Premier Gold Mines (PG-T)

Transcription

1 (PG-T) Q4/16 Results: Solid Beat on Cashflow March 27, 2017 Michael Curran, CFA (416) Q4/16 Operating Results: Premier pre-released attributable gold production of 82Koz back in mid- January. With Friday s results, AISC of US$356/oz places Premier Gold firmly among the lowest cost gold producers in the world. Q4/16 Financial Results: adjusted EPS came in at $0.11/sh, which was short of consensus and our estimate, with the variance primarily attributable to higher than expected depreciation expense (see fig1). However, we calculate operating CFPS to have been $0.44/sh in the quarter, well ahead of consensus at $0.31/sh, and our $0.33/sh estimate. Financial Position: Premier ended the year with $168 million of working capital (including $120MM in cash) and $53 million of long-term debt Guidance Unchanged: Premier expects to realize gold output of Koz, at an AISC of US$660- $690/oz from its mines in Nevada (South Arturo) and Mexico (Mercedes). Organic Growth Projects: already this year, Premier has reported resource updates for the Hasaga (Ontario) and McCoy-Cove (Nevada) gold projects (both 100%- owned). A PEA is now underway at McCoy-Cove. After delivering a positive feasibility study for a 300Koz/yr open pit mine at the Hardrock gold project (Ontario- 50/50 JV with Centerra Gold) in Q4/16, 2017 activity will likely centre on advancing permitting, optimizing the mineplan, and securing impact benefit agreements with aboriginal groups Results BUY (unch.) $6.00 (unch.) Previous Close $ month Target Price $6.00 Potential Return 92.3% Dividend Yield 0.0% Low High 52 Week Price Range $1.87 $5.05 Estimates (C$MM, except per unit) FY16 FY17E FY18E FY19E Revenue $150.5 $192.1 $151.5 $134.1 Net income -$0.7 $8.1 $1.1 $3.5 Shares O/S, wgt. avg EPS (operating) -$0.01 $0.07 $0.03 $0.01 CFPS $0.45 $0.29 $0.17 $0.13 Valuation P/E n/a 47.9x n.m. n.m. P/CF 6.9x 10.9x 18.5x 23.7x NAV $5.05 $4.41 $4.28 P/NAV 0.6x 0.7x 0.7x Financials Shares Outstanding million Mgt/Insiders 3% (C$MM) Market Cap (Millions) $628.4 LT Debt (corporate) $60.0 Working Capital $168.0 Enterprise Value (Millions) $520.4 Fiscal Year End December 31 Reserves / Resources 2P Reserves 2.8 MMoz M+I Resources 3.1 MMoz Total Resources (M+I+I) 6.9 MMoz Quarterly Estimates Q1/16 Q2/16 Q3/16 Q4/16 EPS (operating) -$0.04 -$0.08 -$0.03 $0.11 CFPS -$0.03 -$0.02 $0.00 $0.44 Q1/17e Q2/17e Q3/17e Q4/17e EPS (operating) $0.03 $0.03 $0.01 $0.00 CFPS $0.10 $0.10 $0.07 $0.02 Company at a Glance Premier Gold Mines is a junior gold producer with mines in Nevada and Mexico. The company also has exploration and development projects located in the heart of proven mining districts in North America (Archean greenstone belts of Ontario and the prolific gold trends of Nevada). All prices in C$ unless otherwise indicated. Stock Performance Beacon Securities Ltd. 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H

2 Investment Thesis Re-Rating Opportunity As Premier Ramps Up Production (And Looks For Growth) We view Premier Gold Mines as an attractive investment for both exploration success and the transition from explorer to producer. In the short-term, Premier Gold now has interests in 2 mines, the South Arturo JV (open pit mine in Nevada) with Barrick Gold, and operator of the Mercedes Mine in Mexico. Longer-term, Hardrock, McCoy-Cove, and Hasaga are other projects showing potential to become mines. Fig 1 Q4/16 Results: Premier Gold Mines (C$ millions) Beacon Premier Q4/16E Q4/16A Variance Revenue % Direct Mining Expenses % Gross Operating Income % Depreciation % Exploration % G&A % Interest Expense % Reclamation and Mine Closure (0.4) % EBT % Current Deferred (0.8) Total Taxes % Other (0.5) (4.7) - Writedow ns Stock-based compensation FX losses (gains) 0.3 (4.6) - Net Income - reported % EPS - reported $0.25 $ % EPS - operating $0.25 $ % Cash Flow % CFPS $0.33 $ % S/O % Gold produced (oz) 81,790 81,790 0% Gold Sold (oz) 81,925 82,188 0% TCC (US$/oz) $306 $306 0% AISC (US$/oz) $390 $356-9% Source: Company reports and Beacon Securities estimates Valuation Methodology Our favored valuation method for precious metals producers is a price-tonet-asset-value (P/NAV) multiple based on a discounted cash flow (DCF) model constructed using our estimates of the parameters of existing or potential mining operations. We employ a US$1,300/oz long-term gold price assumption starting in March 27, 2017 Page 2 Michael Curran mcurran@beaconsecurities.ca

