Update on Pershing Gold Relative to Peer Gold Companies
It's that time again, time for an update on Pershing Gold, (PGLC) my fifth article. The four leading up to this one can be found here. If readers have limited time to review multiple articles, I recommend at least reading the February 25th, Exclusive Interview with Chairman & CEO, Steve Alfers. This interview remains the most up-to-date information on the Company that I know of. As far as updates go, this one will be relatively brief. Not a great deal has changed in the past six weeks. However, I could not resist commenting on 2 key events in the gold sector.
Barrick Gold Loses $2 Billion in Market Value
How many times has it been said by me and many others that Resource Nationalism is a growing problem? Today we saw yet another reason why companies based in the U.S. are highly likely to see valuations increase, possibly by a lot. Barrick Gold's, (NYSE:ABX) market cap plunged by $2 billion today alone on news that Chile is halting work on the Company's Pascua-Lama project. This $8 billion project is now on indefinite hold. See story here.
Think about that for a moment. Barrick has spent hundreds of millions over the past 7-8 years. News reports suggest the review of the project by the government could take a year, including a possible appeal to the Supreme Court. No matter what happens one thing is certain. The environmental groups that caused this delay are not going away.
First Africa, Now Chile.....
And, Chile is supposed to be a safe jurisdiction! Recall also that Barrick spun-out its African gold assets into a new company, African Barrick Gold, (OTC:ABGLF) back in 2010 to shed some risk. In fact, Barrick is trying to offload the remaining stake in African Barrick Gold that it has, but a deal with a Chinese Party recently fell through.
Mid-to-large cap miners from around the world can't afford to make mistakes, shareholders are watching closely. CEOs have been fired, Boards taken to task, risk reduction is paramount. Companies are dialing back cap-ex in both risky regions of the world and complex or long lead time projects. Investors want to see less growth and more free cash flow.
If only it were just Barrick experiencing severe growing pains. Gold Fields, (NYSE:GFI) is suffering with wildcat strikes in Ghana, there's trouble in Tanzinia, the Domincan Republic vs. Goldcorp, Goldcorp, (NYSE:GG) and look what's happening to Centerra Gold, Centerra, (OTCPK:CAGDF)! The list goes on, and it's not just gold, but copper, silver, iron ore, potash-- pretty much any commodity that is in relatively high demand.
From Africa, to Chile to Nevada
One of the least risky ways to replace lost production is with a simple bulk tonnage, heap leach operation in a well established location like Nevada. The suitors who come looking in the U.S. will require near-term producing assets in projects with low operating risk to satisfy nervous shareholders. Pershing Gold is a prime example of what shareholders are demanding.
As M&A picks up for gold later this year, U.S. gold company valuations will rebound faster and further than companies in Africa and most other far flung corners of the world. If Chile is not safe, how safe is Argentina? Peru? Turkey? I argue that recent volatility in the gold price is becoming less of a concern. Global supply of gold will be materially challenged in coming years, there's no way around it.
In Other News, Gold Stocks Collapsing
The other big news in the gold sector space is again happening away from Pershing... gold stocks are crashing. The Market Vectors Junior Gold Miners, (NYSEARCA:GDXJ) ETF is down 23%, 35% and 31% in the year-to-date, six-month and one-year period, respectively. By comparison, Pershing is UP 15% year-to-date, UP 12% in the past six months and down just 8% over the past year.
Pershing Gold is ideally positioned to benefit from coming supply problems. Investment dollars largely stopped flowing to big cap-ex projects last year. Investment capital will remain hard to find for the next few years. By 2015-16 when Pershing is producing 100k ounces or more per year, I believe gold prices will be higher.
Importantly, Pershing does not require $2,000 gold to be wildly profitable. Today's gold price is more than enough for a very robust project at Relief Canyon, with ample free cash flow available to bring new mines online. With all-in costs widely reported at above $1,000 per ounce among the majors, I believe Pershing Gold's Relief Canyon could come in below $750 per ounce.
As mining risk increases around the world, Pershing Gold's low-risk, high growth potential acreage is looking better by the day.
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 S-1 Filing, pages 4-11. See Here.
Disclosure: I am long PGLC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.