Yes, I am always humble in the face of the market.
But I want to know where the market is traveling on Generation Mining? Indeed, what is the market smokin!? Are Cheech and Chong the market makers?
While this post is a bit cheek in tongue - yea pricing is so out of order "tongue in cheek" - is too rational, take a glimpse at this stock. The April 2021 presentation deck at GenMining.Com is an excellent recap.
Let's start with a bit of history.
In 2012, Stillwater sold a 25% stake in this Marathon project to Mitsubishi for $81 million. At the time, palladium was trading far below today's levels, and the opportunity was viewed as a copper mine with a palladium credit. Needless to say, though a 30,000 page study was produced, the project lay fallow. When Sibanye took over Stillwater, Sibanye became the owner, transferring its interest to the current group, but retaining a 20% JV interest with an option to increase that to 51%. (Terms and details are available on GenMining.com)
Today's market cap
There are presently 170,000,000 fully diluted shares outstanding, and with the stock at closing Friday, 4/16, at $.698 US, the market cap is $118 million.
Comparing today's market cap to the Mitsubishi purchase
Not only is the entire company now being valued at only $118 million, versus the $81 million Mitsubishi paid 9 years ago for only 25%, but palladium is now at $2700, and copper is at $4.14 a pound.
So let's look at the resource and the mine life
A feasibility study (a term of art referring to an exhaustive resource evaluation) has now been completed, incorporating the 30,000 pages from the earlier work, with new drill results, that outlines on a measured and indicated basis, 4 million ounces of palladium, 1.1 million ounces of platinum, and 1.1 billion pounds of copper, with an expected mine life of 13 years, not including significant parts of the resource that have not yet been evaluated.
Well, that is a lot of merchandise.
Net Present Value
The projects NPV using $2395 palladium and $3.99 copper is $2.07 billion Canadian (about $1.6 billion US), with an IRR of 47%. (Yes, for decision purposes, the Board is using lower metal prices, but still achieving a 30% IRR.)
Infrastructure
The project's infrastructure, from power, to roads, to port, airport, labor and nearby major town is remarkable.
The team and the Board
First class and experienced. Check out that deck I have referenced.
Production and profitability
The mine will be open pit, with initial capital costs of $664 million Canadian. Permitting, funding and building a mine is always an uncertainty, but this is a very high quality asset, trading at a very cheap price, and can be in production as soon as 2023 with Life of Mine All In Sustaining Costs (LOM AISC) of $809 Canadian per ounce and a very short payback.
Sponsorship
Meanwhile, sponsorship doesn't get better. SIbanye Stillwater, Eric Sprott and Lukas Lundin each own 8%, and Osisko owns 4%.
And the portfolio is pure green
Palladium, the platinum group metals and copper are all metals for today's green world, and have challenging supply fundamentals with massive and building demand. Palladium is in significant deficit and the problems at Norilsk relating to the thawing of the permafrost compound this shortfall and are likely to continue to escalate, over time, with significant impact on production. And Jeff Copper, (well I should say, Jeff Currie of Goldman Sachs) is, rightly so, a major copper bull.
Conclusion
The fair value for the stock today, in my view, is multiples above where it is trading. I suppose this can only be discerned by looking thru the fog of the market (whether produced by puffs and exhales from Cheech and Chong), or some other nebulae. I encourage you to put on your night vision goggles, and see what they reveal.
The graphic on page 26 of the April deck underscores that Generation Mining is trading at only 21% of its NPV (using the lower metal values), vs an average for gold and pgm companies that is dramatically higher.
Whatever the market is smokin, I continue to buy, and given the in-ground resources, view the downside to be fundamentally very limited! :-)
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