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Galena to follow in Core Lithium's footsteps?

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2024-01-09

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Is small Western Australian lead-silver miner Galena Mining (ASX:G1A) about to follow in the footsteps of Core Lithium and Panoramic's administrators, suspending operations at its 60% owned mine in WA's Gascoyne? Or does Galena require additional capital to enhance the performance of the Abra mine, which is also 40% owned by Japan's major lead producer, Toho Zinc?

Last week, Core Lithium halted mining activities at its Finiss mine in the Northern Territory. On Tuesday, the administrators of Panoramic decided to cease mining at the company's Savannah nickel mine in WA's Kimberley.

Shortly after Panoramic's administrators made their announcement, Galena released a December quarter update, which contained a mix of positive and concerning news regarding issues at the Pilbara mine. Only 12 minutes later, the company requested a trading halt until Thursday, citing a pending announcement regarding a strategic review of operations.

Buried within the quarterly report was a hint of this review. "Production levels during December show further improvement with new record highs achieved in several production areas, including concentrate production, processed ore tonnes, and mine development," Galena stated. "Based on the mine's performance during the 2023 ramp-up year to the end of December and continuing technical evaluation work being undertaken on the production outlook for 2024, Abra Mining P/L (AMPL, Galena's operating company for the mine) has commenced discussions with key stakeholders as part of a strategic review of operations with an initial focus on better matching the capital structure of AMPL to Abra's expected performance. These discussions are ongoing and are anticipated to be concluded during 1H 2024. The market will be kept informed regarding the progress of these discussions."

Galena CEO Tony James commented on the performance in Tuesday's operations update. "In December, Abra has achieved the best production month year to date. Processing throughput continued to improve, and the processing plant consistently reached levels above the original design criteria of 1.3Mtpa. Mining and specifically stoping has not reached the levels required to match the plant, which resulted in low-grade material being used as supplement feed, lowering the overall processing grade. Production schedules have been based on the monthly requirement of +800m lateral development being achieved. Not achieving this consistently in 2023 has had a detrimental affect with limited access to higher grade ore reserves. The mining performance and grade are expected to continue to improve in 2024 with depth, additional work areas, and higher stope production quantities. New technical evaluation work is currently underway, which will form the basis of the 2024 outlook and ongoing discussions with key stakeholders based on the latest understanding of the orebody and other key performance indicators. During December, underground development has accessed several high-grade core veins on the 1210mRL level, confirming the latest geological information and understanding of that part of the orebody and its importance. During December, the mined development grade was higher than the stoping grade for the first time," James said.

As of the end of the September quarter, Galena had $14.4 million in cash on hand. On Tuesday, it announced making the first payment of $US4.5 million on a finance facility of $US100 million from US lender Taurus Funds Management. Toho Zinc had contributed an initial $90 million to the development of Abra.

From the comments in the update, it appears that Galena recognises the need for additional capital rather than suspension or closure. However, if fresh funding does not materialise, what lies ahead for the company?

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