Galiano Gold(GAU) - 2024 Q1 - Quarterly Report

Q1 2024 Highlights Galiano consolidated its 90% ownership in the Asanko Gold Mine, reporting strong operational metrics and a robust liquidity position Acquisition of Gold Fields' Interest in Asanko Gold Mine (AGM) Galiano completed the acquisition of Gold Fields' 45% interest in AGM on March 4, 2024, increasing its ownership to 90% and consolidating financial results - Completed the acquisition of Gold Fields' 45% interest in the AGM on March 4, 2024, resulting in Galiano holding a 90% interest, with the Government of Ghana holding the remaining 10%[5] - The company began consolidating the operating results, cash flows, and net assets of the AGM starting from March 4, 2024[6] Key Metrics of the Asanko Gold Mine (100% Basis) The AGM produced 30,386 ounces of gold at an AISC of $1,793/oz, generating $26.1 million in cash from operations, and increased Abore's M&I resource by 38% AGM Q1 2024 Performance (100% Basis) | Metric | Value | | :--- | :--- | | Gold Production | 30,386 ounces | | Total Cash Costs | $1,180/oz | | All-In Sustaining Costs (AISC) | $1,793/oz | | Gold Revenue | $65.5 million | | Average Realized Gold Price | $2,056/oz | | Net Income | $14.5 million | | Adjusted EBITDA | $21.7 million | | Cash Flow from Operations | $26.1 million | | Free Cash Flow | $5.8 million | - The Abore Measured and Indicated Mineral Resource increased by 181,000 ounces (38%) following successful infill drilling programs[8] - The 2024 exploration program will focus on drilling at Midras South, Adubiaso, Target 3, Gyagyatreso, and Sky Gold B to expand mineral resources and identify new targets[8] Company Financial Highlights Galiano ended Q1 2024 with $130.8 million cash and no debt, reporting a net loss of $4.8 million and adjusted net income of $6.5 million Galiano Gold Inc. Q1 2024 Financial Highlights | Metric | Value | | :--- | :--- | | Cash and Cash Equivalents | $130.8 million | | Debt | $0 | | Cash Flow from Operations | $13.0 million | | Net Loss | $(4.8) million or $(0.02)/share | | Adjusted Net Income | $6.5 million or $0.03/share | Business Overview This section details Galiano's strategic developments, financial performance, ESG initiatives, and the macroeconomic factors influencing its operations Key Business Developments Galiano finalized the AGM acquisition, significantly increased Abore's M&I resource, and is preparing for higher-grade ore processing in H2 2024 - Total consideration for the AGM acquisition included $65.0 million cash, 28.5 million common shares, $55.0 million in deferred payments, and a 1% net smelter return royalty on a portion of Nkran production[12][16][13] - The Abore Measured & Indicated (M&I) Mineral Resources increased by 181,000 ounces (38%) to 658,000 ounces, due to a 13% grade improvement and a 22% tonnage increase[15] - Mining at the Abore deposit commenced on October 1, 2023, and is expected to deliver higher-grade ore to the processing plant by the end of Q2 2024, increasing H2 2024 production[19] - Mr. Navin Dyal and Dr. Moira Smith will be nominated for appointment to the Board of Directors at the upcoming Annual General Meeting[21] Financial and Operating Highlights Galiano reported $31.7 million revenue and a $4.8 million net loss, while the AGM (100% basis) saw $65.6 million revenue but decreased net income and increased AISC due to stripping costs Galiano Gold Inc. Q1 2024 vs Q1 2023 | Metric (in thousands USD) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | 31,695 | - | | Net (loss) income | (4,759) | 8,493 | | Adjusted net income | 6,493 | 8,493 | | Cash from operating activities | 13,028 | (543) | Asanko Gold Mine (100% Basis) Q1 2024 vs Q1 2023 | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Gold produced (oz) | 30,386 | 32,678 | | Gold sold (oz) | 31,840 | 35,174 | | Revenue (in thousands USD) | 65,602 | 65,193 | | Net income (in thousands USD) | 14,457 | 20,614 | | AISC ($/oz) | 1,793 | 1,268 | Environmental, Social, and Corporate Governance (ESG) Galiano prioritizes sustainability, preparing for Bill S-211 compliance and evaluating new CSDS standards, while being exempt from SEC climate disclosures - The company will report under Canada's Bill S-211 on measures to prevent forced and child labor in its supply chain by May 31, 2024[29] - Galiano is currently evaluating the impact of the proposed