Premier Gold Mines (TSX: PG) - Increasing Production, Strategy, M&A, Gold Price and Share Price (Transcript)

August 2 2019, 14:21 GMT+01:00

We interviewed Ewan Downie, CEO of Premier Gold Mines. This team are capable of making deals, partnering with big companies and getting access to non-dilutory cash. Despite giving guidance to the market about depleting production at South Arturo mine, their share price has been punished. They need to focus on delivering +100,000oz. Lots of Exploration assets at different stages. Where did it start?

Click here to watch the interview.

Matthew Gordon: Thanks very much for taking the time out. We always get people to start off with a two minute summary of the business.  Then we get stuck into a few meaningful questions after that, so if you don’t mind?

Ewan Downie: Premier Gold Mines is an exploration development and producing company, a company that’s been around for just over a decade and has been one of a few mining companies that’s made the transition from explorer to producer. Currently we have two operating mines and several near development or development stage projects within our extensive portfolio of project.

Matthew Gordon: I think the obvious observation I had when going through the material was that you look like deal makers, as well as miners.  You’ve put together some packages, you’ve done some joint ventures, you’ve got some big names involved – Barrick Gold Corp.  Tell us a little bit about you and the team and perhaps that might explain the deal maker / miner perception that I have of you.

Ewan Downie: Well, Premier started, as I mentioned earlier, an exploration company, and as an explorer and one of the team that we started the company with were essentially geologists, etc.  And as a geological group and an exploration company we are a team that recognise that very few projects actually go from being a concept exploration effort to full production.  In fact, probably more than 99% of mineral properties don’t become mines.  So by having multiple projects gives us more options, so to speak, and we’ve always been a company that has a moral of ‘don’t always think that we have is the best.’  There could be something better and if we find something that’s as good or better than our current portfolio, we should own it.

So we’ve always been open to trading opportunities, if we found the right opportunities.

Matthew Gordon: This is for an audience perhaps who haven’t come across Premier Gold.  I know you’re a big company.  $400M market cap now, and you’re a producer.  Can you explain the process that you’ve been through in terms of where did you start? Which assets did you start with and talk about some of these joint ventures that you’ve managed to deliver?

Ewan Downie: We started in 2006.  We were Spiona, the company I founded in the late 90s called Wolfbein.  So at the time Premier was a free share to our shareholders.  We started in the Red Lake camp, one of the most prolific high-grade Gold camps, I think you’ll find anywhere in the world, and we established a fairly strategic land positioning amongst the two producers, which at the time were Gold Corp and Plasser Dome. 

We started by there by realising at some point that to our grow our company we couldn’t just sit around and wait for Gold Corp to do something with us.  So we identified the Hardrock project, our Greenstone Gold joint venture now with Centerra as a potential acquisition candidate that could host a significant open pit deposit and luckily we were very successful at delineating that open pit deposit.  In between open pit and under ground that project is now a 9Moz, but it’s expected to be a large open pit.  It’s in full company right now and the market hasn’t been at its highest for several years and we recognise that to build a project of its scale, that it would be a very tough task for a company outside to Gold mine.  And so we set out looking for a partner and were able to secure Centerra Gold as our partner who was solely funding that project.

They paid us a cash payment and with that cash payment when they came in, we continued to identify other opportunities and our two producing projects – the South Arturo in Nevada and Mercedes in Mexico – were acquired with or partially with the funds that we received from Centerra as they came in.  So we’ve been able to, I’d say, make some strategic acquisitions to grow our business with that joint venture.

Matthew Gordon: So you’ve kind of leapfrogged the process to getting to be a producer using cash from an exploration asset which you developed through with someone else’s money.  It enabled yourself to take their cash and buy producing assets which perhaps didn’t meet their profile, but were good enough for you to start. You’re not quite at 100,000 ounces.  How many ounces are you producing at the moment?

Ewan Downie: This year will be under 100,000 ounces.  Probably in the range of 80 – 85,000 ounces.  89,000 ounces this year mainly because the South Arturo project in Nevada we depleted our first pit and we’re not constructing a second pit, and in underground from the bottom of our first mining pit.  So the South Arturo mine is going through a bit of a rebirth stage with two new mines being constructed as we speak.

Matthew Gordon: You’ve also got four exploration assets at various stages of development and funding. You’re filling the hopper?

