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Primero Mining Corp (OTCMKTS:PPPMF) Is A Prime Turnaround Play

Primero Mining Corp (OTCMKTS:PPPMF) Is A Prime Turnaround Play
Written by
Jarrod Wesson
Published on
January 18, 2018
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Our readers will be interested in the following turnaround story. Primero Mining Corp (OTCMKTS:PPPMF), the mining operator, saw how its share price collapsed from $0.9 and hit the $0.1 share price level in less than a year period.The stock returns were quite discouraging, but we believe that the company reacted very well. It commenced a strategic review of alternatives and finally opted for signing an agreement with a vital player; First Majestic Silver Corp (NYSE:AG).In this piece, we will provide all the new details of the transaction, but first of all, have a look at the reaction of the market. From $0.1, the share price spiked up to cross the $0.2 share price level. The market participants who could get to know that the company was reviewing strategic alternatives should be enjoying the stock returns: 1-year chart for PPPMFPrimero MiningPrimero is based in Canada and runs operations in this country as well as Mexico. The company is focused on building a portfolio of high quality, low-cost precious metals assets in America by acquiring, exploring, developing, and operating mineral resource properties.We believe that the most exciting part of PPPMF is its properties. It owns two producing properties; the San Dimas gold-silver mine located in Mexico’s San Dimas district on the border of Durango and Sinaloa states, and the Black Fox mine situated in the Township of Black River‐Matheson, Ontario, Canada.Also, it has rights over two exploration properties: the Cerro del Gallo gold-silver-copper project located in the state of Guanajuato in central Mexico, and Ventanas located in Durango State, Mexico.Ths shares of the company are listed on the Toronto Stock Exchange under the symbol "P," and are also being traded on the New York Stock Exchange. Also, it is important to point out that the company also has convertible debenture trading in the TSX under the symbol "P.DB.V," and warrants trading in the TSX under the symbol "P.WT.C."What are its mineral reserves?The company is already producing. This is a fact that many market participants will appreciate, as the operating risk is much less significant than other miner operators in an exploratory stage. Check the following table taken from the company materials and focus on the proven and probable mineral reserves. Mineral Reserves - Primero Mining Corp OTCMKTS:PPPMF from http://www.primeromining.comThe company has rights to produce as much as 1.34 million gold ounces. Be sure to note that as of January 16, 2018, each ounce is bought in the market for $1,335.11.Disappointing operating results in 2016, and on February 15, 2017 - The company reacted wellThe share price seemed to decline as a result of worse than expected results released in 2016 and 2017. Additionally, the market disliked that unions commenced a strike action at the San Dimas mine. The company noted that the operations at this mine are uncertain:

"The unionized employees at the San Dimas mine initiated a strike action resulting in the complete stoppage of mining and milling activities. It is currently uncertain when the Company will resolve the work stoppage at San Dimas and as a result when it can achieve positive cash flows and profitability from operations is uncertain." AR - 2016

How did the company react?It was noted in 2017 that the company had commenced exploring alternatives to improve shareholder value. The Board of Directors was contemplating securing additional funding, strategic investments, joint ventures, and asset sales. In our opinion, the company reacted well, and rapidly. Management usually prefers to keep their jobs while shareholders lose their money in such type of situations. We appreciate that the officers of PPPMF were not selfish and thought first about the company's stockholders.The solution - A merger with another operatorIn our opinion, the solution found by the company was smart. On January 12, 2017, the company released that it had signed an agreement to execute business combination with First Majestic Silver Corp. We believe that many things will change inside the company after this transaction is executed. The San Dimas miners will have a new boss, who may be able to improve the negotiation process. Also, the new company will have much more liquidity to continue its operations.Additionally, the fact that the company will become larger will help the company negotiate with lenders. For instance, the company obtained an extension of its revolving credit facility and the related guarantee as a result of the transaction with First Majestic Silver Corp. The market should appreciate this announcement as it shows that the financial risk of shareholders is lowered.What are the details of the transaction?Primero’s issued and outstanding common shares will be exchanged for First Majestic common shares by 0.03325 of a First Majestic common share for each Primero common share. The premium being paid for the transaction is approximately equal to 200%. It was Rothschild (Canada) Inc., which provided an opinion to the Board of Directors of Primero, stating that the price being paid is fair.Regarding the most significant conditions to the merger agreement, first of all, Primero shareholders will need to vote. The merger will require approval by 66% of the votes cast at a special meeting of Primero shareholders. If the transaction does not close, Primero has agreed to pay a termination fee of $10 million to First Majestic.When is it expected to close?It is anticipated that the Primero shareholders’ meeting and closing of the proposed transactions will take place in mid to late March 2018. Be sure to study the share price closely around this date. We expect the share price to move quite a bit before and after this meeting.ConclusionCurrently trading with a market cap of $41 million, PPPMF is an exciting story among small caps. With $19.8 million in cash, $83 million in current assets, $677 million in total assets and only $216,687 million in total liabilities, the company seems quite solvent. The main issue seemed to be lack of liquid assets to finance the working capital. The new transaction was signed to solve this problem. We believe that it is a pity that PPPMF may be bought out. The company has a lot of mineral reserves and stockholders will not be able to profit from the future operations. However, in our opinion, the Board of Directors did the right thing, as the transaction seemed to be the only option for the company.To sum up, PPPMF shares may be bought by those who expect the transaction to close. In our opinion, it is likely.We will be updating our subscribers as soon as we know more. For the latest updates on PPPMF, sign up below!Disclosure: We have no position in PPPMF and have not been compensated for this article.Image courtesy of Flickr

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