VSA Morning Miner, 16/06/20
Prime Mining (LON:PRYM)
Prime Mining (LON:PRYM) has completed a fundraising of C$10m via the issue of 20mn shares at C$0.5/sh., this will enable the company to commence the planned exploration and development work programmes for the Los Reyes project in Sinaloa, Mexico. In addition, the company has announced changes to the executive management team and Board of Directors.
Executive Chairman, Dan Kunz, has been appointed CEO, replacing Andy Bowering who moves to Executive Vice President; both remain on the Board. Murray John, who was recently announced as a new Director moves to Chairman of the Board. Mr John was formerly CEO of Dundee Resources and has been involved in the resource investment industry since 1992. PRYM has further strengthened its Board and advisory team with the additional appointments of Paul Sweeney and Marc Prefontaine who replace Gregory Liller and Jorge Ramiro Monroy. Mr Liller remains COO.
Paul Sweeney is currently a non exec Director at OceanaGold Corporation and Adventus Mining Corporation having previously been on the boards of multiple companies taken out by majors including Canico Resource Corp and Sutton Resources. The former acquired by Vale for C$870m and the latter by Barrick Gold Corp. for C$350m. Marc Prefontaine, as well as bringing technical expertise as a geologist also brings strong capital markets experience having overseen the development of Grayd Resources, as CEO, from discovery to sale to Agnico Eagle for C$275m. Grayd developed the La India mine in Sonora, Mexico; the neighbouring state to Sinaloa. The final new addition is Kerry Sparkes, an experienced geologist who recently stepped down as VP Geology for Franco Nevada.
The initial management team has built the foundations for a serious junior mining company having identified and acquired an attractive project for minimal cost. Our recent initiation note (please click here) highlights this potential while the recent fundraise and strengthened board both in terms of capital markets and technical experience provides validation of that potential and demonstrates management’s intent, in our view.
PRYM has also used the fundraising to renegotiate the option payment and acquisition terms with the vendor Vista Gold. As well as an accelerated final option payment of US$1.5m by the end of Sept. 2020, which will give PRYM 100% ownership, the vendor has agreed to cancel all ongoing net smelting royalties and back in rights for additional payments totalling US$2.1m. We believe that the simplified ownership structure will positively impact the long-term value of the project as well as providing near term clarity for shareholders.
Funded and with a strengthened board, PRYM will now seek to build on the recently upgraded resource of 1.1mnoz AuEq grading 1.27g/t AuEq. We see significant exploration upside from drilling out the lateral extent of current known mineralisation and drilling to depth given that to date drilling has largely been capped at 150m and mineralisation remains open at depth. Additionally, as the first company to systematically sample the project area with soil sampling, mapping and trenching the company has identified a number of large and untested new structures which could add significantly to the current near surface resource which has strong grades for both gold and silver.
Our recent initiation indicated a peer group average EV/Resource value of US$104/oz with PRYM trading on US$41/oz currently. Although the discount implies significant upside based on the current resource, given the exploration potential, strengthened management team and cleaner corporate structure, the implied valuation may well prove to be conservative.
We reiterate our Buy recommendation and C$2.08/sh. target price.