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 Tue Feb 18, 2020
Tracker: Spec Value Rating for Galway Metals Inc (GWM-V)
    Publisher: Kaiser Research Online
    Author: Copyright 2020 John A. Kaiser

Galway Metals Inc (GWM-V: 0.33)

Tracker - February 18, 2020: Spec Value Rating for Galway Metals Inc (GWM-V)

Galway Metals Inc is a Fair Spec Value rated Favorite effective February 18, 2019 based on the company's flagship Clarence Stream project in New Brunswick which Galway is working to turn into an important gold district, and on the Estrades polymetallic VMS project in Quebec where Galway hopes to establish additional ore sufficient to bring that former mine back into production. Galway Metals emerged as one of two entities spun out on a 1:1 basis when Eike Batista acquired Galway Resources Ltd for $2.05 per share on Dec 12, 2012 through a friendly bid worth about $340 million. Galway had secured an option in 2009 on the California project close to the La Bodega project of Ventana Gold Corp in Colombia district which Batista acquired in March 2011 through a cash bid at $13.05 worth $1.4 billion.

Galway Metals listed on Jan 4, 2013 and rolled its stock back 3:1 on Sept 16, 2013 to about 50 million shares. The spinout retained the Victorio moly-tungsten project in New Mexico (dropped in 2016) and $11 million which attracted a notorious cash stalker in 2014 who CEO Robert Hinchcliffe spent the next two years fending off. The dissident block ended up in the hands of another cash stalker who backed off in August 2016 when Hinchcliffe, along with geologist Mike Sutton and former mining analyst Larry Strauss, both members of the original Galway team, decided to acquire the Clarence Stream and Estrades projects. Clarence Stream was generated in 1999 when Mac Watson's Freewest Resources Canada Inc acquired the prospect from a prospector called Reginald Cox who had discovered a high grade gold outcrop while following up a 1992 stream sediment survey by the Geological Survey of Canada. Freewest spent the next decade drilling 50,000 m and collecting 10,000 soil samples to outline a 305,000 oz resource at 6.44 g/t gold in the North and South Zones before optioning up to 65% to Rockport Exploration which vested for 30% by spending $3 million. Freewest was acquired By Cliffs in early 2010 for its Black Thor chromite deposit in the McFauld's Lake region of northern Ontario. Cliffs sold its 70% Clarence Stream stake to Ewan Downie's Wolfden Resources Corp in 2012 for $3.6 million in cash and stock. Wolfden acquired the other 30% from Rockport for $1,635,000 in cash and stock before going public by IPO.

Freewest's former exploration VP, Don Hoy, who ended up at Wolfden, only managed to get one year of work done before Wolfden shifted its focus to polymetallic VMS projects in New Brunswick and Manitoba (and today Pickett Mtn in Maine), but that work did include an updated resource estimate which brought the two zones to 432,000 oz at 6.56 g/t gold. On Aug 3, 2016 Galway purchased Clarence Stream from Wolfden for $3,250,000 over 3 years, additional claims from others for $250,000, and staked land to hold 100% of 60,465 hectares within a 65 km by 28 km corridor in the middle of which (but not owned by Galway) is the former Mt Pleasant tungsten mine facility which Billiton operated a few years until 1985 and which Galway views as potential infrastructure for a future mining operation at Clarence Stream.

Galway spent 2017 drilling the North and South Zones to deliver an updated resource estimate in October 2017 for 667,000 oz at 2.17 g/t for a combination open-pit/underground mining scenario, plus a 22.3 million lb antimony resource at 0.37%. By late 2017 Galway had turned its attention to the Jubilee target about 7 km southwest of the South Zone which led to the discovery of the George Murphy zone 2 km along trend to the northeast and then the Richard zone between the two in early 2019. During 2019 Galway, still relying on a single drill rig, alternated between more drilling on these targets and chasing wildcat targets defined by soil anomalies that failed to deliver ore grade mineralization. The discovery of the Richard zone led to the hypothesis that the Jubilee and George-Murphy zones are connected, which prompted Galway to postpone an initial resource estimate planned for Q4 of 2019 to Q3 of 2020 to allow drilling to close the gaps.

Heading into 2020 the Clarence Stream project has seen 61,703 m of drilling and 10,000 soil samples by previous owners, followed by 40,000 m of drilling and 34,600 soil samples by Galway during the past 3 years. Although Galway has always kept its treasury flush ($6.5 million working capital at start of 2020), has a well rounded and experienced management team with a track record of success and meaningful skin in the game (Hinchcliffe keeps buying in the open market), has two advanced projects with substantial expansion potential, and is neither ignorant about marketing nor opposed to it, the stock's performance has been sideways since acquiring Clarence Stream and Estrades in 2016.

At 152.4 million fully diluted, 100% net interest and a $0.34 stock price these projects are each sporting an implied value of $52 million, a fraction of peers such as Great Bear Resources Ltd with similar district scale plays. Galway has adopted a more aggressive approach for 2020, planning to drill 25,000 m at Clarence Stream using 3 drill rigs. The goal during H1 of 2020 is to demonstrate through 100 m stepout drilling that the 2 km segment defined by the Jubilee-Richard-GM zones is one connected system and with the help of 30-40 m spaced infill holes deliver an initial resource which clears the threshold of 1 million open-pittable ounces for Clarence Stream. This is an important milestone because the geological setting is similar to that of the Carolina Slate Belt (Ridgeway, Haile, etc 6-8 M oz), Moose River in Nova Scotia, and Valentine Lake in Newfoundland, all of which sit near terrane boundaries of the Appalachians that feature deep seated faults. The market has become immune to Galway's parade of news releases with high grade intervals for zones with complex geometries; it wants to see evidence of scale evolve and a resource beyond 1 million ounces.

In the case of Clarence Stream the gold mineralization occurs within quartz veins and stockworks hosted by Ordovician and Silurian metasediments in close proximity to younger Devonian intrusions. The presence of bismuth, arsenic and antimony with a close correlation between gold and bismuth grade points to the intrusion related gold system model. A prominent feature of the property is the 25 km Sawyer Brook Fault system, a portion of which the Jubilee, Richard, George Murphy and South zones seem to track. But this fault is not the primary gateway for mineralized fluid flow. Government till sampling surveys and more tightly spaced company soil sampling grids reveal gold anomalies that are stronger than those associated with the known zones and offset from the fault but generally in close proximity to intrusions. These are untested but suggest that Clarence Stream has widespread potential for multiple 500,000 oz plus gold zones and the IRGS model is a plausible explanation for the distribution of these targets.

If Galway Metals demonstrates that Clarence Stream has district scale potential where it is just a matter of brute force drilling to deliver gold ounces, it will attract much bigger financings at substantially lower dilution than has been the case during the past few years. Although the focus in 2020 will be on Clarence Stream's gold potential, Galway has spent $6.7 million on Estrades since 2016, expanding the resource and making the case for substantially more ore grade mineralization at depth. During late 2019 Galway drilled several larger diameter core holes (PQ) into known mineralization enriched by either zinc or copper in order to furnish material for ore sorting studies that may reduce the volume of mill feed and for further metallurgical studies. The market, initially worried about a trade war induced recession and now fretting about one arising from the Covid-19 coronavirus, is not interested in projects with a strong base metal component, but at some point Estrades will regain the market's attention. Should Clarence Stream achieve critical mass as an emerging gold mining district, it will become the target for a takeover bid, with Estrades as a natural spinout if the bid ends up being a friendly plan of arrangement.


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