Analyst Research Report Snapshot

Title:

PMI Gold Corporation

Price:

$12.00

Provider:

Jennings Capital Inc.

Date:

14 Nov 2013

Pages:

3

Type:

AcrobatPDF

Companies referenced:

PMV.TO

Available for Immediate Download
Summary:

Q3 2013 FINANCIALS OBOTAN PERMITTING COMPLETED, BUT PROJECT DELAYED PENDING REVIEW  Cash remains a high 76% of market cap. As at September 30, 2013, PMI’s cash was C$100.5M, down from C$107.8M last quarter. However, it would not be sufficient to fund the equity portion (we estimate $170-$200M) of an overall Obotan Project cost of ~$380M, as per the September 2012 DFS.  New management has initiated a review of the Obotan Project to minimize equity dilution, by reducing or deferring upfront capex and by considering alternative funding sources. The review will consider the following: o Revised resource estimate to potentially be more conservative. The Bank lending group engineers proposed using a different resource modelling technique (multiple kriging constrained by wireframes versus ordinary kriging inside a Leap Frog envelope), to presumably take a more conservative approach. Some feel Leap Frog can overstate resource estimates by 10-20% unless carefully used. Higher cut-off grades may also be examined to assess the possibility of a smaller, higher grade deposit. The revised resource estimate should be ready in Q1 2014. o Lower upfront capex through re-tendered contracts. Management is undertaking a re-tendering of major contracts to assess whether capex costs could be lower in the current less frothy environment. Savings could be anywhere from nil to 10%. o Defer a portion of upfront capex by: a) re-engineering the pits to stage pre-stripping; b) initially displacing Nkran pit ore with nearby near surface oxide deposits, such as Dynamite Hill. The revised resource estimate will include a maiden resource estimate for Dynamite Hill, which we estimate could be in the 75,000-150,000 oz range. o Alternative funding options are being considered to reduce equity dilution, such as JVs and Asanko’s recent Red Kite financing. o All permitting (environmental and mining) received, but project review delays project. Therefore, we have pushed out the start date one year to Q1 2016. Valuation: We are revising our recommendation to SPECULATIVE BUY from BUY and lowering our 12-month target price to C$0.65 from C$1.25 per share, reflecting the negative effect of the 1-year delay to project start-up and financing risk in a difficult capital markets environment. Our valuation is based on a 0.5x P/NAV multiple.

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