Interest in Pershing Gold Continues to Grow
This is my fourth article on Pershing Gold, (PGLC) since 10/24/12, I'm averaging one a month. The three preceding articles (see here,here and here) have received 33k page views and 335 comments. Year-to-date, the average daily trading volume of Pershing's shares is 1.3 million vs. 263k in the period a year ago. The stock has dramatically outperformed peers over the past 3 and 6 month periods. Clearly, interest is growing about what Executive Chairman & CEO Stephen Alfers and his team have accomplished.
Note: An investment in Pershing Gold is highly speculative and may not be appropriate for all investors. Please carefully review the company's risk factors as stated in this recent S-1 Filing, pages 4-11. See Here
For this article I offer an exclusive interview with Mr. Alfers followed by comments of my own. Before I jump into the interview, here's a summary of the key attributes of Pershing Gold:
+ From an initial 1,100 acres, Alfers has consolidated a dominant block in Pershing County comprising just over 25k acres, (39 square miles).
+ Pershing owns a fully permitted and built processing facility. This allows it to avoid 4 years of permitting and associated risks as well as the need to source funding of several tens of millions in cap-ex.
+ Prior mining and heap leach processing at the company's Relief Canyon site demonstrate the logistics and feasibility of re-opening the mine. Relatively modest additional capital is required to reach first production.
+ The company's 564k ounces of Measured, Indicated and Inferred gold are found on just 3% of the consolidated property. The existing resource is open on all sides.
+ Historical production at Relief Canyon included 3 ounces of silver per ounce of gold. Silver is not yet counted in the company's 564k ounce resource.
+ Coeur d'Alene, (NYSE:CDE), billionaire investor Philip Frost and successful financier Barry Honig are key backers of the company.
+ Alfers has assembled a strong team, enabling Pershing to remain on track for first gold in 2014. Management execution has been excellent.
Q: Let's start with a pressing concern of investors. In addition to a possible share placement, what other capital raising activities is Pershing considering for 2013?
We continue to pursue a range of options to raise the capital needed to get us into production. A combination of equity, debt and royalty financing is something we are looking at. We are in no rush. Given current market conditions, we are not racing out to issue new shares. Instead, we are prudently pursuing a balanced financing package that mitigates equity dilution and maximizes operating flexibility.
We believe details of our internal economic scoping of Relief Canyon and a possible material increase to our resources this summer will help us in our capital raising. Access to capital is an important competitive advantage. Near-term production and the significant tangible value of our 100% owned processing facility enhances our prospects for raising the relatively modest amount of capital required.
Q: What is the status of your Preliminary Economic Assessment?
We now have in hand the first part of the economic evaluation completed. Roscoe Postle Associates provided us the Whittle pit resource number of 564k ounces of gold (463k Measured & Indicated and 101k Inferred). That information contains the bulk of what we need to complete an internal Preliminary Economic Assessment, "PEA."
As mentioned, we are hoping to upgrade our resource later this year followed by a third-party confirmatory PEA on a larger and better defined resource. Our team is working hard on the preliminary economics of the Relief Canyon Mine and we are very pleased with the findings so far. We hope to provide an update on Relief Canyon by the end of March.
Q: Some prospective investors in Pershing Gold see an average ore grade of 0.017 ounces of gold per ton, "opt," and say it's a weak grade. What do you think about this reaction?
The 0.017 opt average grade was reported in the 2010 MDA report. However, the average grades for the recently announced NI 43-101 compliant Whittle pit resource estimate are actually a bit higher at 0.0188 opt for the Measured & Indicated ounces and 0.021 opt for the Inferred.
Prospective investors should understand that it's impossible to make judgments about an ore grade without considering the key economics inputs of a project. Because the leaching characteristics and gold recoveries of this ore are so favorable (75% expected recovery) our grades are quite sufficient to support resumption of mining and mineral processing - especially in light of the fact that we already have a fully permitted and built heap leach processing facility and don't require significant Cap-ex to resume operations.