Canadian Sustainability Disclosure Standards (CSDS 1 and CSDS 2), aligned with global IFRS S1 and S2 standards, with a proposed effective date of January 1, 2025[31][32] Macroeconomic Factors Gold prices remained strong in Q1 2024, averaging $2,070/oz, while Ghana's economic situation has not materially impacted AGM operations due to its US dollar-based cost structure - The average LBMA PM gold price in Q1 2024 was $2,070/oz, compared to $1,890/oz in Q1 2023, with the AGM realizing an average price of $2,056/oz[34][35] - Ghana's ongoing $3 billion IMF financing arrangement and debt restructuring have not materially impacted AGM operations due to its US dollar-denominated cost structure and government support for mining[36][37] Guidance and Outlook This section outlines the Asanko Gold Mine's production and cost guidance for 2024, emphasizing the impact of higher-grade ore 2024 Guidance for the AGM The AGM projects 140,000-160,000 ounces of gold production in 2024, with AISC between $1,600-$1,750/oz, driven by higher-grade Abore ore and increased stripping costs AGM 2024 Guidance vs. 2023 Actuals | Metric | Unit | 2024 Guidance | 2023 Actuals | | :--- | :--- | :--- | :--- | | Gold Production | oz | 140,000 - 160,000 | 134,077 | | AISC | $/oz | 1,600 - 1,750 | 1,522 | | Sustaining Capital | $000s | 10,000 | 30,963 | | Development Capital | $000s | 20,000 | 6,703 | | Exploration | $000s | 15,000 | 14,139 | - Gold production is forecast to be higher in the second half of 2024 after the delivery of consistent higher-grade ore from the Abore deposit[38] - The year-on-year increase in AISC guidance is mainly attributable to waste stripping costs at the Abore deposit[39] Results of the Asanko Gold Mine (AGM) This section details the Asanko Gold Mine's operational, exploration, financial, and cash flow performance for the quarter Operating Performance (100% Basis) The AGM produced 30,386 ounces of gold in Q1 2024, with AISC rising to $1,793/oz due to lower grades, increased stripping, and higher lease payments AGM Q1 2024 vs Q1 2023 Operating Performance | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Gold Produced (oz) | 30,386 | 32,678 | | Tonnes Milled (000 t) | 1,467 | 1,566 | | Average Mill Head Grade (g/t) | 0.8 | 0.9 | | Average Recovery Rate (%) | 83% | 73% | | Total Cash Costs ($/oz) | 1,180 | 1,083 | | AISC ($/oz) | 1,793 | 1,268 | - The increase in AISC from Q1 2023 was predominantly due to higher total cash costs, 9% fewer gold ounces sold, and a $330/oz increase in sustaining capital expenditures related to waste stripping at the Abore deposit[56] - Waste stripping activities at Abore continued with 4.9 Mt of waste rock mined at a strip ratio of 18.4:1[46] Exploration Update Q1 2024 exploration focused on resource expansion, with Abore infill drilling leading to a 38% MRE increase and new high-grade zone discovery - A successful infill drilling program at Abore led to the discovery of a new high-grade zone, with notable intercepts such as 45m @ 12.4 g/t gold and 37m @ 10.6 g/t gold[59][60] - The Abore MRE increased by 181,000 ounces (38%) effective March 31, 2024, as a result of the successful drilling campaign[61] - Active exploration programs are underway at Midras South (infill drilling to upgrade resources), Adubiaso (infill), Gyagyatreso (extension), and Target 3 (first-pass drilling)[63] Financial Results of the AGM (100% Basis) The AGM's Q1 2024 revenue was $65.6 million, with net income decreasing to $14.5 million due to higher royalties, depreciation, and finance expenses, including hedge losses AGM Income Statement Highlights (in thousands USD) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | 65,602 | 65,193 | | Income from mine operations | 23,496 | 24,657 | | Net income for the period | 14,457 | 20,614 | - Revenue increased due to an 11% higher realized gold price ($2,056/oz vs $1,850/oz), partly offset by a 9% reduction in gold sales volume (31,840 oz vs 35,174 oz)[67] - Finance expense increased to $5.2 million from $1.2 million YoY, primarily due to a $3.3 million unrealized loss on zero cost collar (ZCC) gold hedges[76] - A legal provision of $7.0 million related to a dispute with a former services provider remains recorded as of March 31, 2024[77] Cash Flows of the AGM (100% Basis) The AGM generated $26.1 million in operating cash flow, while investing activities used $18.0 