First Mining: Unconventional Play

10/24/2016 10:00 am EST


Gavin Graham

Chief Strategy Officer, INTEGRIS Pension Management Ltd

With political uncertainties rising and currencies under pressure, it makes sense to look at gold again. I'd like to add another stock that represents a different and unconventional way to play rising precious metal prices, explains Gavin Graham, contributing editor to Internet Wealth Builder.

First Mining Finance (TSX: FF; OTC: FFMGF) seeks to acquire high quality mineral projects that have had millions of dollars invested on exploration and development. The exceptionally severe bear market in junior mining stocks over the last four years made this possible.

The plan was to use management's expertise to acquire and hold assets until First Mining — with a market cap of $1.6 billion — is able to monetize them in the form of resales, joint ventures, royalty structures, or a combination of all of these.

The success of this model obviously depends upon the management having credibility. It does. The company chairman is Keith Neumeyer, founder of both First Quantum Minerals and First Majestic Silver, of which he is currently president and CEO.

Its CEO is mining engineer Chris Osterman, whose 30 years of experience include major discoveries in Mexico, Bolivia, and Mongolia.

Having raised $36 million in April 2015 through its listing on the Toronto Venture Exchange, First Mining wasted no time in using its shares as acquisition currency.

In eighteen months, it has used its shares to acquire measured and indicated reserves of 6.55 million oz. and inferred reserves of 3.54 million oz. That gives it a market cap of $440 million at $0.80 per share.

Furthermore, it has been bargain basement shopping, with the acquisitions bought at a price averaging $8.03 per oz. of gold, compared to their valuation of $31.40 at First Mining's present share price.

All of its acquisitions are good quality properties, in politically stable, mining friendly jurisdictions. They are low cost to maintain while negotiations to realize their value take place and have been acquired at once in a generation low prices of under $10 per oz. of gold.

There are risks; First Mining is not an operating company and has no source of revenue other than its ability to issue shares, although it also acquired $14.5 million in cash through its acquisitions.

As a development company there is no dividend, although the management's intention is eventually to pay one, once its projects have been monetized.

First Mining Finance is a Buy for leveraged exposure to rising gold and precious metal prices, through a portfolio of good quality, low risk mining assets acquired at very low prices.

However, because of the nature of the business and the volatility of the gold market, this investment is only recommended for those who can tolerate risk in return for potentially high rewards.

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By Gavin Graham, Contributing Editor to Internet Wealth Builder

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