Gold 50 (ASX: G50) (OTCPK: GFTYF) shares are up 16% on the announcement of a gallium find. G50 shares might be worth what they are for its other finds but it's difficult to see that gallium is going to add much value. Yes, gallium is sometimes extracted from zinc ores, yes there can be a copayment for that Ga contained. But it's likely to only ever be a trivial part of any cashflow. Which means we think the shares have rather over-reacted to this news.
That news is: “ 308m at 28.6 g/t GALLIUM AT GOLCONDA PROJECT, ARIZONA” and “The Golconda Mine ceased production in 1917 due to fire within the surface infrastructure, it was known to be the USA's highest-grade zinc producer. Gallium and germanium, along with their chemical compounds, will be subject to China export controls starting August 1st, 2023.”
That's the sort of announcement that worries us. It strikes us as being straining just a little too hard at saying something interesting. It's true that China is placing export controls on Ga and Ge. But it's not as if there's any actual shortage of Ga out there. It's not an element in absolute shortage, most certainly not. There might be a shortage of non-China collection and refining capacity, but not of the metal itsel
Gold 50 share price from ASX
There are two issues for us here. Firstly, if China is going to limit exports well, what then? Just as happened with the rare earths in 2010, non-China sources will open up. OK, so this is what Gold 50 is getting excited about, they've got gallium in their zinc ore. But it's under 30 ppm that Ga concentration. And the standard bauxite running through a Bayer Process plant runs at 50 ppm Ga. Which is why we do tend to get most global production from the making of alumina - it's there, in solution, in that plant anyway and at those higher concentrations.
The second is that gallium is in oversupply anyway. As USGS tells us: “The remaining primary low-purity gallium producers outside of China most likely restricted output owing to a large surplus of primary gallium that began in 2012. These producers included Japan, the Republic of Korea, and Russia. Germany and Kazakhstan ceased primary production in 2016 and 2013, respectively. However, owing to the increase in gallium prices in 2020 and 2021, Germany announced that it would restart primary gallium production by the end of
2021. Hungary and Ukraine were thought to have ceased primary production in 2015 and 2019, respectively.” That is, there's a lot of mothballed capacity out there that can just be turned back on.
Gold 50 has gallium in its zinc ore. China is restricting gallium exports. There's a lot less excitement given these two things than seems to have happened to G50 shares. There's plenty of extant Ga capacity to replace the Chinese provision - and that will likely all be working by the time G50 is able to restart the zinc mine.
This specific jump as a result of the gallium we think is overdone.
