Galane Gold Ltd.
TSX VENTURE : GG
BOTSWANA : GG

Galane Gold Ltd.

August 27, 2012 03:00 ET

Galane Gold Ltd. Announces Financial and Operating Results for Second Quarter 2012

TORONTO, ONTARIO--(Marketwire - Aug. 27, 2012) - Galane Gold Ltd. ("Galane Gold" or the "Company") (TSX VENTURE:GG)(BOTSWANA:GG) is pleased to announce its financial results for the second quarter ended June 30, 2012. All amounts are in United States dollars unless otherwise indicated.

A copy of the unaudited condensed consolidated interim financial statements for the three and six months ended June 30, 2012 and the corresponding Management's Discussion and Analysis will be available under the Company's profile on www.sedar.com.

Second Quarter Highlights

  • Produced 11,621 ounces of gold (17,523 ounces, Q1 2012) at a total cash cost excluding royalties of $1,494 ($929, Q1 2012) per ounce (composed of $1,172 ($690, Q1 2012) per ounce in total operating cash cost excluding royalties and $322 ($239, Q1 2012) per ounce in capitalised waste (stripping) costs).
  • Sold 14,024 ounces of gold (15,155 ounces, Q1 2012) at an average selling price of $1,601 per ounce ($1,711 per ounce, Q1 2012).
  • Completed acquisition of The Northern Lights Exploration Company (Pty) Ltd. ("NLE") on April 10, 2012 (the "NLE Acquisition").
  • Realized basic and diluted earnings per share of $0.008.
  • After the effect of an adjustment to gold in carbon ("GIC") inventory of $2.9 million, working capital decreased in the quarter by $1.9 million, as at June 30, 2012.
  • Exploration program has been significantly expanded for 2012 and 2013 as a result of the review of the previous exploration data base and aero-magnetic data with up-to-date interpretation technology.
  • Listed on the Botswana Stock Exchange on August 22, 2012 by way of secondary listing under the trading symbol 'GG'.

2012 Year to Date Highlights

  • Produced 29,144 ounces of gold at a total cash cost excluding royalties of $1,154 per ounce (composed of $882 ($977, since acquisition) per ounce in total operating cash cost excluding royalties and $272 ($212, since acquisition) per ounce in capitalised waste (stripping) costs).
  • Sold 29,179 ounces of gold an average selling price of $1,658 per ounce.
  • Realized basic and diluted earnings per share of $0.254.
  • After the effect of the adjustment to GIC inventory of $2.9 million, working capital increased in the first half of 2012 by $6.2 million, to $25.5 million as at June 30, 2012.

Operations Summary


Q2 2012
(before
inventory
adjustments)
(2)

Q1
2012

YTD 2012
(before
inventory
adjustments)
(2)

FY
2011(3)
Total since
acquisition
(after
inventory
adjustments)
(2)
Tonnes milled 307,624 285,185 592,809 385,000 977,809
Gold grade (g/t) 1.46 2.18 2.18 1.86 1.71
Recovery % of gold
80.00
%
88.10
%
85.60
%
87.5
%
85.5
%
Gold ounces produced
11,621

17,523

29,144

20,193

45,957
Gold ounces sold 14,024 15,155 29,179 16,853 46,032
Gold price realized per ounce $
1,601
$
1,711
$
1,658
$
1,697
$
1,673
Total operating cash cost per ounce(1) $

1,172
$

690
$

882
$

951
$

977
Total cash cost per ounce(1) $
1,494
$
929
$
1,154
$
1,039
$
1,189
(1) Excluding royalties. Total cash cost excluding royalties and total operating cash cost excluding royalties are non-GAAP measures. Refer to "Supplemental Information to Management's Discussion and Analysis" in the Company's Management's Discussion and Analysis for the three and six months ended June 30, 2012 for a reconciliation to measures reported in the Company's financial statements.
(2) As a result of the Company's OI Program (as defined below), a one-time net downward adjustment to inventory quantities and cost has been recognized in Q2 2012 as discussed in the Commentary to the Financial Results section of this press release.
(3) 2011 results are for the four months from the date of acquisition of the Mupane mine (August 30, 2011 to December 31, 2011).

