Palisade Research - Thu, Jul 20, 2017

(V.PBR) Para Resources - Randy Martin, The Most Prolific Mine Builder In The World, At It Again

photo of a forged bar of gold

Current Price: C$0.18
Shares Outstanding: 134.8 million
Market Capitalization: C$24.3 million
Cash: ~C$5.4 million

Para Resources expects to produce 14,000 ounces of gold in 2017, 31,200 ounces in 2018, and 41,000 ounces 2019.

This aggressive growth profile is very achievable due to the past success of Para's management team in terms of company growth and mine building.

Para Resources was founded by Geoff Hampson, Randy Martin, and an experienced management team who have invested more than US$10 million to date to fund the company. In fact, management now owns 75% of the shares outstanding and have opted for a pooling and lock-up agreement where no shares can be sold.

Geoff Hampson founded several private and public companies since 1978, including Peer 1 Network, where as CEO, he grew annual revenues to $130 million before selling the company for $565 million.

Randy Martin is an accomplished mine builder and an expert in Latin and South American production, having built and sold several high-profile mines.

His career includes building the Hemco Mineria Responsible del Siglo XXI in Nicaragua. The mine was a 1,200 tpd underground and open-pit mine, 90% of which was sold to Mineros SA for US$96.8 million. According to the last update, Hemco produced over 71,000 ounces of gold per annum and contained over 1.6 million ounces of gold resources.

photo of a mine site
(Hemco, Source: http://outletminero.org)

Randy also constructed the Santa Rosa open pit gold mine in Panama, which was opened for commercial production in 1996 to 1998 before low gold prices and unsustainable debt halted operations. During its two years of operation, Santa Rosa produced 109,000 ounces at an average cash cost of $285/oz. At shutdown, the remaining resource was in excess of 900,000 ounces of gold.

Also in his list of mines, Randy built the La Libertad open pit and underground gold mine in Nicaragua, which is now 100%-owned by B2Gold. In 2016, La Libertad produced 132,431 ounces of gold and contains just over 672,000 oz. of gold resources.

photo of a B2Gold mine site
(La Libertad, Source: B2Gold)

Lastly, Randy built the San Andres open pit gold mine in Honduras. Now owned by Aura Minerals, in 2016 the mine produced over 78,000 ounces of gold and boasts a resource of 1.73 million ounces.

Keeping to Randy's tried and test strategy, Para set out looking to build production around artisanal mining camps - it is no secret that many of today's largest mines were discovered by local miners.

El Limon (Colombia)

Para found its flagship in the 76%-owned El Limon mine in Colombia, a high-grade, narrow vein mine, that Randy was already operating. Originally producing at 50 tpd, it has been expanded to 200 tpd after a US$6 million cash injection by Para.

The underground mining at El Limon is restricted by the size of the winch and averages 50 tpd at 8.0-10.0 g/t of gold. The additional 150 tpd of feed will be from existing mining operations on the adjacent 21,000 hectares recently consolidated by Para, and historical tailings on the property.

Around the mine, artisanal workers were operating on a 12-kilometer strike, giving it a blue-sky, district-size play:

OTU property diagram
(Source: Corporate Presentation)

El Limon was drilled out in 1997, and a large mineralized zone was discovered at surface. These intersections were significant and were not related to the narrow vein system currently being mined. However, the drill cores were not 43-101 compliant and are no longer available to re-assay. Thus, Para is currently planning a drill program to twin the historic holes and display the type of exploration upside it has.

NML (Nicaragua)

In addition to El Limon, Para has also signed an LOI to acquire 80% of the Nicaragua Milling Company Ltd. (NML). NML is a 200 TPD small-miner gold processing plant working with B2Gold and the government of Nicaragua.

Based on the latest financials, over the last 12 months NML generated over US$524,000 EBITDA on an average monthly production of 864 ounces of gold. NML is expected to produce over 12,000 ounces in 2017, and generating US$3.4 million in EBITDA.

Para will acquire NML for 40 million common shares at 20 cents and four million share purchase warrants with an exercise price of 30 cents for three years.

Moving Forward - Continually Consolidating Production

For 2017, Para expects to process material at an average head grade of 7-9 g/t at an 85% recovery rate, to produce ~14,000 ounces of gold. Para is not a toll milling operation, instead using its own ore and buying the rest from the locals, which equates to a cost of ~$743 per ounce. Para currently owns 76% of El Limon, but the final ownership percentage is likely to be around 80% due to the dilution of the minority local partner from the upcoming payments.

In 2018 production is expected to grow to 28,300-34,000 ounces. In 2019 production capacity will grow enabling production of 38,888-42,000 ounces.

Para recently closed a C$5.4 million financing. After the closing of the NML transaction, it will have ~174.8 million shares outstanding, which we used in our target pricing:

discounted cash flow (DCF) table projecting share prices at various discount rate percentages and gold prices

We calculate a one-year price target of C$0.47, utilizing conservative production metrics, however, dependent upon the closing of the NML acquisition. From the current market price, this is a gain of 160%.

We believe Para will continue to lean on Randy Martin's network and continue to add to its production profile, while fine-tuning its existing assets. We enjoy the fact that Para has significant blue-sky exploration and mining potential. Together, the company has tremendous upside. Management has stated its longer-term strategy is to build a +150,000 ounce per year company. We would not be surprised if Para Resources makes another transformational acquisition in the next month or two.

Palisade Global Investments Limited holds shares of Para Resources. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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