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Copper Mining Co. Promising but in Need of Funds

Source: Adam Schatzker

 

May 10, 2023 (Investorideas.com Newswire) This Canadian mining company needs to fill a finance gap to complete drilling construction, noted a Research Capital report.


Generation Mining Ltd. (GENM:TSX; GENMF:OTCQB; 9GN:FSE) is a Canadian mining company based in Toronto that focuses on producing palladium and copper from its 100% owned Marathon project.

In a May 2, 2023 report, Adam Schatzker of Research Capital Corporation released a report arguing that the company has good prospects, but he currently refuses to upgrade its rating from Speculative Buy.

He writes, "At this time, we are not changing our valuation, recommendation or target price - we expect to do that once a funding gap is resolved."

Issues With Financing

Schatzker breaks down the cash flow limitations GENM is experiencing.

On May 2, 2023, GENM announced that it had secured US$400 million in financing for Marathon project construction costs from a syndicate of lenders. Schatzker points out, though, that this significant loan will not cover the projected costs.

"We calculate that this funding, combined with the undrawn stream from Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) and Caterpillar Inc.'s (CAT:NYSE) equipment financing, leaves GENM with a gap of ~CA$280 million to finance."

Shatzker goes on to argue that this significant funding gap presents a risk to shareholders and that he does not expect the stock's price to reach full valuation until this funding gap is closed.

Schatzker's report suggests three possible solutions to GENM's funding gap:

  1. One or more government organizations provides funding for the project as part of its critical minerals strategy. This may leave some equity to be raised by GENM, but Shatzker thinks it would be far less than the CA$280 million. This may also provide non-dilutive financing;
  2. GENM finds a partner that would acquire a significant portion of the project and, together with GENM, funds the financing gap (GENM may issue equity under this scenario); and,
  3. GENM is acquired.

GENM's financing deal with a syndicate of companies such as Export Development Canada, ING Capital LLC, and Societe Generale S.A. is expected to close in late 3Q23, though the deal is still subject to terms and final approvals.

Structure and Predictions

While Schatzker is not raising GENM's rating, he isn't lowering it either. Research Capital Corporation maintains a Speculative Buy rating for the company.

Newman's research report also shares recent rating and target price information as well as current market data on the company:

  • Rating: Speculative Buy
  • Price: CA$0.54, with a 52-week range of CA$0.51-CA$0.96
  • Price Target: CA$1.95
  • Market Cap: CA$93.53 million

Shatzker expects a projected return of 261.11% for shareholders. GENM has a CA$78.7 million enterprise value with a cash flow of CA$18.8 million. The company has 180.4 million shares outstanding.

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