Ewan Downie: Yes.  We take the view that we’re not looking out just for next month.  What are we going to do next month or next quarter?  We recognise that if we’re going to build a successful long-term mining company, you can’t do it one asset, and unfortunately mining is a depleting commodity industry and if you don’t replace reserves or find additional reserves at other projects ultimately you won’t be a producer anymore.  So we’re always looking out for what will be the next project that we may be able to integrate to become our next production centre for the company. 

Currently we’re curating two projects that we hope we’re going to develop and open in the next couple of years.

Matthew Gordon: Well, that leads us nicely on to strategy.  I’ve got a sense of the mentality in terms of the way you go about doing business, and it seems there’s some deal making acumen there.  But I want to talk about the strategy now, which is these exploration assets presumably are going to follow a very similar model to that you’ve already employed successfully with Greenstone, for instance.  Is that true to say?

Ewan Downie: Yes. We’re quite open to developing our own deposits.  In fact, later this year we expect to start developing our Cove property, one of our high grade projects in Nevada, and that will be the first project that we initiated the development on our own and built Mercedes, our producing mine, was acquired from New Manor, was already operating, and our South Arturo project where the two mines are under construction is operated by our partner, Barrick. We are participating in the construction, but we’re not actually… Our strategy is to continue to grow our portfolio, such that we continue to hopefully maintain a steady production profile in the future and steady cash flow so that ultimately we can give back to shareholders.

Matthew Gordon: If I look at your share price, you have been as high as $5, back in July of 2016 and you’re around circa $2 today.  It’s been a bumpy ride.  At which point do you think the market investors have given you credit for your strategy?  Obviously the Greenstone project or getting Barrick involved, finding new exploration assets… what do you think they’re rewarding you for? Or is it all of the above?

Ewan Downie: I think right now we’re being somewhat penalised for being in a development stage.  Even though we do have the one producing asset and some Gold being still produced from stockpiles at South Arturo, given that you mentioned back in ’16 we were up at five dollars, that was when South Arturo was in full swing.  So we had the two mines operating, we generated a huge amount of cash flow in that year and in 2017 I think Premier was one of the top performing Gold stocks in all of the TSX, but then that Phase 2 open pit, as we called it, as South Arturo was depleted, and since then we’ve been processing some lower Gold stockpiles but our production profile dipped as we’ve been constructing the two new mines.

At the end of this year we expect the underground to come online and I’d like to think then we start to get rewarded for our future production growth.  However, right now I think we’re being somewhat penalised because we’re in that development stage and you’re spending a lot more cash than you’re making.

Matthew Gordon: Well, that’s true.  If you look back to that period, what are the key takeaways there?  Mining is cyclical.  Commodity prices are cyclical.  There are ups and downs and it’s a tough business, understand that.  What would you have done differently looking back to that period?

Ewan Downie: I don’t think we would have done anything really differently.  There’s maybe an acquisition or two we looked at that we passed on that turned out better than we thought.  You look at those opportunities.  We always had an internal mentality that we’re going to see this production gap and what we call it, we need to fill that gap, and we’re looking for producing or near producing opportunities that would have smoothed down our production profile.  All of the assets we looked at either sold for significantly more than we were willing to pay or were solar power and we viewed them as being really not profitable or not really economic. 

I think we made a lot of good decisions on what we passed on, but there’s maybe one or two that we did pass on that turned out to be better than we expected.  So really I think we wouldn’t have done anything really differently.  Just the only thing I wish is that we would have been more successful in finding something to bridge that gap.  Now the gap is closing, so we should outperform in my view going forward.

Matthew Gordon: So if I look at your share price It’s $400M. About a hundred of that in the last month or so with the price of Gold going up. That’s obviously a very welcome addition to the mix for everyone in the Gold space at the moment.  What are you going to do during that period?  Do you need money?  Do you need to go and raise cash?  It depends what your plans are.  What have you told the market?  What are you thinking?

Ewan Downie: We ended the last quarter with approximately $45M in cash, so we’re in great financial shape.  During the first half of the year we secured a credit facility for an additional $50M which provides us with the ability to fully fund the building of the Phase 1, El Nino underground mines at South Arturo and the advanced stage development at Cove. 

So currently for these projects that are near term, expectations we have for cash outflow we’re well funded to do those.  That will mean drawing from our facility.  However, Hard Rock, our Greenstone Gold joint venture, if we do make a production decision for that project, even though we have joint ventured half and we’re currently being free carried, ultimately once it goes into construction we will have to contribute and some time in the future we will look at different means of how we would finance that project. 

