RE:RE:Embarrassing Driving to the end game
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The projected valuation of C$2.90 per share for the North America-focused junior gold producer in October 2019 was based on a sum of the parts valuation of its various assets, including (from more to less expensive):
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50% stake in the Greenstone Gold property (Hardrock open pit gold project) joint venture (JV) with Centerra Gold (CG.T) in Ontario
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100% owned scoping-study-level McCoy-Cove gold property in Nevada
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100% owned serially underperforming Mercedes underground gold-silver mine in northern Mexico
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40% stake in the South Arturo joint venture (SAJV) with Barrick Gold (ABX.T, GOLD.NYSE) in Nevada
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Interestingly, the order of this list differed from the one provided by the company’s CEO during the latest conference call.
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For him, the core asset is the interest in Hardrock via the Greenstone JV, followed by the SAJV assets, McCoy-Cove, and, lastly, the Mercedes mine.
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The exploration projects were not mentioned (Rye, Rodeo Creek, Hasaga, Rahill-Bonanza).
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The rationale for the SAJV assets jumping to second is probably related to the acceleration of the various projects by its partner, Barrick Gold, and the fact that the market is still unaware of the potential mine plans.
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Premier ended 2019 with only US$16 million in working capital and US$19 million in long-term debt.
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Therefore, given the need to continue to advance the SAJV assets and, potentially, the Greenstone JV, the company raised another C$38 million at low price levels (C$1.50).
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Advancing the Cove carve out project should not be a priority, given the market’s indifference.
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The management team is well aware of its failure to take advantage of the rise in
the gold price.
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As another analyst pointed out on the conference call, Premier Gold is not getting valued by the sum of its parts.
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In my opinion, the reasons investors are discounting its assets are the following:
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legal dispute with JV partner Centerra Gold (CG.T) at the Greenstone (Hardrock)gold project
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underperforming Mercedes operation
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tendency to continue to spend money (it doesn’t have) on exploration or studies
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absence of any significant divestiture over the past 12 months to support the balance sheet
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The plan should be to hive off individual projects into jurisdictional slices such as Nevada, Mexico, and Ontario, saving the Greenstone stake for long-suffering shareholders.
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There’s a chance it will achieve the outlined endgame.
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Given the CEO’s insider buying, it is evident that he is aligned with shareholders, but is he and his team the right ones to get it done?
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Maybe some heads need to roll.
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Acknowledgment: Exploration Insights Newsletter - Joe Mazumdar & Brent Cook - 03/08/20
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RJ