Pershing Gold: Increasing Upside Potential

| About: Pershing Gold (PGLC)

In a report published last week in Seeking Alpha, I wrote an article on a mining company, Pershing Gold - Mining Without Risk that I feel offers tremendous upside potential.

Pershing Gold's first major purchase was the Relief Canyon Mine in Nevada, which it bought at an extremely low price out of bankruptcy. Relief Canyon Gold Mine produced gold intermittently in the 1980's and 1990's but was abandoned when gold prices were languishing below $400 an ounce. Now, with gold above $1,600 an ounce, the mine looks like a slam dunk as a profitable producer. Pershing has also bought some land around the mine and is doing a great deal of infill drilling to reopen the mine with a goal of production in early 2014. The company is debt free and they have obtained almost all of the permits necessary to get back into production.

According to the company, Pershing Gold is expected to release an updated resource report shortly showing double or triple the previous resource figure. What I will be looking for in this crucial report, more so than what it shows the new upgraded and expanded resource, is whether the drill results show the mineralization expanding beyond the current drill holes. This could signify the potential of a multi-million ounce resource based on the fact that Pershing has only drilled on a small percentage of their consolidated 25k acres of land holdings. The Relief Canyon Mine is in an area with several gold mines, such as the Rochester Mine, and more drilling should lead to more gold.

One thing we can be sure of is that Pershing's drill results are being closely monitored by the likes of multi-billion dollar mining corporations such as Coeur d'Alene Mines (NYSE:CDE) and Newmont Mining (NYSE:NEM). Both have ongoing relationships with Pershing. In fact, Coeur d'Alene made a significant strategic equity investment in Pershing Gold last year. Pershing's land holdings are just south of Coeur d'Alene's signature Rochester mine.

Coeur d'Alene just issued a press release discussing how they plan to significantly expand their Rochester operation and how they want to continue to increase their gold production.

Coeur d'Alene produced an all time high of 226,491 ounces of gold in 2012. Pershing's estimated production of 50,000 ounces in their first year of production is very significant relative to this number.

Below is the excerpt from the press release:

"The Company plans a significant expansion of its Rochester operation in 2013. As a result, silver production at Rochester is expected to increase to 4.5 - 4.9 million ounces in 2013 compared to 2.8 million ounces in 2012. 2013 gold production is expected to increase to 44,000 - 46,000 ounces compared to 38,071 ounces in 2012.

The Company estimates 2013 capital expenditures for Rochester to be $30 - $35 million to expand production. The Company is investing approximately $4 million during 2013 to expand the capacity of the primary crusher from nine million tons to the currently permitted rate of 14 million tons annually.

In addition, subject to receipt of final permitting, the Company expects to nearly double the mine's remaining heap leach capacity on existing pads during 2013 to approximately 67 million tons at an estimated capital cost of approximately $15 million.

The Company also is pursuing an additional estimated $10 million expansion, which is expected to provide 40 million tons of additional pad capacity beginning in 2016, to further extend the mine life and increase production rates from historic stockpiles.

Following the implementation of the expansion opportunities described above, the Company plans to pursue other longer-term expansion opportunities at Rochester that are focused on mining and processing of the existing mineralized material."

Besides gold in the ground and expansion plans, Pershing Gold has the experienced leadership team with a proven background for operating successful mines, both small and large. This is a winning team with a proven track record of success that makes it highly likely that Pershing is currently undervalued, given its resources in the ground and expert management team. Stephen Alfers, Executive Chairman, President and CEO of Pershing has more than 20 years of experience in mining, and is well respected, as shown by Coeur d'Alene's investment in Pershing.

Operating a mine that was abandoned for financial reasons when gold prices were $1,200 below where they are now, expansion plans that appear to be on the verge of leading to increased gold resources, and with an experienced management team, Pershing Gold appears to be a good investment for the near and long term.

Disclosure: I am long PGLC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed therein constitutes a solicitation of the purchase or sale of any futures or options contracts.

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