However, at present we haven’t made a decision whether to go ahead with that property and don’t expect to do so until late this year or early next year.

Matthew Gordon: Even with the Gold price rising?  Well, tell us, what’s your expectation of the Gold price?  I guess, If I’d asked you two months’ ago, it would be a very different answer.  Now what are your thoughts on that because that’s got to effect the timing of when you’re even considering raising capital, because it’s going to be cheap money now.  If the price drops again, money gets more expensive.  Your decision making gets harder. 

Ewan Downie: I believe that we’ve assembled a number of assets that would be on the lower side on the production cost scale.  So we should generate good cash no matter where the price of Gold goes.  Over the last four or five, six years, we’ve seen Gold test the $1,350 several times and not break it, so after several attempts sometimes you lose a bit of your gung-ho.

Matthew Gordon: Maybe that’s a wise stance to take, certainly. But on that, you say whatever the price is you’ll make money.  If I look at Mercedes, you’re indicating AISC of $900 – $950.  Is that what you’re going to be expecting at South Arturo as well or is it a different price point?

Ewan Downie: I’d expect South Arturo will be a lower cost operation.  The Phase 2 pit, the all-in sustaining when that was in production was less than $400 an ounce.  Very high margin ounces.  We’re not expecting Phase 1 in El Nino to be quite as low cost but we expect them to be quite low cost.

Mercedes, last year and this year continue to be transition years as we are developing several new deposits.  However, the new deposits that we develop, the largest of those, Diluvio, is one of our lower grade deposits.  Has a bit better wind span, lower grade, and we’re currently drilling off Marianus, which is our higher grade – and what we anticipate to be our higher grade – zone at Mercedes, but we won’t see the benefits of Marianus until late this / early next year, and then we should see hopefully the analysis grow slightly because of the influence of higher grade material and with that, we’d hope the cost can get down. But Mercedes is a moderate grade, a moderate cost operation and we are optimistic in Marianus we’ll be able to improve on the operations starting next year and we continue to focus on exploration with the hopes of identifying new higher grade deposits than the current operation.

Matthew Gordon: That gives me a sense of what the management team’s focused on – the hot topics in your monthly meetings that you’re discussing.  You want to make sure it’s a much more smoother ride going forward.  With South Arturo coming onboard, you expect obviously one) start to be cash flowing from that, 2) you’ve got cash reserves, $45M, plus a facility of you said $50M, something like that. You feel that you’ve got enough in the armoury to move the exploration assets, which have possibly got the biggest chance of shareholder enhancement.  Is that the way your mind’s working or are there things that more than that are keeping you awake at night? If so, what are they?

Ewan Downie: Now with the new Barrick Newmont joint venture in Nevada, once that’s consummated – and I believe it was just announced yesterday that the deal has been consummated – Barrick, who’s the operator, will have to look at all of their operations and how are they going to fill the mill and all of those facilities and what deposits are going to go where?  We haven’t provided, I would say, very good guidance in terms of the future at South Arturo even though we’re constructing two new mines because of a bit of the unknown that’s coming with this joint venture.

However, we are building two new mines because we expect them to be good new mines, and so that’s going to be a big part of our future this year – seeing those new operations come online.  For Hard Rock part of the main deposit at Greenstone, our feasibility study was completed in 2016 and a substantial amount of work has been completed since then, including several drill campaigns and we are expecting in the second half of this year, a number of catalysts to come out of Hard Rock because of what we’ve been doing over the past two or three years at that property.

And then lastly, we are going to be drilling at a property that we’re acquiring from Barrick, called Rye, in Nevada, that we’re quite optimistic is going to return some really good – some of that sex appeal type thing you were taking about for shareholders. “Hey, what’s the next new thing, more than maybe a production coming.”

Matthew Gordon: If I look in chat rooms and forums and online platforms, people aren’t talking about you very much.  There’s not a lot of conversation, not a lot of chatter, and what there is, is not a lot of new information. I just wonder what you’re going to be doing to…  I guess, talking to people like me to start, but what’s the plan here in terms of explaining what is…?  There’s a lot of moving parts and it’s trying to break that down for investors to help them understand where the upside’s going to come from.   You mentioned the word ‘catalyst’ a second ago.  A lot of the regular catalysts that you and I have been used to over the past 10, 15 years, weren’t working last year.  Why are they going to work now?