3 Fig 2 NAV Breakdown: Premier Gold Discount Rate Ownership Value Per Share (C$/sh) (%) (%) C$MM FY17e FY18e FY19e Hardrock (Ontario) 5.0% 50% $538 $2.67 $2.11 $2.18 Mercedes (Mexico) 5.0% 100% $214 $1.06 $0.72 $0.65 South Arturo (Nevada) 5.0% 40% $39 $0.15 $0.03 $0.00 Operating assets $790 $3.88 $2.87 $2.83 Resource (MMoz) Cove-McCoy (Nevada) % $78 $0.38 $0.38 $0.38 Other Ontario assets $50 $0.25 $0.25 $0.25 Working Capital $168 $0.83 $0.91 $0.81 LT Debt (corporate only) ($60) ($0.30) $0.00 $0.00 Corporate assets $236 $1.17 $1.54 $1.45 NET ASSET VALUE $1,026 $5.05 $4.41 $4.28 Source: Beacon Securities estimates In Fig. 2 we provide forward-looking NAV/sh estimates to show how the company s NAV is forecast to change over the next few years. For junior gold producers (annual gold output <250Koz), we employ a target range of 0.5x-1.5x P/NAV. As a low-cost producer, we employ a target P/NAV multiple of 1.25x, which is towards the upper end of our target range. Applying the target multiple on our 2017 NAV estimate suggests a fair value of $6.25/sh for PG shares. On a forward-looking P/CF multiple basis, we forecast Premier Gold could achieve CFPS of $0.79/sh in 2021 (forecasted first year of operation at Hardrock). Discounting this back to 2017 (at 15% per annum) and applying our target multiple of 12.5x P/CF to this estimate, which is towards the upper end of our 5.0x-15.0x target range for junior gold producers, suggests a fair value of $6.00/sh. Using a 50/50 blend of fair values generated by NAV and CF analysis, generates our 12-month target price of $6.00 per PG share. Fig 3 Forecast Operations: Premier Gold E 2018E 2019E 2020E 2021E Gold Mercedes (100%) 22,481 87,342 89,911 89,911 89,911 89,911 Production S. Arturo (40%) 89,258 43,404 11, Hardrock (50%) , ,437 Premier Gold 111, , ,485 89, , ,348 AISC Mercedes (100%) $785 $829 $829 $830 $831 $832 (US$/oz) S. Arturo (40%) $285 $488 $500 $0 $0 $0 Hardrock (50%) $0 $0 $0 $0 $596 $463 Premier Gold $386 $716 $792 $830 $757 $576 Source: Company reports and Beacon Securities estimates March 27, 2017 Page 3 Michael Curran mcurran@beaconsecurities.ca

4 Appendix : Summary Financials Premier Gold Mines Beacon Securities Limited Symbol PG-T Last Share Price $3.12 Stock Rating BUY Shares Outstanding Price Target $6.00 Market Capz'n ($MM) 628 Michael Curran, CFA (416) All C$ unless noted For Fiscal Year Ended Dec 31 INCOME STATEMENT FY16 FY17E FY18E FY19E RATIO ANALYSIS FY16 FY17E FY18E FY19E Revenues $MM Dividend Paid $/sh $0.00 $0.00 $0.00 $0.00 Operating Costs $MM Dividend Yield % 0.0% 0.0% 0.0% 0.0% EBITDA $MM LTD/(Total Cap) % 12.4% 9.1% 5.0% 28.9% DD&A $MM EV / EBITDA x 6.9x 8.4x 13.3x 13.9x EBIT $MM PRICES/EXCHANGE RATES FY16 FY17E FY18E FY19E Interest Expense $MM Gold Price US$/oz 1,241 1,300 1,300 1,300 EBT $MM (3.9) Silver Price US$/oz Non-Recurring Items/Other $MM (10.0) US$:C$ Taxes/Recovery $MM MINE/EQUITY PRODUCTION FY16 FY17E FY18E FY19E Net Income (operating) $MM (1.8) Gold Production 000 oz 111, , ,485 89,911 Shares o/s $MM Total Cash Costs US$/oz EPS (adjusted) $/sh ($0.01) $0.07 $0.03 $ ,000 P/E Multiple x n.m. 47.9x n.m. n.m. Gold Production (oz) $900 Cash Flow (adjusted) $MM AISC (US$/oz) CFPS x $0.45 $0.29 $0.17 $ ,000 $800 P/CF Multiple $MM 6.9x 10.9x 18.5x 23.7x SCFP FY16 FY17E FY18E FY19E 200,000 $700 Cash Flows from Operations Net Income $MM (0.7) DD&A $MM ,000 $600 Deferred Taxes $MM Non Recurring/Other $MM ,000 $500 Working Cap. Changes $MM (11.3) Net Operating Cash Flow ,000 $400 Cash Flows From Investing Capital Expenditure (net) $MM (52.4) (3.0) (100.0) (250.0) 0 Acquis./Investments $MM (152.7) E 2018E 2019E 2020E 2021E $300 Other $MM (0.4) Net Investing Cash Flow (205.4) (3.0) (100.0) (250.0) RESERVES / RESOURCES Cash Flows From Financing Gold Reserves MMoz 2.8 Equity Issues (net of costs) $MM AMC/oz US$/oz n.m. Net Borrowings $MM 52.4 (15.0) (10.0) Total Gold Resources MMoz 6.9 Dividends Paid & Other $MM AMC/oz US$/oz 69 Net Financing Cash Flow $MM (15.0) AMC = Market Cap + LTD - Working Capital Net Inc/Dec (incl FX) $MM (25.3) Total Resources = measured, indicated, and inferred Cash at End of Year $MM NET ASSET VALUE (NAV) E BALANCE SHEET FY16 FY17E FY18E FY19E Discount Status Own'ship $MM $/sh %NAV Cash & Equivalents $MM Trans-Canada 5.0% permitting 50% $ % Total Current Assets $MM South Arturo 5.0% mine 40% $ % PP&E & Mining Interests $MM Mercedes 7.0% mine 100% $214 $ % Other $MM Operating NAV $790 $ % Total Assets $MM MMoz Current Liabilities $MM Cove-McCoy 1.6 explor. 100% $ % Long Term Debt $MM Other explor. var. $ % Other Long Term Liabilities $MM Working Capital $ % Total Liabilities $MM LT Debt ($60) (0.30) -6% S/Holder Equity $MM NAV $1,026 $5.05 Total Liab. & S/Holder Equity $MM Current P/NAV 0.6x Working Capital $MM Source: Company reports, Beacon Securities estimates March 27, 2017 Page 4 Michael Curran mcurran@beaconsecurities.ca