million, primarily for waste stripping at Abore AGM Cash Flow Summary (in thousands USD) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating activities | 26,105 | 18,943 | | Investing activities | (18,003) | (6,609) | | Financing activities | (2,289) | (428) | - Cash used in investing activities included $12.4 million for waste stripping at the Abore deposit and $2.5 million for a tailings storage facility (TSF) lift[81] Consolidated Results of the Company This section presents Galiano's consolidated financial performance, reflecting the impact of the AGM acquisition and related costs Financial Performance Galiano reported a Q1 2024 consolidated net loss of $4.8 million, influenced by AGM consolidation, acquisition costs, and increased share-based compensation Consolidated Statement of Operations Highlights (in thousands USD) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenue | 31,695 | - | | Income from mine operations | 4,646 | - | | General and administrative expenses | (7,693) | (3,850) | | Share of net income related to JV | 2,432 | 9,307 | | Transaction costs | (2,299) | - | | Net (loss) income | (4,759) | 8,493 | | Net (loss) income per share (basic) | (0.02) | 0.04 | - G&A expenses increased by $3.8 million YoY, primarily due to a $3.5 million increase in share-based compensation expense linked to the company's share price[88] - The company recognized $2.3 million in transaction costs related to the AGM acquisition and a $1.3 million gain on derecognition of its previous equity investment in the JV[91][92] Selected Quarterly Financial Data This section provides an overview of the company's quarterly financial performance, highlighting key trends and the impact of the AGM consolidation Quarterly Financial Trends Galiano's quarterly financial results show significant variability, with Q1 2024 marking a structural shift due to AGM consolidation, introducing new revenue and costs Quarterly Net (Loss) Income (in thousands USD) | Quarter | Net (Loss) Income | | :--- | :--- | | Q1 2024 | (4,759) | | Q4 2023 | (5,758) | | Q3 2023 | 11,389 | | Q2 2023 | 11,961 | | Q1 2023 | 8,493 | | Q4 2022 | 28,500 | | Q3 2022 | 1,280 | | Q2 2022 | 12,566 | - In Q1 2024, the company began consolidating AGM financial results, incurring $2.3 million in acquisition costs and recognizing a $1.3 million gain on derecognition of its equity investment[100] - Net income in Q4 2022 was significantly boosted by a $7.6 million impairment reversal on the JV investment, following the reinstatement of Mineral Reserves[98] Liquidity and Capital Resources This section details Galiano's strong liquidity position, cash flow, contractual commitments, and gold price hedging strategies Financial Position and Cash Flow Galiano maintains a strong liquidity position with $130.8 million cash and no debt, with total assets at $446.7 million and positive operating cash flow Balance Sheet Summary (in thousands USD) | Metric | March 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | 130,804 | 55,270 | | Total assets | 446,747 | 213,302 | | Total liabilities | 217,570 | 12,384 | | Total equity | 229,177 | 200,918 | | Working capital | 109,312 | 45,106 | - The company believes its cash balance and operating cash flows are sufficient to meet working capital needs and contractual obligations for the next 24 months[104] Consolidated Cash Flow Summary (in thousands USD) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Operating activities | 13,028 | (543) | | Investing activities | 63,748 | 644 | | Financing activities | (937) | (31) | Commitments As of March 31, 2024, Galiano's total contractual obligations amount to $250.7 million, including deferred and contingent consideration Contractual Obligations as of March 31, 2024 (in thousands USD) | Obligation | Less than 1 year | 1-3 years | 4-5 years | After 5 years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Accounts payable & accrued liabilities | 47,397 | - | - | - | 47,397 | | Long-term incentive plan | 10,495 | 685 | - | - | 11,180 | | Mining and other services contracts | 10,553 | 16,990 | 1,748 | - | 29,291 | | Asset retirement provisions | - | 3,344 | 1,705 | 64,366 | 69,415 | | Deferred and contingent consideration | - | 55,000 | - | 38,253 | 93,253 | | Total | 68,577 | 76,074 | 3,453 | 102,619 | 250,723 | Gold Price Hedging The AGM utilizes zero cost collar hedging, covering 