Allied Nevada, (ANV) reports an average grade for their Proven & Probable gold reserves of 0.007 opt and 0.004 opt for their M&I resources. Newmont, (NEM), Coeur d'Alene and Barrick Gold, (ABX) have similar grade heap leach operations nearby. We are zeroing in on a possible open pit mine with a strip ratio of less than 1 for the first 3-4 years of production. With gold prices near $1,600 per ounce, Relief Canyon could enjoy quite favorable economics.
Q: Can we get an update on Pershing's 100% owned, fully built and permitted processing facilities? Is toll processing of third party gold ores still being considered?
We are moving forward with a few upgrades and additions to the plant. The pad is ready to be loaded with ore at any time. We would consider toll milling of high-quality, third-party ores. However, we are not interested in displacing Relief Canyon ores with toll ores that have lower grades or poor recoveries because that would consume valuable pad space.
Q: Can you describe the key steps to getting into production?
We are working on a mine plan for the above-the-water table resource. Once that is completed we will prepare the applications to modify our existing permits with the State of Nevada and the BLM. Because the processing facilities and infrastructure are in place and the mine plan will not substantially increase the surface disturbance or create different kinds of environmental impacts, we anticipate that the permitting process will be straightforward.
Q: How many people are working to get Relief Canyon back into production? Please describe your team.
We have a team of roughly 25 people. This team includes a mining engineer who has successfully developed and managed several mines in Nevada, several very seasoned geologists, a geophysicist, an environmental permitting and government relations expert, and a full complement of staff in Lovelock who are responsible for keeping the mine in compliance with all of its permits. (We have staff at the mine on a 24/7 basis, which is required by our permits). Of course, I also have an excellent administrative staff in our Lakewood, Colorado office.
Q: How much time and capital would be required to expand Pershing's processing facility and how much larger could it become?
Processing facilities always need to be sized in response to the size of the deposit being mined and processed. I am confident that if our future exploration efforts are successful, we will have no trouble securing the necessary capital and permits to expand. The capital required to double our processing capacity would be fairly modest.
Q: Does the company have plans to get its stock listed on AMEX or NASDAQ? If so, what steps need to be taken?
Yes, Absolutely. Once the Continental Resources shares have been exchanged, we will pursue listing options. We think that a new listing could be a 2nd quarter event.
Q: Pershing describes its land holdings as, "situated in an under-explored part of Nevada with significant discovery potential." How is Pershing County different from other NV counties?
That is a good question, we get asked that a lot. Pershing County has not received as much exploration and mineral development focus as northeastern Nevada and the well-known Carlin trend or other mineral trends like the Battle Mtn. - Eureka trend.
During the Carlin-era gold rush, the Reno-based geologists who were looking for the next Carlin-style gold deposit drove straight through Pershing County - without stopping to consider the mineral potential there - on their way to Winnemucca, Battle Mountain, and Elko. Pershing County simply escaped their attention because they were focused on geologic models and targets elsewhere. This is why we are thrilled to have consolidated a dominant land position in the county.
Q: Last year Pershing, "discovered a breakthrough exploration model....that greatly enhances future discovery potential." Can you explain the importance of this discovery?
The Main Breccia Zone is the body of gold mineralization that was the focus of previous mining activity at Relief Canyon. Pershing gold geologists recognized at least two other zones, a feeder zone and a lower, lower zone. These new zones expanded the known resource (not fully quantified) and add significant upside for discovery and development. Going forward there is room to expand all zones and to add new ones.
Q: Many compare Pershing's progress towards re-opening its Relief Canyon Mine to the successful re-opening of Allied Nevada's Hycroft Mine. Are there noteworthy takeaways from this comparison?
Another good question, yes, I think there are important similarities. Like Relief Canyon, the Hycroft Mine was a long-neglected, under-capitalized asset that had been previously mined. Similarly, there was a functional heap leach processing facility at Hycroft.
The presence of Pershing's permitted and constructed heap leach facility cannot be understated. It will facilitate a fast-track resumption of mining with minimal remaining capital investment. That was the key driver for Hycroft and will be the key for us as well.