Comments on operations are as follows:

Mining:

  • The revised mine plan at Tholo is progressing well and on schedule. Further optimisation of the mine plan has identified an opportunity to accelerate the stripping rate and thereby make available additional ore tonnes at higher grade sooner in 2013. The board has approved the additional expenditure rate associated with this higher stripping rate.
  • Mining, drilling and blasting contracts have been reviewed with renewed contracts revised to include performance and efficiency requirements better aligned with the Company's objectives.
  • Mine resource review is ongoing and is anticipated to be completed during Q4 2012.

Processing:

  • Process water dam extension has been completed and will be commissioned prior to the end of Q3 2012. Following this commissioning, the original dam will be emptied, cleaned and re-commissioned. This will result in an approximate 200% increase on current process water storage capacity and thereby significantly reduce risk associated with process water supply shortages and associated production loss for current and increased planned milling tonnage amounts.
  • Process instrumentation and control improvement program has begun with the aim of improving gold recovery. A SCADA system review has been completed and an upgraded process control system will be installed during Q3 2012. Concurrently, an instrumentation review is being conducted and will be finalised when the SCADA system upgrade is completed. Installation of instrumentation upgrades will occur progressively throughout Q3 and Q4, 2012.
  • A review of the metal accounting system as used by the operations previously has been completed and has resulted in the identification of procedures that required improvement to ensure consistent and accurate metal accounting and reconciliation.
  • Tonnage throughput increase studies are progressing with the initial crushing and milling circuit changes being designed and specified. Further detail modelling, design, specification and cost estimation is planned to be completed during Q3 2012. Additional alternatives shall also be examined to ensure modifications are optimal for the operation in both the medium and long term.

Early benefits of some of these programs have resulted in improved performance as planned for Q2 2012 such as improved tonnage throughput rates through the processing plant from 285,185 tonnes in Q1 2012 to 307,624 tonnes for Q2 2012. The combination of average gold ore grade of 1.46 g/t and 80% recovery for Q2 2012, and an average ore grade of 1.82 g/t and 85.6% recovery for the six months ended June 30, 2012, was anticipated and resulted in the total gold production, sales and cash costs outlined in the table at the beginning of this section.

The review of the metal accounting system identified possible inconsistencies in GIC at the end of May 2012, and an investigation was initiated immediately. Certain inconsistencies in inputs were identified, quantified and rectified. These include over-estimation of the volume of loaded carbon in the CIL tanks (from both sample gathering and sample analysis techniques used) and incorrect density Specific Gravity factor, which resulted in an overestimation of the GIC by 3,380 ounces. Corrective measures have now been put in place that include: (i) a more representative sample gathering technique; (ii) an accurate estimate of contained carbon and associated assay of gold load; (iii) more accurate density factors being utilised and reviewed on an ongoing basis; and (iv) a rigorous monthly review of the end of month reconciliation of GIC.

Similarly, a review of the procedures used to quantify the gold content of the low-grade stockpiles identified an error in conversion of surveyed volume to tonnage estimate. This had a positive impact with an upward adjustment to the quantity of ore contained therein by 3,139 ounces. The monthly reconciliation procedure on the low-grade stockpile has now been modified to be driven by actual survey data carried out monthly, which will help to ensure that a regular and accurate estimate of low-grade stockpile tonnage is maintained.

Exploration

Exploration activity for Q2 2012 has ramped up significantly as anticipated. Subsequent to the NLE Acquisition, a portfolio-wide exploration plan was developed and this extensive program is now underway.