5,000 ounces/month for 2024 and 60,000 ounces for 2025, to mitigate gold price risk - Hedges for the remaining nine months of 2024 cover 5,000 oz/month with put strikes from $1,900-$2,000/oz and call strikes from $2,142-$2,435/oz[114] - For 2025, hedges cover 60,000 total ounces (5,000 oz/month) with put strikes of $2,000/oz and call strikes from $2,515-$2,645/oz[115] Non-IFRS Measures This section provides reconciliations and definitions for key non-IFRS financial measures, including AISC, EBITDA, and Adjusted Net Income AISC and Cash Costs (AGM) The AGM's Q1 2024 total cash costs were $1,180/oz, with AISC at $1,793/oz, reflecting sustaining capital and other adjustments Reconciliation of Total Cash Costs to AISC for AGM (Q1 2024, in thousands USD) | Item | Value | | :--- | :--- | | Total cash costs | 37,558 | | General and administrative expenses - mine site | 706 | | Sustaining capital expenditures | 14,945 | | Reclamation cost accretion for the AGM | 664 | | Sustaining lease payments | 2,289 | | Interest on lease liabilities for the AGM | 929 | | All-in sustaining cost | 57,091 | | Gold ounces sold | 31,840 | | AISC per gold ounce sold ($/oz) | 1,793 | EBITDA and Adjusted EBITDA (Company) Galiano's Q1 2024 Adjusted EBITDA was $3.7 million, reconciled from a net loss of $4.8 million by adjusting for non-cash items and transaction costs Reconciliation of Net (Loss) Income to Adjusted EBITDA (Q1 2024, in thousands USD) | Item | Value | | :--- | :--- | | Net (loss) income for the period | (4,759) | | Depreciation and depletion expense | 3,016 | | Finance income | (2,506) | | Finance expense | 5,725 | | EBITDA for the period | 1,476 | | Adjustments (non-cash LTIP, JV income, gain, transaction costs) | (1,043) | | Galiano's attributable interest in JV Adjusted EBITDA | 3,243 | | Adjusted EBITDA for the period | 3,676 | Adjusted Net Income (Company) Galiano's Q1 2024 adjusted net income was $6.5 million, or $0.03 per share, after adjusting for inventory purchase price and transaction costs Reconciliation of Net (Loss) Income to Adjusted Net Income (Q1 2024, in thousands USD) | Item | Value | | :--- | :--- | | Net (loss) income for the period | (4,759) | | Realized purchase price adjustment on inventories | 10,251 | | Gain on derecognition of equity investment in joint venture | (1,298) | | Transaction costs | 2,299 | | Adjusted net income for the period | 6,493 | | Adjusted net income per share - basic and diluted | $0.03 | Share Capital Structure This section provides a summary of Galiano Gold Inc.'s outstanding common shares and fully diluted share count Outstanding Share Data As of May 2, 2024, Galiano had 254,128,119 common shares outstanding, with a fully diluted count of 269,207,121 including stock options Outstanding Share Data (as of May 2, 2024) | Security | Number Outstanding | | :--- | :--- | | Common Shares | 254,128,119 | | Stock Options | 15,079,002 | | Fully Diluted Shares | 269,207,121 | Other Disclosures This section covers Galiano's related party transactions, key risks and uncertainties, and the status of its internal controls over financial reporting Related Party Transactions Q1 2024 related party transactions primarily involved key management compensation and a $1.2 million service fee from the AGM JV before acquisition - The only significant related party transaction, other than key management compensation, was the service fee earned as operator of the AGM JV until March 3, 2024, amounting to a gross fee of $1.2 million[148] Risks and Uncertainties Galiano's business faces significant risks, including financial instrument risks, with no material changes reported in Q1 2024 - The company's risks are detailed in its most recent AIF and Form 40-F, and management is not aware of any significant changes to these risks during Q1 2024[152][153] - Financial instruments include liabilities measured at fair value through profit or loss, such as long-term incentive plans, contingent consideration, the Nkran Royalty (Level 3), and ZCC gold hedges (Level 2)[154] Internal Controls Management concluded no material changes to internal controls over financial reporting occurred during Q1 2024 - There have been no changes in internal control over financial reporting during Q1 2024 that have materially affected, or are reasonably likely to materially affect, the company's internal controls[158]