Pershing Gold Takes Big Steps Forward As Peers Stall

Aug.16.13 | About: Pershing Gold (PGLC)

A key differentiating factor in favor of Pershing Gold (PGLC) has been its strong financial backing from Barry Honig (and friends & family), billionaire value investor Dr. Frost, Coeur Mining (CDE) and a handful of institutional funds. Honig continues to show support, investing ~$5.6 million (including a conversion of debt to equity) in the announced $9 million at-the-market capital raise. Pershing is now cashed up and debt free.

Few Juniors Have Attractive Drill Targets or Money to Drill!

Three weeks ago, Pershing announced that it was drilling north of its past producing Relief Canyon Mine open pits. This news was largely ignored by the market. However, in speaking with Chairman and CEO Steve Alfers, the Pershing Gold team is quite optimistic about the prospects. Alfers made it clear that he would not have made this decision in today's depressed market environment unless the risk/reward proposition was attractive.

While the current drill campaign has just started, this is no science project, far from it. The targets being drilled now were developed by Pershing's exploration group over the past year. Pershing is stepping out nearly 1,000 feet to the north of its North Pit to test extension of known zones of mineralization found in its existing open pits. And remember, Pershing's ~40 square miles of consolidated holdings are located on the prolific Black Ridge Fault complex, making the chances of success higher than that of many peer exploration projects. That's assuming that peers are still drilling, which mostly, they're not.

High Hopes For the Current Drill Campaign

Alfers' confidence stems from the breakthroughs made in the team's understanding of Pershing's newly consolidated property. For over a year, the team was busy re-characterizing historical drill and seismic data, incorporating everything they have learned. A combination of state-of-the art technology, top notch geologists / technical staff and old fashioned hard work, enabled Alfers to come up with a select few outstanding drill targets. In May, Alfers stated,

"Pershing Gold geologists continue to upgrade the Relief Canyon deposit through a well-executed program that includes detailed geologic mapping and a systematic review of the massive historical database that is available for Relief Canyon. I believe this work will lead to new discoveries that will expand the Relief Canyon Mine gold resource."

On August 14th, Alfers added,

"The work program has several objectives: 1) expand and upgrade the resource, 2) complete the engineering and metallurgy ahead of a 2014 PEA and 3) otherwise continuing to advance the project to restart mining. We want to feed the fully operational gold processing facility already in place on site.

The unique thing about Pershing is that we are a near term production story, but we are still drilling for new discoveries. Our financing encourages us to do both aggressively. This management team knows the importance of growing the company through exploration while we put the Relief Canyon Mine into production."

Gold Exploration and Development Costs in Decline

A recent management letter by the CEO of NuLegacy Gold (NULGF.PK) stated that a wide range of mining costs are in decline because gold companies large and small are curtailing exploration and development activities. Many mining, exploration and service costs in Nevada are thought to be down 20% or more this year. According to Albert Matter,

"...capital and operating costs are coming down significantly - we know from personal experience that drilling costs in Nevada are already down by one-third....and natural gas (from whence comes cyanide) is well off its peak. While construction costs in Nevada never got as high as in the, 'high Andes' they are being reined-in everywhere."

This is really important news. By my estimates, (not necessarily that of management) Relief Canyon's all-in costs were preliminarily assessed at about $750/oz. Even a 10% reduction would put Relief Canyon comfortably below $700/oz. However, as Pershing finds more gold and silver north of the main pits and especially if the gold is higher grade, the economics at Relief Canyon could improve substantially.

Initial Drill Results Expected Relatively Soon

Importantly, initial drill results are expected relatively soon. Drilling began on July 22nd, so I believe initial results should be available before the end of September.

With industry-wide costs coming down, the gold price up 15% from recent lows and funding concerns put to rest, Pershing's stock could be poised for a nice run over the remainder of the year. Not many gold companies are playing offense these days, Pershing is playing to win. The latest capital raise greatly de-risks the story and advances the company towards initial production next year.

Capital Raise Sends Strong Message

Pershing's continued access to capital sends a strong message to peer Nevada companies like Coeur, Newmont Mining (NYSE:NEM) and Barrick Gold (NYSE:ABX). As the majors struggle with write-downs, cost blowouts and uneconomic projects, a lot of focus is returning to Nevada. Make no mistake, the majors are watching which companies are moving forward and which have stalled. Given the severe challenges the majors have endured, they will be looking to acquire and partner with proactive, near-term producers.

Conclusion

Pershing Gold is one of just a select few that have demonstrated ongoing access to capital. The timing of this raise, in conjunction with an exciting, highly prospective drill campaign, is noteworthy. Pershing appears to be comfortably funded for the next 6-9 months. Positive drill results, an upgraded resource report, higher gold prices, lower costs and a number of possible strategic initiatives could come together before year end to drive Pershing's stock considerably higher.

Disclosure: I am long PGLC, 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.