- Increasing Gold Assets
- Considerable Upside
The gold and silver market looks to be bullish, as I argued in my last article (1), and others, such as Boris Mikanikrezai (2) have also argued. It is an excellent time to buy into the gold and silver sector and one of the best long-term silver plays may be First Mining Finance Corp. (TSX: FF, OTCQX: FFMGF, Frankfurt: FMG).
First Mining Finance was founded by CEO Keith Neumeyer, who has a strong track record of building multi-billion dollar companies. He has bought unloved mining projects at the bottom of bear markets and then reaped massive profits when markets recovered.
Neumeyer founded First Quantum Minerals in 1996 when copper was trading at times below a dollar a pound. He bought several Africa copper assets in Zambia, the Democratic Republic of Congo, and Mauritania. Today the company is one of the largest copper producers in the world and is valued at $14.5 billion.
In the early 2000s, Neumeyer founded First Majestic Silver, when silver was trading at $5/ounce. He bought four silver mines in Mexico at a time when there was almost no competition for their purchase. First Majestic is now the second largest silver producer in Mexico and has a market cap above $3 billion.
Patrick Donnelly is the President of First Mining Finance. With his extensive resume including 20 years of experience in mining, he could have joined any company. He was a mining analyst for four years, covering mining equities. During that time, he has said that he learned that a key factor in determining which companies flourished and which failed was leadership. He said in a interview, “In mining, which is a very risky industry, the most successful companies have very strong management team with a track record of success.” (3) He joined First Mining Finance Corp. because he knew Nuemeyer and his success with First Majestic and First Quantum. Neumeyer, Donnelly said, has had “tremendous success building companies. You want to work with people like that, people who have a track record.”
Neumeyer also has proven he is a good bottom picker. In an interview with King World News on September 13, 2016, he said, “You never know exactly when valuations are going to turn around,” but sooner or later they do. He said, “We are in a great position to take advantage of an improving environment.” He stressed that the company doesn’t need $1500 or $2000 gold to turn it into a multi-billion dollar company. They just need to educate the market and start to develop their assets. (3)
That top-notch leadership is shown by companies wanting to join or partner with First Mineral Finance. Donnelly said, “It makes it a lot easier to do deals.”
Increasing Gold Assets
In 2015 during the severe bear gold market when gold could be bought in the ground for less than $10 per ounce, Neumeyer founded First Mining Finance Corp. The company planned to buy mineral assets at low prices. It went public in April 2105 with zero gold in the ground and during its first 14 months, First Mining Finance made 8 acquisitions, which included 12 projects in mine-friendly North America. By September 2016, the company had 14 million ounces of gold in all categories. The company’s market cap was $370 million and all of its projects were economic grade, established resources and had existing infrastructure.
By March 2017, the company’s market cap had risen to $570 million with 7 million ounces of measured/indicated resources, and 5 million ounces of referred gold in the ground. In Ontario, the company owns almost every single gold development that isn’t owned by a senior gold mining company.
Donnelly said First Mining Finance offers “considerable upside.” The company bought most of its assets for about $10 an ounce, yet the market values those assets at about $3 an ounce. Therefore, he feels, those assets are clearly undervalued. He expects valuations to go to $100 an ounce.
With few new gold strikes, First Mining Finance is ideally situation to reap the benefits of any future rise in gold prices. First Mining Finance has a significant amount of gold in the ground, in politically safe North America, which can be used to generate income through asset sales, spinouts, royalties and/or metal streams.
The company has $19 million (Can) in cash and in the past couple of years has done an incredible amount of work preparing their projects to produce. The firm has conducted 20,000 meters of drilling at their Goldlund project comprising 100 holes; 87 holes had significant gold mineralization.
First Mining Finance also updated its Preliminary Economic Assessment (PEA) for the Springpole project. The project appears to be very economic with an after tax rate of return of 26% and a net present value of $800 million US. The project is predicted to produce 300,000 ounces of gold per year at a cost of about $600 per ounce US. Donnelly said, “It’s a very robust project.”
Neumeyer said, “Once the market starts to appreciate what we have accomplished and the quality of our assets, the value will rise.” It just “takes time and money to build a multi-billion dollar company.”
In Neumeyer’s view the stock trades for next to nothing. He said, “I did this to create a billion dollar plus company and the shares are going to be up substantially. . ..We will hit a parabolic trend at some point,” maybe up to $5000 gold.
He may not be far off. During the last bull market gold traded at $250 an ounce and rose to $1900 per ounce; an eight fold move. If the low during the last 5-year bear market was about $1050, an eight-fold move would mean gold trading at $8000 per ounce.
If gold makes such a move, Neumeyer argues, “Shares of FMFC and other mining companies with good people and good assets will outperform other firms by 2 or 3 times or more. I’ve seen it happen before.” His Quantum Minerals went to $140 per share when copper was over $4. He said, “It’s hard to predict how crazy the market will get, but. . .I believe we have the best gold portfolio in the industry.”
First Mining Finance also offers diversity. The company has 28 assets, which is diversified by assets, by jurisdiction and by stage. Donnelly said, “It’s almost like an ETF, or private equity for the little guy.
*Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts.