A Prime Gold Asset with Fast Payback: Prime Mining Corporation

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Prime Mining Corp. (PRYM:TSXV, PRMNF:OTC) has a very rare mine plan – they believe they can achieve a 6-8 month payback on their gold mine in Mexico.

Folks, I rarely find oil wells with that fast a payback.  When I find them, I buy them.

It’s a low capex (just US$30 million projected!) gold mine that management is forecasting will produce 60,000 – 70,000 ounces of gold a year. Similar mines in the region produce gold for roughly $750/per ounce (La Trinidad, El Gallo, La Cienega). At those rates, Prime would enjoy cash flows in the tens of millions of dollars per year.

Prime has just a CAD$32 million (US$25 M) market cap right now. 

As management transforms their Los Reyes property into a simple, high grade heap leach mine, I expect the Market to reward the company A LOT.

This is the type of asset the Market wants now – a low capex mine that can generate a large amount of cash flow at current gold prices.  Now, I think gold prices ARE going higher, along with the profits of all gold producers – but for Prime, gold prices can stay here and this company can still create an incredible amount of value for shareholders.

This management group – led by Chairman Dan Kunz, CEO Andy Bowering and COO Greg Liller – have put over a dozen mines into production.  This asset – Los Reyes – would be the smallest and simplest.

There’s already a resource of more than 500,000 ounces, and a new resource calculation is due THIS MONTH.  I’m expecting this to be a major catalyst for the stock.  I wanted to bring this company to your attention BEFORE that happens.

In their powerpoint, they talk of producing 60,000-70,000 gold ounces a year, starting in 2022.  In speeches, management says they believe they can keep costs at $750 per ounce that nearby mines have achieved.

Current gold prices are over $1600 per ounce. $1600 – $750 = $850/oz profit margin – multiply that by 60,000 ounces and cash flow has the potential to be in the tens of millions of dollars

This is where The Big Money is made in junior mining – having an experienced production team that can take an exploration asset – priced at some low valuation like 0.2 Net Asset Value – and in two years they get it to production, spewing cash and being valued at 1-1.5 NAV.  That’s ALL I’m looking for in junior mining right now.

The Company will complete a Prefeasibility Study to get the exact information they need to build the mine.

When I first heard Prime’s story I did two things:

  1. I did the simple math I just outlined
  2. Determined if management had the ability to execute.  Once I had dinner with Chairman Daniel Kunz, that was a BIG YES.

Also, I like northern Mexico as a jurisdiction – there are MANY MANY operating mines nearby.

This is the kind of gold play I want to invest in – proven team, simple asset, good jurisdiction.  This team has already put TEN mines into production.

As management delivers on their goal over the coming 20-24 months, the stock clearly has the potential to re-rate from its current CAD$30 million market cap.

I’ve spent most of my 30 years in the junior markets looking for assets that pay back their capital costs quickly – in oil & gas or mining.  Los Reyes is a simple oxide gold deposit that tests show can be a great heap-leach mine.  Heap leach is one of the lowest cost mining operations there is – investors routinely see grades of 0.5 grams per tonne OR LESS in heap leach operations.

Prime’s current resource is over 1.25 grams per tonne.  That’s high grade for a heap leach, which often see grades of a half gram or less – AND heap leach is very low capex.  Add in an experienced mine building team.  This has everything I’m looking for in this gold market.

Exploration spending can be hard to raise in this market still – but capex spending, which brings immediate cash flow, is easier.

If Prime can deliver on their plan, it would put them in a peer group that gets valued at 5-6 x cash flow.  There’s a lot of leverage there for investors – especially for a small $32 million market cap like Prime has.

Understand folks that the re-valuation I see here – plain as day – won’t happen overnight.  But only a projected US$30 million of capex stands between now and then.

The key to the equity being re-valued is the market’s confidence in management to execute; to actually get this done.

That’s where I became completely sold on this company.

I had a long dinner with Chairman Daniel Kunz in Vancouver just over a week ago.  Kunz is the former CEO of the industry heavyweight Ivanhoe Mines (the original IVN that was acquired by Rio Tinto).  During his eight years as CEO there, he led the company to a $4 billion increase in market cap – nearly a tenfold increase in share price

In addition to his time at Ivanhoe, Kunz also founded and built US Geothermal Inc. which recently sold for $250 million… and has helped build several other mines.

It’s unusual to seeing him jump on board as the Chair of a junior with a US$25 million market cap.  BUT… Kunz has a lot of experience with gold geology in this part of Mexico. Kunz is a founding director of Chesapeake Gold, an explorer which operates right beside the Los Reyes project. 