Q: At the south end of your newly consolidated 25k acres of land are more than 700 claims in the, "Pershing Pass" area. What is Pershing Pass and what is the company hoping to find there?
We have already identified several separate target areas that have received little or no exploration attention in the past - and certainly no recent exploration activity using modern exploration techniques. We conducted geologic mapping at these targets and see promising evidence of mineralization that warrants exploration drilling. We also conducted geophysical work that identified important structural trends that will help focus our future work at these targets.
Q: Coeur d'Alene's Nevada Packard Silver / Gold Mine is located about a mile from Pershing's northern boundary. Coeur extracts significant amounts of both silver and gold. What is the possibility that silver will be a meaningful part of the Relief Canyon Mine?
There is a good chance that silver will be important at Relief Canyon because historic production included recoveries of silver at a ratio of one part gold to three parts silver. Silver is not included in the current SEC Guide 7 mineralized material or 43-101 resource estimate because the database for most of the historic holes does not include silver assays. Silver assays are planned for holes drilled in the future so this information can be added to the silver assay data from the holes Pershing Gold has drilled to date. Any identified silver resources will be included in future mineralized material and resource estimates.
Q: It's clear that cutting edge technology is being used to locate and better delineate Pershing's resources. Why is access to new technologies so important?
You are right that we are using some sophisticated, state-of-the-art geologic exploration tools. For example, we are making extensive use of geophysical surveys to help us identify important regional structures that may have focused hydrothermal systems and helped form mineral targets. Access to advanced technologies could enhance the value of our currently defined resource which remains open on all sides. Perhaps more important, these technologies hold great promise for the 97% of our controlled land holdings, in known mineralization zones, that remain unexplored.
Q: Many investors feel they lack the expertise to properly understand drill results as they are presented in company press releases. What should investors be looking for?
Geology is a highly complex and technical subject. This is especially true of most Nevada mineralized systems which typically have very complex geology. I think it is important for investors to realize that if they don't have a technical background or access to someone who does, then they should not expect to fully understand the geologic reports and press releases.
Consequently, investors need to place a great deal of reliance on the qualifications and integrity of a company's management and technical team. Investors should be looking for the credentials of the geologists involved with the exploration program. Do they have extensive experience doing this type of work? Have they been successful elsewhere in discovering new deposits? Do the members work well together? We believe our team ranks high in these respects.
Q: Gold prices below $1,600 per ounce are at six month lows. Does the current gold price figure into your planning for resuming gold production in 2014?
Like all Nevada low-grade, oxide gold deposits, Relief Canyon benefits from high gold prices. At today's prices, even very low-grade material becomes ore if it has good leaching characteristics and good gold recoveries. This is the case with the Relief Canyon deposit. We increasingly believe that the economics of Relief Canyon could be quite robust.
However, unlike many other low-grade deposits that are not yet mines, Relief Canyon does not have to support the capital investment required to build a processing facility. So we have a significant advantage compared to peers that have a resource but require substantial financing in order to put that resource into production.
The following are my takeaways from this highly informative interview. Importantly, these views are mine alone and do not necessarily represent the views of management.
Fears of a sizable and imminent equity raise are unfounded. Alfers stated that the company has about five months before it needs to raise capital. The company continues to actively pursue a financing package that contemplates at least the use of equity, debt and royalty financing components. The total amount of capital required to reach production is quite manageable and low compared to that of similar-stage peers. I believe it's reasonable to assume roughly an equal mix of equity and royalty financing is raised this year and a debt facility is placed early next year.
Assuming an 8-yr mine life averaging 50k ounces of gold and 150k ounces of silver per year, a NPV(8%) valuation covers Pershing's fully-diluted, Enterprise Value. If one assumes as I do that considerably more gold and silver will be found, a NPV calculation a year from now could justify a stock price $1 per share, [NPV(6%), 12-year life, production growth from 50k ounces to 100k ounces by 2020]. Importantly, if the historical ratio of gold to silver were to hold, that would generate a meaningful credit to gold operating costs, (about $90 per ounce at spot silver prices).Disclosure:
I am long PGLC, OTC:CRGC. 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.