Jeff Killeen: Cash And Catalysts Rule The Day

TGR: Boston-based Liberty Metals & Mining Holdings recently took a position in Pretium. Does the market see that as a vote of confidence in Brucejack?

JK: That type of investment often gives investors the idea that there is further financial support available for an asset like Brucejack. That builds some confidence from the market's perspective that Pretium will be able to find financing to move the project forward. But no single investor investing in an asset could build full confidence in any one project. It's a positive step, yet many other pieces would have to fall into place to get a complete stamp of approval from the market.

TGR: Is Pretium fairly valued?

JK: We rate it a Sector Outperformer so we think it's certainly a stock with upside. At CIBC we have taken a more conservative approach to modeling Brucejack and the Valley of the Kings deposit relative to how the company designed its feasibility study. Even so, our net asset value (NAV) for Brucejack alone is north of $11 based on Pretium's current share count. I would note, though, that a takeout premium is priced into our $11.50 target because most stocks in the junior space are trading in the 0.4-0.6x NAV range. In order to build and sustain a significant takeout premium, Pretium will have to undertake a few more derisking steps over the next 12 months.

TGR: Please tell us about some other recent visits.

JK: I recently visited its Premier's Hardrock project in northern Ontario. Similar to my trip to Pretium, I was looking at how the geology and mineralization on surface compares to the company's estimates. Premier has exposed some of the geology on surface and interpretations of that geology based on computer models are being validated through surface sampling. Also in focus were some steps it is taking toward producing a feasibility study early next year.

Premier has done a lot of geotechnical drilling over the last year and found that it has good rock stability, so it's likely that we'll see slightly steeper pit walls in the feasibility study relative to the PEA of January 2013; this could improve the overall strip ratio and improve costs. The bottom line is that Hardrock is certainly the company's focus. The work the company will do over the next 6 to 12 months should at least marginally improve Hardrock's economics, which could bring people's eyes back to that project.

TGR: What's Premier's likely course with Hardrock once the feasibility is published in 2015?

JK: Once it gets Hardrock past the feasibility stage, Premier must seriously consider how it would finance a mine. Financing this mine will be one of the bigger challenges Premier faces. Hardrock is a "modest capital expenditure" project in the range of $500 million and it could be attractive to a midtier or senior producer because the cost is not in the billions.

TGR: Does Premier Gold Mines President and CEO Ewan Downie still see himself as an asset developer or is he thinking about becoming a miner?

JK: With senior management additions like Chairman Ebe Scherkus and a number of other engineering and resource-modeling professionals, we can see that this company is transforming. Ebe and the team that Premier has brought in are focused on properly designing Hardrock and are moving that project through the development phase. But this is still a junior exploration company. If its project looks attractive from an M&A standpoint, I expect that Premier would be willing negotiators provided that the numbers make sense.

TGR: Perhaps maybe one or two more recent site visits.

JK: Sure. Every year we have a mine tour that goes across the Abitibi in northern Ontario and Québec. I visited a number of sites including Primero Mining Corp.'s (PPP:NYSE; P:TSX) recently acquired Black Fox gold mine. That's certainly a big part of Primero's story in 2014. It went from owning a single asset—the San Dimas mine in Mexico—to being a multi-asset company with Black Fox. Primero has some work to do at Black Fox in getting development meters completed and underground production back to mid-2013 levels.

The larger part of the story—and what the market is really paying attention to—is the current drill program. The mine life at Black Fox is just over five years. Primero is drilling down dip from the main ore body at Black Fox with the goal of adding to the overall resource. Drill results released since Primero acquired the asset in 2014 suggest that the resource will grow, but the company will need to finish the current drilling campaign to get a better understanding of the resource growth potential at Black Fox.

TGR: That's the near-term focus. Do you see Primero continuing to consolidate that camp given Black Fox's proximity to other assets?

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Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining ...

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