  • The ongoing review of the exploration database generated through previous extensive exploration activity has resulted in confirmation of provisional exploration targets in the exploration plan as well as the identification of additional high priority targets. The review of previous aero-magnetic survey data with the most advanced interpretation technology has been a central and critical component of this process. As a result of these activities, the Company's exploration program has been expanded to include the additional identified targets. The board has approved the expanded program which now extends out to the end of 2013 and allocated additional funding from $3.8 million for 2012 and 2013 to $7.8 million for the same period.
  • Tau Deeps: The first phase of the deep drilling program has been completed with two diamond drill holes being drilled to an approximate vertical depth of 480m. Drill metre totals on the Tau Deeps project for Q2 2012 are 800m reverse circulation ("RC") drilling and 903m of diamond core drilling. It is anticipated that assay results from this drilling will be received in Q3 2012. An additional deeper diamond hole is expected to be completed in Q3 2012 down to a vertical depth of approximately 900m.
  • Tekwane: An additional 45 pits have been completed. A third program of pits will now be planned and implemented during Q3 and Q4, 2012. The program is designed to progressively and cost effectively locate the source of the quartz rubbles and thereby any gold mineralisation contained.
  • Jim's Luck: Drilling program is underway and progressing well. A total of six RC holes for 963m and 1 diamond core hole for 161 metres have been completed during Q2 2012. This program will continue in Q3 2012 and beyond to define an initial NI 43-101-compliant resource estimate and then on to strike extensions. Assay results on the completed drilling are anticipated to be received in Q3 2012.
  • Matopi: The first phase of the Matopi drilling program has been completed. A total of 5 RC holes for 847m and 1 diamond hole for 300m have been completed. Assay results have been received from the RC holes which confirm the low-grade mineralization, consistent with the historic holes. Additionally, no new zone of mineralization was intersected.
  • Fines Dumps: A program of auger sampling has been planned on a number of fines dumps from previous mining activity on the Company's properties, including over 8 million tonnes of Mupane tailings. The objective is to determine the potential for economic retreatment of these dumps. This program will commence during Q3 2012 and will be ongoing until at least the end of 2012. The program is designed to progressively and cost effectively test the grade and economic gold recovery potential of the fines tailings materials.
  • Orapa Road: A program of higher density soil sampling will be commenced during Q3 2012 on the northern part of the "Orapa Road" anomalies. Gold in soil had been previously identified and this combined with the reinterpretation of the aero-magnetic survey data has highlighted a number of areas of higher interest. The program will be completed during Q3 and Q4 2012 with assays being progressively received during this period.
  • Mupane: The sample preparation lab has been installed and commissioned. The lab is now handling all the sample preparation for the Galane Gold exploration program. It is anticipated that further sample preparation capacity will be required to service the Company's expanded exploration program.

BSE Secondary Listing

The Company is also pleased to announce that it has listed its shares on the Botswana Stock Exchange ("BSE") under the trading symbol "GG". This listing will serve as a secondary listing for the Company's common shares and the primary exchange for the common shares will remain the TSX Venture Exchange (the "TSXV").

The listing on the BSE does not involve the issuance of new common shares of the Company or any other securities or derivatives, such as depositary receipts, as it was structured solely to allow the common shares of the Company that are currently issued and outstanding to be tradable by investors through the facilities of the BSE. The listing will not result in any changes to the rights and entitlements of holders of the Company's common shares, irrespective of whether they purchase their shares through the TSXV or the BSE.

2012 Outlook

The transition from Signal Hill mine to Golden Eagle mine has progressed well during Q2 2012. Mining operations at Signal Hill will finish during Q3 2012 as planned, at which time it is anticipated that Golden Eagle will be producing approximately 50% of the run of mine ore being processed at the Mupane mill. The Tholo strip continues to progress as planned and is producing ore at progressively increasing rates. In addition, the Company has completed a revised mine plan that involves accelerated stripping of the Tholo pit cut back to make more ore available at a higher grade sooner. The board of directors has considered the financial implications of this accelerated stripping and approved the increase in expenditure rate. Company management and the board of directors have also considered the Company's improved liquidity position and prospects for additional future sources of ore and concluded that the Company would benefit materially by bringing forward the availability and subsequent processing of higher grade ore from the Tholo pit.

The acquisition of NLE was completed in April 2012 and as a result, the Company now has approximately 90% of the Tati greenstone belt area, an area exceeding 1,200 square km, under either exploration or mining license. This has allowed a portfolio-wide exploration approach that will bring efficiencies in exploration activity not possible with smaller tenement areas. The first review of the previous exploration database was completed during Q1 and Q2 2012 and included the re-interpretation of a previously generated aero-magnetic survey data utilising up-to-date software technology. This resulted in the confirmation of existing high priority targets and generated additional high priority targets. As a result of this updated review, including the aero-magnetic data, the Company has expanded the exploration budget for the remainder of 2012 and all of 2013 from $3.8 million to $7.8 million. An intense phase of drilling and pitting activity began in Q2 of 2012 and will continue well into 2013.

