Take physic, pomp

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.

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:

been away at the fish camp all summer and thus haven’t been following
the markets. I see P is up 25% today on no news; must be some good news

Cheers, M

PS — When did they do the stock split? I must’ve missed that too…

Fishing > Capital Markets.

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