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8/17/17

The buy theory on Primero Mining (P.to) (PPPMF)

A classic rubbernecking car crash scenario, it's tough to keep one's eyes away from Primero Mining (P.to) (PPPMF, which used to be PPP until the USA rightly pulled the plug on the main listing...in fact beats me why Canada hasn't put it back in the TSXV yet) at the moment. But there is at least a theory on buying the stock now, something I would NOT recommend until the potentially positive news shows up but as the stock gets cheaper and cheaper, it's starting to nudge the brain cells here at IKN Nerve Centre. The buy theory got a mention in the last paragraph of the short note on P.to in IKN430 in fact, out last Sunday.  Here's that piece.



Primero Mining (PPP) (P.to) sells Black Fox to McEwen Mining (MUX)

On the blog last week I had fun with the declaration of Primero head man Conway that, “…the divestiture of Black Fox is consistent with our previously disclosed strategic review process to maximize value for shareholders” (11), because it looks ridiculous on several levels. For one the share price collapse of the company in recent times. For another the whole way they buy Black Fox in the Brigus deal for C$220m, spend around $35m net on the asset and then less than four years later sell it to McEwen Mining for U$35m (not to mention losing Renaud Adams, who hated the Brigus deal and as a result left Primero, joined Richmont and made his new place a great success). It’s an unmitigated disaster, but in truth I do actually understand what CEO Conway was talking about.



I’ve been back to look at the PPP numbers several times in 2016 and 2017 as the stock got cheaper and cheaper and, as anyone obsessed with balance sheets could have told you, it was only a matter of time before the company collapsed completely. That in turn meant that before the announced deal last week, the company’s equity value (i.e. its share price) was still being overestimated by the market. Conway also knew this, which is why he agreed to sell Black Fox on the cheap and offload the liabilities that go with the mine, because if he didn’t PPP was on a one-way street to default. So yes, Conway was in fact true to his word about maximizing shareholder value because if he hadn’t made that distressed sale, it was only time between PPP and a zero cent share price.



On the subject, there is talk that PPP is in talks with Wheaton Precious Metals (WPM) in order to renegotiate its streaming deal on San Dimas. This alone won’t get the company out of the woods (they still have serious operational and worker relations issues at the mine) but if we see a deal announced PPP could suddenly become a buy.

Full disclosure: No position at all in Primero.

UPDATE: Regular maipal 'MP' writes in and goes the sardonic route:

Fishing > Capital Markets.