One of the Company's key post-acquisition activities has been the implementation of a comprehensive Operations Improvement Program (the "OI Program"), which has continued to build momentum throughout Q2 2012. Some of the activities undertaken as part of the OI Program are achieving immediate results whilst others will require a longer time-period to achieve the desired outcomes. Certain outcomes of the OI Program have had a negative one-off impact, such as the adjustment to the GIC inventory; however it is the intent of the program to identify and eliminate such items expediently and therefore further reduce business risk and improve management performance. Such OI Program developments are critical to the long-term success of the business. There remains considerable scope for additional improvement across the whole of the operation both in the short to medium term and on an ongoing basis. Further recruitment of high quality employees progressed during Q2 2012 and the positive impact of these professionals is being realised across the operations and exploration activities of the Company.

Galane Gold CEO, Philip Condon commented: "The Company is now well advanced in the implementation of its OI Program, which is aimed at changing the trajectory at Mupane to that of an efficient and continuously improving operation with a long-term perspective. OI Program-driven improvements in measurement procedures and processes have had a short-term negative impact due to the downward adjustment to the GIC inventory; however, precise and accurate measurement systems and processes are critical to reporting and optimising operating performance and this improvement among others was a critical one.

The ramp up of Golden Eagle mine continues as planned in conjunction with the winding down of mining operations at Signal Hill. Mining activity at Signal Hill will be completed during Q3 2012 and run of mine ore feed for the mill is planned to be approximately 50% from Golden Eagle and 50% from Tholo during Q4 2012. Anticipated fluctuations in grade and stripping ratios occurred which had a short term detrimental impact on business performance. Fluctuations in gold recovery also occurred as anticipated primarily due to changing amounts of sulphide to oxide ore ratios. Such fluctuations will continue throughout the transitional period for the remainder or 2012 and into Q1 2013 as Golden Eagle production ramps up and Signal Hill winds down, and Tholo production progressively increases. Sulphide levels have increased to levels such that they have now reached the threshold whereby the sulphide flotation circuit will be invoked during Q3 2012 to assist with improving gold recovery and reducing such fluctuations.

The exploration program has advanced significantly during Q2 2012, building on the preliminary review and planning phase carried out during Q1 2012. An exciting phase of drilling and pitting across multiple high priority targets is underway and will be ongoing for the remainder of 2012 and into 2013. Drilling and pitting activity will be reviewed at appropriate stages throughout the exploration program to ensure focused and efficient use of exploration resources as well as optimised resource development direction and progress. Exploration results will be released as assays are received and reviewed throughout this field exploration phase. Concurrently, exploration results will be added to the Company's resource model with the target of producing an updated resource statement as soon as permissible.

Listing our shares on the BSE further aligns our Company with Botswana, home to our operations, employees and future aspirations. We are very pleased to facilitate investor participation from Botswana and Southern Africa and believe that increased ownership in Botswana will benefit the Company and all of its shareholders. We expect that over time, the BSE listing will contribute to a lower cost-of-capital for the Company and increased liquidity in our shares.

The Company remains on plan for 2012 in respect of mining and processing operations and exploration activity. The strategy for the Company continues to be the improvement of operational efficiency, development of resources and minimization of business risk. Good progress has been made thus far on this strategy and is anticipated to continue."

Financial Discussion:

A. Results for the Second Quarter Ended June 30, 2012


(In thousands of dollars)
Six Months
ended
June 30,
2012
Three Months
ended
June 30,
2012
Three Months
ended
March 31,
2012
Three Months
ended
December 31,
2011
Mining Revenue: $ 48,387 $ 22,451 $ 25,936 $ 27,125
Mining Costs: (35,772 ) (20,678 ) (15,094 ) (19,937 )
Earnings from mining operations 12,615 1,773 10,842 7,188
Exploration (383 ) (310 ) (73 ) (35 )
Corporate general and administration:
Cash (869 ) (612 ) (257 ) (790 )
Share-based compensation - - - 271
Earnings from operations 11,363 851 10,512 6,634
Other income (expenses) (1) 444 (491 ) 935 (957 )
Net earnings $ 11,807 360 $ 11,447 $ 5,677
Per share
Basic $ 0.254 $ 0.008 0.254 0.126
Fully diluted $ 0.254 $ 0.008 0.254 0.126
(1) Other income (expenses) include:
Foreign exchange gain (loss) 214 318 (104 ) 720
Movement in fair value of warrants 609 (627 ) 1,236 (1,444 )
Non-cash acquisition expenses - - - -
Accretion (258 ) (131 ) (127 ) (174 )
Interest on long term debt (115 ) (57 ) (58 ) (60 )
Other (6 ) 6 (12 ) 1
444 (491 ) 935 (957 )