5 Disclosure Requirements Does Beacon, or its affiliates or analysts collectively, beneficially own 1% or more of any class of the issuer's equity securities? Yes No Does the analyst who prepared this research report have a position, either long or short, in any of the issuer s securities? Yes No Does Beacon Securities beneficially own more than 1% of equity securities of the issuer? Yes No Has any director, partner, or officer of Beacon Securities, or the analyst involved in the preparation of the research report, received remuneration for any services provided to the securities issuer during the preceding 12 months? Yes No Has Beacon Securities performed investment banking services in the past 12 months and received compensation for investment banking services for this issuer in the past 12 months? Yes No Was the analyst who prepared this research report compensated from revenues generated solely by the Beacon Securities Investment Banking Department? Yes No Does any director, officer, or employee of Beacon Securities serve as a director, officer, or in any advisory capacity to the issuer? Yes No Are there any material conflicts of interest with Beacon Securities or the analyst who prepared the report and the issuer? Yes No Is Beacon Securities a market maker in the equity of the issuer? Yes No Has the analyst visited the head office of the issuer and viewed its operations in a limited context? Yes No Did the issuer pay for or reimburse the analyst for the travel expenses? Yes No All information contained herein has been collected and compiled by Beacon Securities Limited, an independently owned and operated member of the Investment Industry Regulatory Organization of Canada (IIROC). All facts and statistical data have been obtained or ascertained from sources, which we believe to be reliable, but are not warranted as accurate or complete. All projections and estimates are the expressed opinion of Beacon Securities Limited, and are subject to change without notice. Beacon Securities Limited takes no responsibility for any errors or omissions contained herein, and accepts no legal responsibility from any losses resulting from investment decisions based on the content of this report. This report is provided for informational purposes only and does not constitute an offer or solicitation to buy or sell securities discussed herein. Based on their volatility, income structure, or eligibility for sale, the securities mentioned herein may not be suitable or available for all investors in all countries. As at February 28, 2017 # Stocks Distribution Buy 65 75% Buy Total 12-month return expected to be >15% Speculative BUY 11 13% Speculative Buy Potential total 12-month return is high (>15%) but given elevated risk, investment could result in a material loss Hold 4 5% Hold Total 12-month return expected to be between 0% and 15% Sell 0 0% Sell Total 12-month return expected to be negative Under Review 5 6% Under Review No current rating/target Tender 2 2% Tender Clients are advised to tender their shares to takeover bid or similar offer Total % Dissemination Beacon Securities distributes its research products simultaneously, via , to its authorized client base. All research is then available on via login and password. Analyst Certification The Beacon Securities Analyst named on the report hereby certifies that the recommendations and/or opinions expressed herein accurately reflect such research analyst s personal views about the company and securities that are the subject of the report; or any other companies mentioned in the report that are also covered by the named analyst. In addition, no part of the research analyst s compensation is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report. Beacon Securities Ltd. 66 Wellington Street West Suite 4050, Toronto, Ontario, M5K 1H