Premier Gold Mines (OTCPK:PIRGF) has just lately reported Q1 2019 outcomes. The earnings beat expectation however revenues had been troubled by decrease Y/Y manufacturing and declining gold costs. Regardless of pressures on top-line revenues, PIRGF’s means to keep up profitability is commendable. However the true attraction of an funding in PIRGF lies with its sturdy development potential that emanates from its wholesome drilling and exploration outlook. Presently, PIRGF could also be termed as a small-cap gold producer, however it has the potential to considerably improve its manufacturing in the long run. Let’s get into the small print.
Determine 1 (Supply: Firm Web site)
Throughout Q1, PIRGF posted revenues of $23.1 MM recording a Y/Y decline of ~41% and missed income expectations by ~1%. The corporate reported GAAP EPS of $zero, however earnings beat consensus estimates by $zero.02. PIRGF’s quarterly internet revenue of $Three.7 MM yielded an working margin of ~16%. Whereas working margins declined from ~25% final yr, I imagine the present margins nonetheless current an attention-grabbing quantity within the gold business.
On the operational entrance, it produced 17,614 and 57,681 ounces of gold and silver respectively. Whereas quarterly silver manufacturing was largely in step with final yr’s output, gold manufacturing noticed a large Y/Y decline of ~42% (from 30,550 ounces final yr). Decrease Y/Y manufacturing is likely to be construed as a detrimental catalyst, however PIRGF anticipates this downside to be short-lived. The Y/Y manufacturing decline was primarily on account of ceased operations at South Arturo, which is considered one of PIRGF’s two working mines. South Arturo noticed the conclusion of Section-2 open pit operations. However now it has two goal manufacturing zones as a substitute of 1; particularly Section-1 and El-Nino. Section-1 open pit is predicted to go dwell throughout the present fiscal yr, and El Nino underground will start operations in FY 2020. So we will anticipate to see continued enchancment in PIRGF’s manufacturing profile. After Section-1 is totally mined, PIRGF will go for Section-Three open pit operation within the South Arturo mine (Determine 2).
Determine 2 (Supply: Presentation)
A standard concern for small-size miners is the supply of funds for CAPEX. However PIRGF is properly coated on this one. At Q1, PIRGF had $93.5 MM in liquid belongings, comprising of $43.5 MM in money and $50 MM in revolving credit score.
The Mercedes mine is PIRGF’s different mine that is in manufacturing and has sturdy mining dynamics when it comes to high-end manufacturing and low-cost mining. Take a look at Determine Three that summarizes the mining dynamics of the Mercedes mine. PIRGF can also be progressing underground improvement within the mine and has just lately reported wholesome drilling outcomes from its exploration program.
Determine Three (Supply: Presentation)
One other level of attraction about Mercedes mine is that its FY 2019 anticipated AISC is on par with mid-sized gold producers. The fee steering is about between $900-950/ouncesof gold output and the desk under reveals that this steering competes with the reported AISC of among the well-known gold producers.
(Observe: Though it is unusual to check AISC from a specific mine in opposition to one other firm’s common AISC, my level right here is to spotlight a really promising mining asset that’s 100% owned by PIRGF.)
Common AISC ($/oz) of gold
Premier Gold-(Mercedes mine solely)
Other than the manufacturing development potential at its working mines, PIRGF’s exploration and improvement properties of McCoy-Cove and Hardrock additionally promise glorious prospects for its future mining. McCoy-Cove is a JV property whose PEA (learn: Preliminary Financial Evaluation) was accomplished again in 2018, and PIRGF expects to announce underground exploration and drilling leads to Q3 2019. The following step can be a feasibility research on the property that will spotlight its true mining potential. Up to now PIRGF has solely issued the forecast for the “Inferred” and “Indicated” useful resource that’s approx. 1.6 Moz and three.35 Moz of gold and silver respectively. It is value noting that this underground mine has sturdy anticipated gold grades of greater than 11 g/t. This could mirror favorably on mining prices as soon as Cove will get into manufacturing.
Equally, the Hardrock property is an open-pit JV mining operation representing 50-50 partnership between PIRGF and Centerra Gold (OTCPK:CAGDF) and the provincial environmental evaluation for the undertaking was authorized very just lately. The nice factor is, PIRGF has to not fear in regards to the mine CAPEX because the identical is being borne by CAGDF (at current). Furthermore, since Hardrock entails open-pit mining, the manufacturing prices could also be anticipated to be barely on the upper facet (on account of decrease head grades), however there’s important mining potential within the asset (~9 Moz of gold in confirmed and possible reserves, and measured, indicated and inferred sources). Take a look at Determine four.
Determine four (Supply: Presentation)
On mixture, PIRGF has strong manufacturing development outlook based mostly on its R&R assertion. Complete underlying gold useful resource is predicted at ~Three MM in “Confirmed and Possible” reserves and ~Three.5 Moz every in “Measured and Indicated” sources and “Inferred” sources (Determine 5).
Determine 5 (Supply: Presentation)
The inexperienced circles present that PIRGF has witnessed enchancment in useful resource estimates since 2015, and I see that PIRGF’s exploration and drilling applications are already paying off. For 2019, I anticipate extra upside in these numbers as PIRGF expects to supply drilling/exploration updates on key initiatives (together with Hardstone, South Arturo, and Mercedes) towards the tip of the yr.
On a special word, the corporate’s TTM money circulate/debt ratio stands at an alarming 2x and TTM FCF’s come out at detrimental ~$51 MM (Determine 6). Apparently, this means liquidity points with the corporate, however for my part, there’s actually nothing to fret about since I see PIRGF as being within the preliminary phases of its mining life cycle and is prone to witness enchancment going ahead.
Determine 6 (Supply: YCharts)
Lastly, having mentioned PIRGF’s manufacturing profile intimately, let’s have a look at how market dynamics have an effect on the corporate. Whereas gold (and silver) costs act as a key development catalyst for a lot of mid-tier and large-tier miners, nevertheless, on account of its low manufacturing volumes (reported just lately), I feel developments on its exploration would proceed to forged a higher impression on PIRGF’s share costs, going ahead. PIRGF is already lacking the help from metallic costs. Nonetheless, the corporate’s sturdy fundamentals point out that the inventory is buying and selling at a reduction, and can witness share worth appreciation on optimistic exploration/drilling updates.
Disclosure: I/we’ve got no positions in any shares talked about, and no plans to provoke any positions throughout the subsequent 72 hours. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Searching for Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.
Editor’s Observe: This text discusses a number of securities that don’t commerce on a serious U.S. alternate. Please concentrate on the dangers related to these shares.