Commentary:

The second quarter reflects the third full quarter of mining operations for the Company, generating earnings from mining operations of $3.844 million ($1.773 million after inventory adjustments) from the sale of 14,024 ounces of gold, with earnings from mining operations of $274 per ounce before inventory adjustments ($692 per ounce, Q1 2012). This brings year-to date results to $14.686 million ($12.615 million after inventory adjustments) from the sale of 29,179 ounces of gold, and earnings from mining operations of $504 per ounce ($432 per ounce after inventory adjustments).

As the mine was purchased on August 30, 2011, there are no comparable results for the corresponding periods in 2011.

Total operating cash costs in Q2 2012 reflect the effect of two factors:

  1. Lower grade ore (1.46 vs 2.18 g/t in Q1 2012) was mined in the period; and
  2. Higher stripping costs were experienced in Q2 2012, as the ore was mined from pits with stripping ratios more indicative of the mine, compared to Q1 2012, where the main source of ore was from one of the pits ("Signal Hill") at which the stripping ratio was reduced significantly as it was nearing the end of its economic life on the current mine plan.

Year-to-date, the average grade is 1.82 g/t and the operating strip ratio is 5.46.

In future quarters, the Company anticipates fluctuating grades and stripping ratios causing cash costs to fluctuate as well. It is also anticipated that variations in the sulphide to oxide ore ratios in the feed will cause fluctuations in gold recovery.

As part of the post-acquisition OI Program, the Company has been and continues to evaluate all of the systems used previously. Based on such evaluation during Q2 2012, the Company has concluded that the variables used in the models for the purposes of calculating inventory quantities have differed slightly from actuals. This has affected the low-grade stockpile and the GIC inventory at June 30, 2012, and earnings for Q2 2012 and YTD 2012, as follows:

  1. The quantity and average grade of ore contained in the low-grade stockpile has been adjusted upward, resulting in an increase of 3,139 ounces, and, based on the average cost of gold contained therein of $8.61 per ounce, by $0.8 million. This has decreased the mining cost of sales for the three and six months ended June 30, 2012 by an offsetting amount.
  2. The variable which estimates the amount of gold contained in the processing line has been revised to more properly reflect the process, and as a result the GIC inventory has been reduced downward by 3,380 ounces ($2.9 million), and the processing costs of sales increased by the same amount in the three and six months ended June 30, 2012. The Company has also made the requisite adjustments to the model used to reflect the proper variables going forward.

While the inventory adjustments above had no effect on the cash costs of production in the aggregate, given that the number of ounces has been adjusted, they do have the effect of increasing the cash cost before royalties per ounce as follows:

  • Total cash cost excluding royalties:
    • Since acquisition - increased by $82, from $1,107 to $1,189
  • Total operating cash cost excluding royalties:
    • Since acquisition - increased by $67, from $910 to $977.

Corporate general and administration costs of $0.6 million and $0.9 million in Q2 2012 and YTD 2012, respectively, have increased to properly reflect the costs of running a growing publicly-listed company, including an increase in compensation for the Company's Chief Financial Officer by $56,000 as a result of increased time requirements to fulfill this role. Further, as a result of the movement of fair value of warrants, the Company recorded financing expense in Q2 2012 of $0.6 million, and income of $0.6 million for the six months then ended.

B. Financial Position
Selected Consolidated Financial Position Data

(In thousands of dollars) June 30,
2012
$
March 31,
2012
$
December 31,
2011
$
Total current assets 31,125 32,734 26,431
Total current liabilities 5,675 5,402 7,197
Working capital 25,450 27,332 19,234
Mining assets 35,118 28,828 26,603
Non-current liabilities 13,723 12,351 13,476
Total shareholders' equity 46,845 43,809 32,361

Commentary:

  • Three and six months of mining operations to June 30, 2012 generated the following working capital (in thousands of dollars):
Q2 2012 YTD 2012
Mining operations:
Working capital generated $ 6,060 $ 18,786
Capital expenditures (4,418 ) (8,789 )
Inventory adjustment (2,912 ) (2,912 )
Net from (to) mining operations (1,270 ) 7,085
General and administration (612 ) (869 )
Total working capital generated (used) $ (1,882 ) $ 6,216
  • Working capital (in thousands of dollars) at June 30, 2012 (with comparatives for March 31, 2012 and December 31, 2011) was comprised of:
June 30,
2012
March 31,
2012
December 31,
2011
Cash $ 15,688 $ 10,669 $ 6,531
Gold:
Trade Receivable 5,281 8,181 6,264
Gold Inventory (at average cost) 1,937 6,269 5,837
Total cash and gold 22,906 14,450 12,101
Other receivables 2,696 3,002 2,077
Supplies inventory 5,523 4,613 5,722
Accounts payable (5,675 ) (5,402 ) (7,197 )
$ 25,450 $ 27,332 $ 19,234

About Galane Gold

Galane Gold is an un-hedged gold producer and explorer with mining operations and exploration tenements in Botswana. Galane Gold is a public company and its shares are quoted on the TSX Venture Exchange and the BSE under the symbol GG. Galane Gold's management team is comprised of senior mining professionals with extensive experience in managing mining and processing operations and large-scale exploration programmes. Galane Gold is committed to operating at world-class standards and is focused on the safety of its employees, respecting the environment, and contributing to the communities in which it operates.

Cautionary Notes

Certain statements contained in this press release constitute "forward-looking statements". All statements other than statements of historical fact contained in this press release, including, without limitation, those regarding the Company's future financial position and results of operations, strategy, proposed acquisitions, plans, objectives, goals and targets, and any statements preceded by, followed by or that include the words "believe", "expect", "aim", "intend", "plan", "continue", "will", "may", "would", "anticipate", "estimate", "forecast", "predict", "project", "seek", "should" or similar expressions or the negative thereof, are forward-looking statements. These statements are not historical facts but instead represent only the Company's expectations, estimates and projections regarding future events. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict. Therefore, actual results may differ materially from what is expressed, implied or forecasted in such forward-looking statements.

Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to: the Company's dependence on a single mineral project; gold price volatility; risks associated with the conduct of the Company's mining activities in Botswana; regulatory, consent or permitting delays; risks relating to the Company's exploration, development and mining activities being situated in a single country; risks relating to reliance on the Company's management team and outside contractors; risks regarding mineral resources and reserves; the Company's inability to obtain insurance to cover all risks, on a commercially reasonable basis or at all; currency fluctuations; risks regarding the failure to generate sufficient cash flow from operations; risks relating to project financing and equity issuances; mining tax regimes; risks arising from holding derivative instruments; the Company's need to replace reserves depleted by production; risks and unknowns inherent in all mining projects, including the inaccuracy of reserves and resources, metallurgical recoveries and capital and operating costs of such projects; contests over title to properties, particularly title to undeveloped properties; laws and regulations governing the environment, health and safety; operating or technical difficulties in connection with mining or development activities; lack of infrastructure; employee relations, labour unrest or unavailability; health risks in Africa; the Company's interactions with surrounding communities and artisanal miners; the Company's ability to successfully integrate acquired assets; the speculative nature of exploration and development, including the risks of diminishing quantities or grades of reserves; development of the Company's exploration properties into commercially viable mines; stock market volatility; conflicts of interest among certain directors and officers; lack of liquidity for shareholders of the Company; and litigation risk. Management provides forward-looking statements because it believes they provide useful information to investors when considering their investment objectives and cautions investors not to place undue reliance on forward-looking information. Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. These forward-looking statements are made as of the date of this press release and the Company assumes no obligation to update or revise them to reflect subsequent information, events or circumstances or otherwise, except as required by law.

Neither the TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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