- In 2019, Premier Gold Mines Limited (“Premier”, “company”) produced 67.5 Koz of gold, including 60 Koz from the Mercedes mine (100% owned) and 7.5 Koz from the South Arturo mine (60% owned by Nevada Gold Mines of Newmont Corporation / NYSE: NEM and Barrick Gold / TSX: ABX). Mercedes’ production fell significantly below expectations, while South Arturo’s production beat our expectations.
- 2019 revenue was down 18% YoY to $94 million versus our estimate of $99 million. EBITDA was down 67% YoY to $10 million versus our estimate of $14 million.
- An unexpected decline in grades resulted in the lower production at Mercedes. We are revising our 2020 gold production forecast from 87.5 Koz to 77.5 Koz, including 60 Koz from Mercedes and 17.5 Koz from South Arturo.
- Our revised 2020 net loss estimate is $20 million (EPS: -$0.10) vs $18 million (EPS: -$0.09) previously. We are using a gold price forecast of $1,550 per oz in 2020, versus our previous estimate of $1,350 made in November 2019.
- Despite a $80 per oz drop in the price of gold today, gold continues to outperform other mainstream commodities as investors pursue capital preservation to combat rising panic from the coronavirus. We speculate gold prices will be very volatile in the next couple of quarters.
- In December 2019, the company suffered a setback on the flagship Greenstone Gold project in Ontario when its partner Centerra Gold (TSX: CG), commenced a claim stating that a feasibility study completed on the project did not meet the agreed criteria. A trial has been scheduled to begin in October 2020. Although disappointing, we believe the parties are likely to come to an agreement, especially considering that Centerra has already paid Premier C$96 million, and spent over C$140 million on the project.
- Premier’s shares are undervalued based on five of the six industry average valuation metrics we used for our analysis. Premier’s forward Enterprise Value (“EV”) to Revenue is 1.5x versus the Gold Producers’ average of PG – Mar 2020 – Update.3x. Premier’s EV / reserve is $55 per oz versus the Gold Producers’ average of $365.
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