Premier Gold Mines Consolidates Control of Potentially World-class Cove-McCoy Project

Premier Gold is a North America-focused exploration and development company with gold projects located in Ontario as well as in the heart of Nevada’s Carlin and Battle Mountain trends. According to Tuesday’s release, the Cove-McCoy mines have been quite productive in the past, turning out roughly 3.3 million ounces of gold and 110 million ounces of silver in the 20 years between 1986 and 2006.

Good news

Premier Gold’s president and CEO, Ewan Downie, commented on the deal in Tuesday’s press release, stating that the “[t]erms of the agreement support a common sense first step toward building a long-lived gold and silver-producing asset that is very attractive for our shareholders. This important acquisition secures for Premier a 100% interest in a substantial and complementary land package located in the heart of one of the world’s most prolific gold districts.”

Analyst Rob Chang of Cantor Fitzgerald also views the deal as positive. He said, ”[w]e believe the consolidation of the project and the elimination of back-in rights to Newmont gives Premier full control of a potentially world-class project.” Echoing that statement, Hebba Investments (writing for Seeking Alpha) said that the transaction “should be noted by investors because it obviously removes Newmont from the picture in terms of buying out the property.”

Hebba also suggested that Premier may be looking to “become a mid-tier producer by developing multiple properties in parallel,” also stating that the transaction is interesting in that it illustrates confidence from Premier’s management in the Nevada properties. “We think investors should take this transaction as bullish news for the company,” Hebba concluded.

The deal

Under the terms of the agreement, Premier will make staged payments totaling US$21 million (plus bonding) to Newmont over the course of 18 months. Of that total, $15 million will be paid on signing, and will transfer to Newmont all land sections that comprise its South Carlin project. However, Chang noted that “Premier does maintain a 1.5% NSR on the South Carlin property interests.”

Also, Chang pointed out that key parts of the agreement are the elimination of ”back-in” rights previously held by Newmont and the reduction of the royalty terms held by Newmont from a “potential” 5-percent net smelter royalty (NSR) to a 1.5-percent NSR. Those points give Premier consolidated ownership of the property, meaning it can now explore the area for near-surface heap leachable mineralization. Premier will prioritize any such areas for rapid development.

Attractive economics

Of Premier Gold’s commitment to pursuing a heap leachable, open-pit operation, Chang stated, “[w]e estimate that production could begin as early as 2016 but work needs to be done before we would consider adding this to our model.”

Still, bringing a heap leach project online has just become significantly easier for Premier with the signing of Tuesday’s deal. The company has acquired existing infrastructure, including lined heap leach pads, from Newmont, and the deal includes “a commitment from Newmont to process ores that might be mined at the property over a 10 year period at predetermined toll rate calculation,” according to Premier’s release. Certainly, Premier was not remiss in labeling the agreement “capex-friendly.”

All in all, Chang has given Premier Gold a “buy” recommendation with a target price of $4.10. To be sure, interested investors will want to keep an eye on the company to see what it turns up over the course of its exploration/production evaluations at the Cove-McCoy properties.

Premier Gold’s stock bumped up yesterday, and today saw a modest rise again. At close of day on Wednesday, shares of the company were up 1.69 percent, trading at $3.01.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.