RE:Good article on PG El Nino gold pourPremier Gold — First gold bar at El Nio
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The North America-focused, junior gold producer, developer, and explorer generated several
news releases during the Beaver Creek and Denver precious metals shows including the
beginning of ore processing at the El Nio underground mine in Nevada, the sale of royalties
on a pair of non-core assets, and the addition of a Chief Operating Officer (COO).
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The El Nio mine, which is part of the South Arturo joint venture (JV) with Nevada Gold
Mines (60 NGM/40 PG)—the joint venture operated by Barrick Gold (ABX.T, GOLD.NYSE)
with Newmont Goldcorp (NEM.NYSE, NGT.T)—, was built on-budget and its ore is being
processed at the Goldstrike roasting facility ahead of schedule with the first pour completed
on September 26.
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The material is being extracted from the down plunge extension of the ore mined in Phase 2 open pit up to 2017.
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The company expects to meet or exceed the high end of its 2019 production guidance for
the South Arturo JV (~10 koz) over the second half of the year, which should be a positive
for its treasury.
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And we should also see more delineation drilling, as there’s upside potential beyond the mine at East Dee and the Storm Extension.
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Premier is planning on updating investors during an October 21 site visit to show Barrick’s
progress at El Nio (mining and processing), the Phase 1 open pit (pre-stripping, H2/20
production), and potential heap leach operations (optimization, decision pending).
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At the end of June, Premier had US$35 million in working capital, with US$18 million in long
term debt and US$50 million in an undrawn facility.
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To further shore up its working capital, the company sold a pair of royalties on non-core assets for US$6 million to Franco-Nevada (FNV.T, FVN.NYSE) including a 2% royalty on the PQ North Property, which is located next to the Musselwhite Mine in northwestern Ontario, and a 1.5% royalty on the Rain/Emigrant and Saddle properties in Nevada. Franco-Nevada has a royalty on the Musselwhite mine and currently holds 13 operating and advanced royalties in Nevada.
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Also, to provide stability to its operations (Mercedes) and development gold projects (South
Arturo JV, Cove, and Hardrock), it added a Chief Operating Officer (COO, Peter van Alphen)
to its management team, based out of Toronto.
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I understand the company never had an official COO, and that its Chairman John Begeman was playing the role informally, but with the expansion of the portfolio came the need to formalize the position.
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I don’t know Mr. van Alphen personally, but the company certainly needs a firm hand to get
Mercedes sorted as it has gone through several mine managers since Premier Gold took
over from Yamana Gold (AUY.NYSE, YRI.T) in July 2016.
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The short positions developed on Premier may be related to financing risk linked to the
reversal in fortunes for the company’s 50% stake in the Hardrock project with Centerra.
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In a rising gold price environment, Hardrock has gone from being an afterthought
to garnering takeover offers, and the company seems determined to hold its share.
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Hardrock hosts 4.6 million ounces of open-pit amenable reserves grading 1.0 gram per
tonne, which were calculated at a gold price of C$1,625 per ounce (currently C$1,960).
We should see an updated resource sometime in October 2019.
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Shorts may be expecting Premier Gold to return to the equity markets to fund its half of the
C$1.24-billion upfront capex requirement.
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I would assume that 50-60% of that amount will be sourced from debt and/or a capital lease, leaving ~C$560 M for the partners to raise individually;
therefore, Premier Gold would need to raise C$280-C$300 M through equity, stream, royalty, or some kind of alternative funding.
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Note that Orion, a large private equity firm with deep pockets, is a partner at Mercedes, therefore, may be involved in any financing strategy.
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Acknowledgment: Exploration Insights Newsletter - Joe Mazumdar & Brent Cook - 9/29/19
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RJ