Seeking Alpha
, MyriadEquity (105 clicks)
Deep value, long only
Profile| Send Message|
( followers)  

Pershing Continues to Deliver the Goods

I've written two detailed articles on Pershing Gold, (OTCQB:PGLC). One on October 24th, [see here] and one on December 12th, [see here]. The stock price on the day of my initial article was $0.38. As I write this, the stock is at $0.54, a gain of about 40%. To say that Pershing is outperforming its peers would be a gross understatement. Since October 24th, the Market Vectors Junior Gold Miners ETF, (NYSEARCA:GDXJ) is down roughly 15%.

In my initial article I wrote, quote,

"With close ties to Newmont Mining (NEM) and a de-risking strategic investment by Coeur d'Alene (CDE), Alfers is driving Pershing Gold to become Nevada's next gold producer. Insider buying has been strong, attracting significant investments from private individuals like respected billionaire Dr. Phillip Frost and a Director of the company, Barry Honig. I expect a re-rating in Pershing Gold's stock within the next 12-18 months to as high as $1.5 per share (or 50% of NAV), and up to $3 per share within 24-36 months."

Three months later I'm as excited as ever about Pershing. I stand by my $3 NAV estimate and I now believe that Pershing stock could break through the $1 barrier within 3-6 months. Given the stock's strong performance, investors might be wondering if it's time to take some profits. Not so fast. If Alfers and team continue to execute as superbly as they have, the stock still has a long way to go. A takeout of Pershing next year seems an increasingly reasonable outcome.

Speaking of Alfers' team, anyone that looks at the latest corporate presentation will notice additional key members listed. In fact, Alfers has upwards of 20 employees/consultants dedicated to the Relief Canyon Mine project at this time. This project is moving at a rapid pace.

Now we turn to the main reason for this article, Pershing Gold's press release of Thursday. Alfers demonstrated once again how to run a gold mining development company. The substantial, ongoing de-risking of the Relief Canyon Mine project is impossible to ignore. The press release and attachments can be [found here]. Highlights are as follows, quote,

"Pershing Gold Corporation is pleased to announce that it has completed an in-house calculation of mineralized material in the Company's model for the Relief Canyon Mine in Pershing County, Nevada which estimates 32,541,000 tons of gold mineralized material at an average grade of 0.017 ounces per ton ...

When Pershing Gold acquired the Relief Canyon Mine in August 2011, based on the 2010 Technical Report that Mine Development Associates ("MDA") prepared for the previous owner, Relief Canyon had an in-situ resource equivalent to mineralized material under SEC Guide 7 of 6,533,000 tons at an average grade of 0.017 opt Au. As such, mineralized material reported by Pershing Gold today represents a nearly five-fold increase in the size of the Relief Canyon deposit."

654k Measured, Indicated and Inferred Ounces!

Astute readers of Thursday's press release may have noticed that the 654k resource ounces figure I mentioned is not in the press release. To get to that number, I had to do a little math. For an apples-to-apples comparison to the company's prior NI 43-101 report listing 248k Indicated and Inferred ounces, it's necessary to add Inferred ounces to Pershing's reported in-house calculation of (32,541,000 tons times 0.017 ounce per ton = 553k Measured and Indicated ounces of gold). Therefore, 553k + 101k Inferred from the RPA report = 654k ounces.

There's a reason why RPA's resource number came in below Pershing's in-house calculated resource. RPA took the analysis a step further. They did a pit optimization report, which further delineates and upgrades the quality of the ounces, but also eliminates the less economical ounces. A pit optimization report uses highly specialized software that requires estimates of operating, capital and processing costs, among other things. This added level of scrutiny gives Pershing a great deal of information towards doing a Preliminary Economic Assessment, "PEA." It's as if Pershing got a pre-PEA delivered.

A Silver Lining?

I found it very interesting that the press release mentioned the possibility of material silver mineralization. To my knowledge, this is the first time that the company has meaningfully mentioned silver. Of course, it should be no surprise that silver is there given Couer d'Alene's massive silver/gold mine just north. Pershing mentioned a ratio of 3 ounces of silver for each ounce of gold. That's not much silver at all. However, it reveals the possibility that portions of Pershing's acreage could have significantly higher silver grades. Relatively high grade silver mixed with gold is what makes Allied Nevada's, (NYSEMKT:ANV) Hycroft Mine a world class asset.

One of the most compelling aspects here is that Pershing's 654k ounces are found on just 3% of Pershing's 25k consolidated acres. Think about that, 39 square miles of under-explored, highly prospective holdings. Pershing controls a truly dominant position in the district. Importantly, Thursday's news opens the door for sourcing non-dilutive capital. A royalty agreement, debt facility, project-level strategic investment or equipment financing are all on the table.

There's More to the Story Than the Resource Number...

Perhaps more noteworthy than the number of ounces is the fact that the resource remains open in all directions and at depth. This factor takes on added meaning now that there's a significantly better delineated Measured and Indicated resource. With production starting next year, each new ounce discovered has a greater chance of being mined.

Not All Resource Ounces Are Created Equal

I think it's essential that investors recognize the significance of near-term production when evaluating a company's resources. Pershing's Measured, Indicated and Inferred ounces are worth far more than the same resources of a company that won't be in production for several years. Understanding this point underscores the value of Pershing's 654k ounces. Simply put, a relatively high percentage of those ounces will make it into the mine plan.

Institutional Investors Will be All Over Mr. Alfers Now

I believe Thursday's press release is a game changer with regard to getting more institutions involved in the name. With a high probability (my opinion only) of a10-year or greater mine life, low costs due to open pit, heap leach and 100% owned processing facility, the projected NPV of the Relief Canyon Mine project alone is arguably above Pershing's entire market cap.

That means investors at today's valuation get ALL of the exploration upside at Relief Canyon for FREE. As Alfers books more resources and ultimately reserves, Relief Canyon's production profile could double. That would lead to a more than doubling of the project's NPV as economies of scale would enhance the economics. Pershing has the ability to expand its processing facility by adding more leach pads. The main production constraint is finding more gold, which Alfers has now proven beyond any doubt that he can do!

There's Almost Certainly More Than Just One Mine

The Relief Canyon Mine is the first of what could be several highly profitable gold/silver mines. What should an investor be willing to pay for the exploration upside on 97% of Pershing's 39 square miles of known mineralization zones? I see tremendous blue-sky potential; perhaps, a multiple of the prospective value of the Relief Canyon Mine.

To reiterate, an investor today gets exposure to gold prices with un-hedged near-term production from a project with real fundamental value that protects investors on the downside. And, a FREE option on huge exploration potential in the still under-explored Hunboltd Range. But wait, there's more..,

Pershing Gold's roughly 37% ownership of Valor Gold, (VGLD.OB) offers not only additional blue-sky upside, but a non-correlated blue-sky opportunity of finding a world class deposit. That's because Valor Gold's properties are in the Battle Mountain Eureka Gold Trend, otherwise known as "elephant country." Alfers is watching Valor's progress very closely and continues to have high hopes for the Valor's two main projects.

Conclusion

It's nearly impossible to over-state the importance of the historical mining that occurred on Pershing's property and the high likelihood of near-term production. The existing pit, roads, processing facility and other vital infrastructure greatly facilitates the logistics and costs of getting started. This alone makes Pershing stand out among junior gold miners. It's one thing to have ample resources and a dream they will be exploited in five or ten years. It's another thing entirely to have Stephen Alfers finding more and more gold and delivering actual production next year. Stick with the proven leaders, stick with Pershing Gold!

Source: Pershing Gold, Nearing Production And Huge Exploration Upside