First Mining Gold Corp (TSE:FF) (OTCQX:FFMGF) is undoubtedly sitting on valuable assets but two major transactions announced in June this year have really shone a spotlight on the group's value potential and transformed the scope of this Canadian gold developer.
Add to that, these deals also now see First Mining financed all the way to completion of the Environmental Assessment process on one of the largest undeveloped gold projects in Canada - Springpole in northwest Ontario - and you begin to see why management is keen to get the firm's growth message out there.
The company was founded in 2015 and has swiftly put together a portfolio of what is billed as the best group of quality gold development assets under one company's roof, but the current share price does not reflect this, explains chief executive Dan Wilton.
The first of these major deals, announced in early June, will see Treasury Metals (TSE:TML) acquire the company's Goldlund gold project in Ontario. Combined with Treasury's Goliath project, just 25 kilometres away, it establishes a district-scale, multi-million ounce gold project pointing towards construction.
The second transaction centred on the globally significant Springpole gold project, a potential open pit capable of churning out 400,000 ounces of the yellow metal a year.
First Mining announced a US$22.5 million silver stream funding deal with shareholder First Majestic Silver Corp (TSE:FR), which will give it enough capital to advance Springpole through to 2023 and complete a pre-feasibility study and environmental permitting.
Lots of room for upside
Wilton points out how these two projects alone (Goldlund and Springpole) should trade at between 0.5 times and 0.7 times their net asset value when they are permitted, but First Mining is currently trading at around a multiple of just 0.1 times so "there's lots of room for upside".
He explains how Springpole is clearly the group's largest value contributor, with an indicated resource of approximately 4.7 million ounces gold, but by leveraging value elsewhere in the portfolio, it should give the market more confidence that down the track Springpole can and will be advanced to a construction decision.
"We think Springpole is going to look like a project, that when compared to comparable assets of a similar size, it's going to look like one of the most robust potential large producing gold projects in Canada, maybe in the world," says Wilton.
First Majestic will pay First Mining a total of US$22.5 million for the right to purchase 50% of the silver produced from Springpole over the project's life.
Broker Cantor Fitzgerald recently noted that the deal removes the near-to-medium-term financial overhang for the company. It should also not encumber the project itself as the stream is on the silver, which is a minor by-product metal, at around 5% of revenues, noted analyst Matthew O'Keefe.
In addition 50% of the stream can be bought back, which the Cantor analyst expects will be exercised by First Mining, while equity dilution for shareholders will be minimized which is "prudent" given that the firm trades at a steep discount to its net asset value (NAV).
O'Keefe put an after-tax value on Springpole of US$1.1 billion, based on its preliminary economic assessment (PEA) in 2019 and the broker's long-term gold price estimate of US$1,800 per ounce.
Cantor sees the Springpole mine producing 315,000 ounces of gold and 1.7 million ounces of silver annually with all-in sustaining costs at a competitive US$647 per ounce.
Together is better
Meanwhile, in the other deal, the group's Goldlund asset houses 809,200 ounces of Indicated gold and 876,954 ounces in Inferred, while Treasury's Goliath open pit project has a nearly 1.2 million-ounce resource.
Combined, the two pack a far greater punch and will represent one of the largest undeveloped gold assets in Canada. As well as a 3 million ounce gold development project, Wilton says there is exploration potential too in what he believes is a five million ounce plus district.
First Mining will receive 130 million in Treasury Metals shares, 35 million 3-year warrants with a strike price of C$0.50 per share, a 1.5% net smelter royalty (NSR) on Goldlund, and various milestone payments related to advancing the project.
Cantor analyst O'Keefe, in a quick model of the value of the combined assets, pegged the net present value at C$677 million based on a mine producing 137,000 ounces of gold equivalent and all-in-sustaining-costs of under US$1,000 per ounce.
The analyst also noted that assuming First Mining follows through and distributes 70 million of its shares and 35 million warrants to bring its holding in Treasury to just under 20%, shareholders can look forward to receiving Treasury shares and warrants worth about $0.05 a share within the next 12 months. So more valuation creation.
"If people get to understand what we think the combined Goldlund and Goliath projects could become that should have a value. The company is very attractively valued relative to its peers," says Wilton.
He notes that the Goldlund and First Majestic deals demonstrate that First Mining has the "financial flexibility" to take Springpole all the way to a construction decision.
So it has certainly been an exciting June for the company with plenty more to come over the next few years. And with gold price strength showing no signs of letting up any time soon, this could be one gold developer to closely keep an eye on.
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