Notes From the FieldLouis James’ Notes From the Field Quote.
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The Premier story has changed dramatically . . . .
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The initial idea was to pick up large, high-margin projects near operating gold mines, in order to tempt one of those producers to make a takeover offer.
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But a funny thing happened along the way; management’s deal-making netted the company a huge cash position (for a junior explorer).
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Then a deal with Goldcorp got Premier 40% of the South Arturo gold mine operated by Barrick Gold. Presto, Premier jumps from exploration to production almost instantly.
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Realizing that the initial phase of mining at South Arturo would be short, management leveraged its position and cash flow to acquire the Mercedes gold mine in Mexico.
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This keeps the cash flowing while Centerra Gold wraps up its economic studies of the multi-million-ounce Greenstone (formerly Hardrock) gold project in Canada and comes to a Construction Decision. [ RJ: - An important branch point milestone. ]
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The cash is also going into exploration of Premier’s other projects, including the Red Lake properties and the flagship Cove-McCoy gold project in Nevada.
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That’s a lot of moving parts, but management seems to be handling it well.
More than that, the parts fit well together, enabling future growth paid for with free cash flow. Here are the key takeaways:
- [One] South Arturo currently has three open pit deposits, Phase 1, 2, and 3, plus the El Nio underground extension of the Phase 2 deposit.
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Phase 2 was exceptionally high-grade for an open pit, so it was put into production first. Phase 1 is still being studied, with a production decision expected soon, and El Nio after that.
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Production at Phase 2 produced more gold at higher grades than expected, and for longer.
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It was a resounding success that cashed Premier up (C$156.8 million at last count), but it’s winding down now.
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The miners are “licking the bowl,” as they say.
Phase 1 is not as high margin, but given that Phase 2 exceeded expectations, I think the odds are good that Barrick will give it a go.
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El Nio seems even more likely to go ahead. -
[Two] When Premier bought Mercedes, the mine didn’t have much life left.
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The deal seemed expensive for what we got.
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However, Premier has already discovered new gold zones, as well as extensions of old ones.
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There are 50,000 meters of exploration drilling on tap at this year.
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Meanwhile, the mine keeps cranking out profit.
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Q2 production was 21,893 ounces of gold and 89,474 ounces of silver, at an all-in sustaining cost of US$707 per ounce of gold.
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What might have looked like a pig in a poke is turning into a cash cow.
- [Three] When Premier picked up the Cove project, it had a small, high-grade gold zone called Helen, with about a quarter of a million ounces of gold.
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Helen is under the mountain beside the old Cove pit, which had once been one of Nevada’s richest silver mines.
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There had been some high-grade underground mining under the pit, in an area called Cove South Deep (CSD).
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That ended due to low metals prices and the high volume of water that constantly had to be pumped out.
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You can see in the photo below that the flooding has now turned the Cove pit into a beautiful big blue bathtub. -
https://lh3.googleusercontent.com/fSWkg49vKZtKLCaEsfdWtEWZJ9-nqXbX_yI8tFPwmaDKk-wO2m6IiOkjdrUdAUYwANyE=s170 -
Now, here’s the thing: Premier’s geos had a theory that Helen and the CSD zones were in similar rocks, and that they might be connected.
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As Helen and CSD are a good kilometer apart, there could be a lot of gold there if the same host rocks did continue, even if they were mineralized only in some areas.
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This theory is now a fact.
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There are still gaps to drill that could have more gold.
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Premier has found high-grade polymetallic silver mineralization at depth as well.
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You can see this in the long section below.
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https://www.premiergoldmines.com/assets/img/2017-03-21-nrm-pg-6gwgva.jpg -
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The trend of this stuff points towards the adjacent McCoy property, which Premier has now acquired.
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The combined project now hosts 1.55 million ounces of gold, averaging almost 12 g/t gold.
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This is a brilliant example of good geology leading to more value for shareholders—and there are still gaps between zones to drill, as well as extensions on the McCoy end of the project. -
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When I looked at this diagram with the project geologist, I remembered that all the drilling had been done from surface.
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I asked him if all those holes had come up blank between surface and the high-grade at depth, or if there was any lower-grade gold above and around it.
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He said yes. Plenty.
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He couldn’t give me numbers, but I have to ask: “What if there’s an Osisko-type scenario here?”
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By that I mean, a much larger bulk-grade halo surrounding the high-grade zones. -
Those colorful patches in the diagram above have more than a million and a half ounces of gold in them.
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If you draw an oval around them, there’s easily room for five million ounces or more—and that’s without considering the other targets on strike.
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A monster gold deposit in a super-pit here is my idea.
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The company isn’t working in that direction.
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But if drilling keeps finding halo gold around the high-grade, that could change quickly. -
It’s exciting upside potential to have in the play. -
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What about the water?
That may be a problem mostly related to faults in the old Cove pit.
On the day I visited, a test well drilled over the Helen deposit was having problems because there wasn’t enough water for the size pump they had.
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At any rate, pumping water is a cost many mines bear.
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It’s just another factor that goes into the economic studies. -
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In short, even though South Arturo is winding down, for now, it has several shots at winding back up again over the next two years.
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Mercedes is a money-maker where new discoveries suggest that the cash should keep flowing for a long time.
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Centerra is paying the bills at Greenrock.
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All of this makes it possible for Premier to advance its 100%-owned Cove-McCoy project without diluting us as shareholders.
- The 1.5-million-ounce bird in the hand there looks good, and there’s clear potential for a monster deposit.
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. . . The profitable mining makes it relatively low risk. . . .
- End Quote.
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Apology This is proprietary information for the subscribers of the
Casey Investment Alert.
Hopefully, I have done nothing to offend the current subscribers.
Is it rational to withhold information in order that our Premier [T.PG] stock does not go up?
This in meant to encourage our brother Premier stockholders who compose this Bullboard.
If there are any objections, I will desist.
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Actually, IMHO, my quoting Louis James can be looked upon as a plug for
Casey Research.
But perhaps today’s ‘transgression’ warrants a bigger plug.
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I stated out with 100k, and eight years later, my portfolio was worth $1.4 million.
The secretary said to me,
“You so smart to be doing so well in your investments”. I replied,
“I am not so smart, all I did was try to follow the advice of my Casey Newsletters.”
She replied,
“Well, at least you are smart enough to know who to listen to.” I was stunned. I did know how to reply. Perhaps she was right.
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RJ