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 Tue Apr 6, 2021
Tracker: What's Next for Perpetua Gold Corp
    Publisher: Kaiser Research Online
    Author: Copyright 2021 John A. Kaiser

 
Perpetua Gold Corp (PPTA-T: $7.970)
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Tracker - April 6, 2021: What's Next for Perpetua Gold Corp

Perpetua Gold Corp, formerly Midas Gold Corp following a 10:1 rollback, is a Good Spec Value rated 2021 Favorite as of December 31, 2020 and confirmed in SVR Overview Apr 6, 2021 on the basis its 100% owned Stibnite gold-antimony project in Idaho which is in the final stages of a permitting cycle initiated in 2016. The Draft EIS was filed by the USFS in August 2020, the comment period ended late October 2020, a positive feasibility study was delivered on Dec 22, 2020, and we are now waiting for the USFS to file the Final EIS which will also establish the mining plan on which a Record of Decision will be based. The timeline indicated by the USFS is for the Final EIS and Draft Record of Decision to be filed in Q2 of 2021 which will kick off an objection period limited to followup of comments lodged during the DEIS comment period. During H2 of 2021 we can expect a Final Record of Decision which defines the approved mine plan that will become the basis for the final permits required to start construction. At this point Q1 of 2022 is when we expect everything to be in place to determine whether Perpetua gets bought out by a major or is forced to develop Stibnite on its own.

In terms fundamental news flow there is nothing left in the pipeline; everything is permitting related. On Jan 15, 2021 Perpetua received approval from the EPA, USFS and Department of Justice to proceed with restoration activity at Stibnite. That was an important milestone because it declared that Perpetua was not legally liable for the legacy mess created through past mining operations. On Feb 17, 2021 the Nez Perce Tribe, which had filed a Clean Water Act lawsuit claiming that Perpetua was responsible for all downstream contamination arising from the legacy Stibnite operations, agreed to a 3 month stay of their lawsuit to allow pursuit of a court ordered dispute resolution process. Given that Perpetua has been deemed not responsible for the Stibnite site it owns, it is hard to imagine how any court would assign liability for downstream damage. However, the rights of the Nez Perce Tribe were treated pretty shabbily during the second half of the 19th century, especially after gold was found in Idaho, and their grievances do get exploited by anti-mining NGOs, so a positive resolution of their lawsuit would be an important milestone.

The permitting is run by the US Forest Service which is part of the Department of Agriculture rather than the Department of Interior now headed by Deb Haaland, a Native American, which has jurisdiction over the BLM and has ordered that all permitting decisions must be run through a political appointee. This order is apparently aimed at fossil fuel related permits which were a much greater passion for Trump than the mining sector whose Pebble copper-gold project in Alaska went nowhere during his term. The pricing of Perpetua will be a function of mine approval expectations and the price of gold.

The outcome of the FS was excellent, clearing key development hurdles at the $1,600 base case gold price, which was at a discount to the market price for gold compared to the PFS whose base case price was at a premium to the market. The stock at the time of the FS was off about 40% from its July 2020 peak when gold breached $2,000, and has done poorly since then, making this 2021 Favorite one of my worst performing picks. One reason is the antipathy that has developed toward gold as a result of the celebration of Bitcoin as the "new gold". This will be a lingering problem until gold develops an uptrend or stabilizes. In my DCF model which mimics the FS Stibnite has an NPV/per share target range of CAD $23-$34 (10% to 5% discount rate) at $1,728 gold, jumping to $53-$68 per share at $2,500 gold.

Another reason is that institutional investors are not impressed by John Paulson's remake of the board and management; this could have waited until the Final EIS was issued. I suspect the changes were triggered by a childish response to the failed "stop the steal" campaign. It is important to understand that Paulson & Co is no longer a hedge fund; redemption runs have turned it into a family office, so Perpetua's destiny is now in the hands of single individual with a board consisting of his appointees. This represents a corporate governance risk and my biggest fear is that Perpetua gets absorbed by one of Paulson's weaker gold companies.

The third reason is that John Paulson has been a vocal Trump supporter, and although Idaho is a Republican stronghold, the USFS is a government bureaucracy. There is thus a risk that the approval process for a mine that will overwhelmingly benefit an unrepentant Trumper slows to a crawl. That is what in my view the market is suggesting; Perpetua is a bet that science and rule of law, not politics, will continue to drive the Stibnite permitting cycle toward a timely Final Record of Decision that kicks off a buyout auction for Perpetua Gold Corp in 2022.

The final reason for market weaknesses is a short form base shelf prospectus Perpetua has filed which allows it raise up to USD $100 million via various types of securities. Perpetua had USD $22 million working capital left at the end of 2020, so institutional audiences will likely wait for a financing to get positioned. With the rollback and NASDAQ listing Perpetua can now be bought by the younger generations who use Robinhood as their trading platform. But attracting their attention may require that Bitcoin stop trending higher.

 
 

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