life, high margin lead-silver producer.

Considerable exploration potential also exists for additional lead-silver mineralisation to be converted to JORC resource with additional drilling.

READ: Galena Mining's shares spike on confirmation of world-class lead-silver resource at Abra

Galena’s chief executive officer Ed Turner said: “This scoping study has confirmed the economic viability of the Abra project.

“It has increased our confidence in the real potential of the project as a near-term Western Australian development opportunity.

“This is an exciting long-life, high margin and low capital project in a tier-1 jurisdiction.

“Abra’s latest representative metallurgical test work demonstrates that it can produce a very high grade (74.5% lead and 140 g/t silver), high-quality clean concentrate that is in high demand.”

 

Potential upside

Galena’s shares were up 12% to 19 cents in morning trade and there is plenty of upside potential with impending news flow in the remainder of 2018.

At its full production rate, Abra is projected to be fifth or sixth largest lead producer in the world.

The scoping study is based on new work undertaken by Galena and its study team, comprising internal personnel and industry expert external independent consultants.

It relates to underground mining, ore processing, mine site infrastructure, environmental permitting, logistics and marketing.

The study is also underpinned by the extensive historical technical database that has been acquired by Galena.

Scoping study outcomes

Among the outcomes are:

- Base case pre-tax post royalties NPV10 of $394 million and IRR of 61%, based on a long-term lead price of US$0.95/pound, silver price of US$16.50/ounce and USD:AUD exchange rate of $0.75;

- Spot case pre-tax post royalties NPV10 of $615 million and IRR of 82% (based on spot Pb price of US$1.14/lb, silver (Ag) price of US$16.50/oz and USD: AUD of $0.75);

- Initial mine life of 11 years, with opportunities identified to extend beyond 11 years;

- Annual throughput of 1 million tonnes, with average grades of 9.7% lead and 15 g/t silver, producing 91,000 tonnes of lead and 450,000 ounces of silver;

- Average life of mine cash (C1) costs of US$0.46/pound and total costs (C3) costs of US$0.56/pound (includes all royalties) – high margin, strongly cash generative operation;

- Average LOM revenues estimate of $251 million and operating cash flows of $104 million per year (Base Case); and

- Pre-production CAPEX estimated to be $153 million with a payback period of about 18 months.

Strong lead outlook

Potential development of Abra coincides with a strong outlook for lead.

Increasing demand and reducing supply has produced an average spot lead price of US$0.97 per pound over the last 10 years.

Given the strength of the scoping study, Galena is progressing into the next phase of work at Abra across multiple fronts and at a maximum pace.

Galena owns 100% of the base metals project, which is in the Gascoyne region of Western Australia.

It was discovered in the late 1970s and has been the subject of an extensive historical exploration and preliminary level economic studies.

There has been no previous mining activity and the deposit does not outcrop.

Focus on high-grade mineralisation

The proposed throughput rate allows mining to focus on high-grade lead-silver mineralisation.

This rate is based on mining studies performed on the latest JORC resource estimate.

The mineable material that is the basis of the study compromises 9.2 million tonnes at a grade of 9.7% lead and 15 g/t silver for a contained 842,500 tonnes of lead and 4.2 million ounces of silver.

About 51% of the mineable material is in the indicated category with the first two years of production in this category.

This ensures 100% of the payback period of less than 1.5 years of production is mining solely indicated resources.

Mining method

The planned mining method comprises an underground mine accessed by a decline.

Initial material is expected to be mined during quarter one of 2021.

Underground extraction will be mostly by sublevel open stoping mining and partly by room and pillar mining.

These methods, together with paste filling high-value stopes, will enable maximum extraction of the ore body.

Underground material will be trucked to the surface via the access decline.

Processing method

Processing will comprise conventional crushing, grinding and two stages of conventional flotation and filtration to produce a lead (plus silver) concentrate.

The construction cost of the facility is estimated at $66 million including $6 million of contingency costs.

Construction is scheduled to begin during the second quarter of 2020, with a 15-month time frame for commissioning.

Near-term schedule

The next steps for Galena’s Abra project include:

- Completing the pre-feasibility study in September 2018;

- Additional infill drilling to convert more inferred resource material to the higher confidence indicated classification in late 2018; and

- Completing the marketing exercise with potential buyers, including smelters and traders, to obtain contract terms for Abra’s lead concentrate.

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