Gecko Investor Group

$PGLD.v (P2 Gold): Sentiment in the precious metals sector is subdued right now and an increasing number of voices have emerged calling for much lower gold and silver prices. That’s not my base case scenario, but for illustrative purposes let’s check where PGLD stands in a bearish price scenario (always helps to look at the downside). The answer: PGLD is undervalued even at much lower PM prices. The numbers: Based on the new mine plan with an average annual production of 150 koz Au and 50 Mlbs Cu and assuming metal prices of USD 2,350 for gold and USD 4.5 for copper, PGLD’s AISC net of copper by-product credits should not exceed USD 750/oz even when accounting for some cost increases compared to the PEA opex numbers. An average gold production of 150 koz/y at USD 750 AISC (by-product) will allow PGLD to generate an annual after-tax FCF of USD 140M = CAD 196M at the aforementioned metal prices. Assuming a fully diluted share count of 420M shares post construction funding (the target is between 400M and 450M shares), an annual FCF of CAD 196M translates into a P/FCF of only 2.5x. Forward EV is a bit more difficult to project as it will depend on the funding structure for the pre-production capex. However, even with conservative assumptions the forward (2029) EV/FCF is only 5.2x at the aforementioned metal prices. With a project that has lots of potential for further growth and is located in a tier-1 jurisdiction, PGLD should trade at least two turns higher when in production, i.e. 7.2x EV/FCF, which implies a market cap that is more than twice as high as the current fd mcap and almost 80% higher than the fd mcap with a post-production share count of 420M shares. Finally, looking at NPV instead of cash flow multiples confirms the cheap valuation even in a bearish metal price scenario (2,350 for gold and 4.50 for copper). In this scenario NPV5 is above USD 1 billion = > CAD 1.4 billion based on the new mine plan with an average annual production of 150 koz Au and 50 Mlbs Cu. Considering the quality of the project, the growth prospects and the tier-1 jurisdiction, PGLD should - conservatively - not trade lower than 0.8x NPV5 = CAD 1.12 billion when Gabbs is in production. That’s more than twice the fully diluted mcap with a 420M pro forma share count and higher than the forward EV when first gold will be poured. In summary, the project economics of Gabbs are so good that PGLD - on a forward basis - remains undervalued even in a scenario of much lower metal prices (2,350 gold and 4.5 copper). Not many PM developers/producers can claim that for themselves.