Kunz has a great reputation.  His integrity is so high he actually resigned from Chesapeake – which has a nearby asset – when the Prime opportunity came into focus.  He has done a deep dive on the geology and loves what he sees.

Men like him don’t get involved in a company this small for something to do… they get involved because they see an unusual opportunity to generate wealth quickly both for themselves and for shareholders.

Kunz has the ability and the reputation to get a simple but highly profitable heap leach mine into production.  The Market will reward this team in advance of that.

By the way, Kunz and the entire leadership group at Prime actually don’t take a salary.  They have elected to take their compensation in the form of shares… again suggesting that they believe Los Reyes is going to make them a lot of money.

Insiders are fully aligned with shareholders and motivated to create value here in a hurry – which is why Los Reyes which can get to production quickly is the perfect project.

Joining Chairman Kunz is CEO Andy Bowering.  Andy is a successful company builder.  The last venture that he founded was Millennial Lithium (ML: TSXV) which came public at $0.15 and then rocketed to $4.62 in short order.
 
Bowering doesn’t need a job.  In fact, he used his own personal wealth to buy Los Reyes because when it became available, he had to move fast.

Los Reyes is an exceptional project for a junior gold miner.  I would go as far as saying that it is a perfect project.

Small miners don’t have the big balance sheets to fund a project with big capex. Los Reyes is so beautifully simple that all that management projects is just US$30 million of capex.

No big asset purchases or buildout, just bring in some contractors and go.

This team has already put a total TEN mines into production. Los Reyes is a small, simple but potentially very very lucrative deposit.  This team can handle that. AND… it has LOTS of resource upside.

As I mentioned $30 million of capex is all that is required to bring Los Reyes to 60,000 ounces of gold production…which management says they will aim to recover all capex spent within just 6-8 months!

 
WHAT IF I’M WRONG – THE ANSWER

 

No investment is perfect, and here is the one potential problem with Prime’s Los Reyes asset: The deposit could become too big too fast. 

You see, heap leach mines have lower gold recoveries than a more expensive mill. And only so much gold can leach out, so if you have too high a grade or a large deposit – well, a lot of that gold doesn’t get dissolved and recovered from a heap leach.

If Los Reyes turns into a major, multi-million ounce gold deposit, Kunz & Bowering  would be leaving WAY too much on the table in a quick & inexpensive heap leach operation.

Management has publicly stated that they see the potential for a multiple increase in the current resource.  Two million ounces is a target for all these juniors – that’s the minimum that mid-tier producers want to see to buy an asset.

Now folks, that is just an arm-waving number for now… BUT… there is a new resource calculation coming out THIS MONTH. (Yes I know how many days are left in February)

Only 40% of known mineral structures have been explored – there is still a full 10 km of strike length left to explore.  At the end of the day, the current $25 million EV may look ridiculously small next to the size of the Los Reyes prize.

Back-of-the-envelope-style the valuation is already appealing with Prime trading on an Enterprise Value / Gold Resource level of barely USD$20.  An argument can easily be made that the valuation should be two or three times that based on peer valuations.

IF – and it’s still an IF – this resource base jumps – then Prime’s share price would have to take that into account.  For now, the stock has a discount for being unknown and for being small.  But the stock has the potential to slingshot higher not just on more ounces, but also on a much higher value per ounce.

 
CONCLUSION – Ground Floor, Exciting Time

 

This is an exciting company and an exciting time for its shareholders. 

You see, the company and the stock are at ground floor still, as almost no new data has been released.  But Kunz and Bowering are moving very fast, and new data is pouring in.

Los Reyes is the perfect asset for this market – investors want low capex, high cash flow assets.  Chairman Kunz has the right experience to put this into production.

The possibility for quick cash flow is starting to excite investors – but this game is barely getting started.  That’s what has me excited – early days with a tight share structure and a simple business plan.

IF IF IF… all this new data turns this into a much larger deposit… well, absolutely none of that is priced in to the stock today.  That’s a much bigger win, but could take a bit longer to realize it.

The market is just catching on to this story – last week a big block of stock was transferred from a mining company to a group of investors, that took a big overhang away.

It’s as close to a perfect set up for investors as I can see.  I begged them to let me be part of the team here – because I can see A Big Win if gold prices just stay steady. 

But I think the price will go a lot higher this year – and take Prime Mining with it.

I am long Prime Mining.
 

Keith
 

Prime Mining Corporation has reviewed and sponsored this article. 
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Keith Schaefer is not registered with the United States Securities and Exchange Commission (the “SEC”): as a “broker-dealer” under the Exchange Act, as an “investment adviser” under the Investment Advisers Act of 1940, or in any other capacity.  He is also not registered with any state securities commission or authority as a broker-dealer or investment advisor or in any other capacity.