Hi all, as someone mentioned on HC a few months ago, holding PGI has been a frustrating experience in terms of the potential of the company versus the problems encountered and time lost.
I continue to be a reasonably confident long term holder and have topped up at current prices. IMO the potential upside justifies the risk and the current share price largely reflects the worst case scenario.
The immediate downside is that the company’s intention to raise $5 million by the end of April, and a further $5 million in September will lead to dilution. I do have some hope that funds may be raised by debt, rather than by issuing more shares and dilution, and that the share price may have improved by September. Regarding the April $5 million fund raise, I am intrigued about the lack of news. It’s apparent that there is not time for a general share offer, maybe just to sophs or institutions, or maybe it will be debt? Time will tell. Assuming worse case that the company issues 250 million shares at 4c to raise the $10 million, present holdings of 773 million shares will be diluted by one-third. Not pretty.
As mentioned numerous times here, the potential upside relies fairly and squarely on getting the gold recovery rate up to overall spec of circa 70%. This means 83% flotation recoveries and 83% CIL recoveries.
In the month of December 2013, the gold flotation recovery was 79.3%, up from 75% in November and 74.4% in October. Given this trend, and the installation of the plant feed thickener, it seems likely 83% flotation recovery will be achieved. The, literally million dollar question, is whether the CIL recoveries can be sufficiently improved by the installation of the plant feed thickener, the additional tank and insulating the existing tanks (scheduled for completion June/July). The CIL gold recovery rate for the December 2014 quarter was only 63.2%, so there is a lot of improvement needed. We will not know the outcome until around September 2014.
Long term, if the CIL recoveries improve to spec, from 2015 PGI should make a profit of US$55 million a year, enough to pay debt and maintain or slightly improve the current share price, although returns will be limited as the Las Lagunas resource will be exhausted in 2019.
The real potential unlocked by improved CIL recoveries is it will allow the company to lock in the profitable additional feed sources that have apparently been located. Understandably, this cannot be progressed in a concrete way until on-spec recoveries are achieved, or failing that at least a decent and profitable recovery rate is established.
Recent company reports and presentations have mentioned a number of additional feed sources and that they could be profitable taking into account concentration and transport costs. The company update on 24 February 2014 is very upbeat, mentioning potential sources that could be concentrated to 50g/t, and when mixed equally with 10g/t Las Lagunas concentrate, potentially trebling gold output. The Las Lagunas tailings dam has capacity for a further 15 years (January corporate presentation). The cost of sourcing, concentrating and transporting additional feedstock has not been stated and could be high, but should this be achieved even to the extent of maintaining $55 million pa profit levels, the company would be valued on a long term basis. At US$55million pa profit at 6x PE, the company could be worth $310 million, or roughly 10 times the current value. If gold output could be increased relative to the additional cost of acquiring and processing the additional feed stock, as seems highly likely from the comment in the 24 February company report about the potential for additional feed sock “trebling of output and substantially lower processing costs per ounce”, or if POG improves, the value of the company could further increase. In more recent company reports, the prospect of building an additional plant has also been floated. Finally the company holds a number of exploration concessions.
In the upcoming quarterly I am looking for: - The plant ran at nameplate throughput for the quarter with nothing breaking - Flotation recoveries of 83% - Installation of the thickener, insulation and extra tank is on track cost and time wise - Processing costs are steady at around $31 million a year - An announcement about the $5 million fund raise that hopefully minimises dilution.
Bonuses would be: - Flotation rates over 83% - Some small interim improvement in CIL recovery rates,from steady state processing - Information about additional feed stock including Govt approval to import it, progress in establishing the concentrating and transport costs involved and plans for test work to confirm the suitability of the additional feed stock and the g/t that could be achieved by the Las Lugunas plant.
Condolences to the family of the worker recently killed.
IMOO, DYOR
PGI Price at posting:
4.0¢ Sentiment: LT Buy Disclosure: Held
(20min delay)