Ewan Downie: I think one thing, we’re trying to simplify our story.  As you said, there’s a lot of moving parts.  Some people may get a little confused of where is this company going and how is trying to achieve?  I liken ourselves to what Agnico Eagle was years ago.  They grew several projects to go from being a small pay stock to a major producer.  To do that they went through their trials and tribulations over the years and built out operations.  We’re trying not to have anything that really…  We’re trying to smooth out our growth profile going forward rather than try to see the spikiness that you might see as an explorer.  Everybody’s excited about the exploration beyond the chat rooms, but ultimately if nobody buys you, then reality sets in and how much money do you need to build that etc?  You know, that rises up in exploration and development and then when you get into mining and hopefully profitable mining, then you should actually see your highest growth in your share price through that initiative.

So we try to be somewhat humble and steady on how we deliver news.  Obviously if we make a major discovery somewhere, we’ll talk about it, but our main thrust is saying we have one operating mine, two in construction, with one coming online later this year, the other one in 2020, and two additional projects in full permitting for future development.  So in terms of long-term production growth, I think there’s very few companies who offer the opportunity that Premier Gold does.

Matthew Gordon: So you think that all things being equal, the assets that you’ve got will allow you to deliver meaningful growth over the next couple of years.  That’s the message to investors, retail and institutional? Tell me, how do you balance worrying about the share price – because that’s got to be a key driver for you - and running a business.  How do you manage that?  Which is more important to you?

Ewan Downie: We have some very large shareholders.  We have several in the 5% to 12% range, so we’ve got some long-term steady shareholders.  Keeping those shareholders informed of what we’re doing and how developments are is very important.  We don’t want to lose our bigger shareholders, but we do spend a lot of time on the road marketing to new institutions, new retail groups. 

We’re trying more and more to get retail interest in our stock, given so many institutions have potentially closed their doors over the last few years.  I think we’re a bit more of an institutional star historically because of our growth profile and production rather than just being out there screaming our exploration results.  We kind of tuck the exploration behind the production growth rate.

So just trying to simplify the story. Instead of telling different stories in a presentation, trying to make it maybe a bit more like Barrick and Newmont are doing in Nevada, making Nevada in mind, rather than talk about Turquoise Ridge, Gold Strike and Lea Vale individually.  So we’re trying to package up our projects so that Nevada is a production centre, growth centre, for us.  Ontario is separate and then Mexico.  So really dumbing it down to three stories rather than eight stories.

Matthew Gordon: It would be interesting to see how you do that because I think right now when I was researching this, it just felt like there’s a lot of moving parts and mapping it out was more difficult than I think it perhaps needed to be. What I did like was the team’s attitude to building.  How do you get Barrick involved in a conversation with you?  When that happened? You were a small company.  How did you do it?

Ewan Downie: We identified, and we really found a relationship with some of the people in Barrick through the Greenstone or the Hard Rock acquisition.  Back in 2008, more than 10 years ago, we spent a lot of time approaching Barrick over and over.  I’d say very persistently we pestered them and they sold us a project not too far from our Head Office here in north western Ontario. 

So we got to know some of the people there and then formulated an even stronger relationship with Barrick when we acquired Gold Corp’s interest in South Arturo, and founded the building of a mine with Barrick, I think Barrick started to give us some credibility.  And since then we’ve done a joint venture with them at McCoy Cove, at the property surrounding our Cove deposit and we’re acquiring the Rye project from Barrick subject to a backing.

So right now we have essentially four projects that we’re moving for on sort of relationship, but it grew from an early acquisition ten years ago.  What we’ve made an effort to do is stay in touch with these people whom we work because you never know what future opportunities may come out of these major producers going forward.

Matthew Gordon: It’s a very reassuring name to have there, and obviously with their recent merger there may be more spin offs to be had if they open the door to you. I’ve really enjoyed that as a first run through your company.  It was a pleasure talking to you and understanding a little bit about the thinking and mentality here.  I’m very much looking forward to seeing how South Arturo develops and Greenstone because that sounds key to the growth component of what you’re doing.  So thank you very much for your time.

Ewan Downie: Thanks for having me on and hopefully we can talk again in the near future.

Company page: www.premiergoldmines.com

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