The Long Case for U.S. Gold

On August 29, 2006, Bill Cara suggested it was time to buy U.S. Gold (USGL.OB). The stock was trading at $6.26 then, but has since plunged well below $5. Cara believes that the shares were pressured by an institutional private placement at C$4.50.

Whatever has caused the drop, the stock is now at a place where I believe the risk-reward heavily favors accumulation. Obviously, U.S. Gold and all miners could suffer if gold prices continue to plummet. However, with the Washington Accord deadline for central bank selling almost passed, a rebound soon is highly likely.

More importantly, U.S. Gold is a solid vehicle for speculation. Don't let the OTC bulletin board listing fool you. U.S. Gold is run by Rob McEwen, former CEO of Goldcorp (GG), one of the world's largest and finest gold mining companies. In a recent open letter to shareholders, McEwen explained the exciting prospects for the company's Nevada mining properties:

CORTEZ HILLS DISCOVERY CHANGED EVERYTHING

Placer Dome (bought by Barrick Gold) found what many consider one of Nevada's most significant gold deposits when it discovered Cortez Hills in 2003. The geological similarities with Nevada's world famous Carlin Trend, which is the production base of Barrick Gold and Newmont Mining, challenged firmly held beliefs that large deposits of this type do not exist in the Cortez Trend. Cortez Hills, including the area surrounding the discovery, has past production, current reserves and mineralized material totaling more than 30 million ounces and we are 10 miles away! This is a very prospective area to be looking for gold.

This spring we started our aggressive, US$30 million, two year exploration program at Tonkin Springs. Previous exploration had last occurred prior to the influential Cortez Hills discovery. A lot has happen since Cortez Hills, allowing geologists to better understanding the area and the required ingredients associated with large gold deposits in this part of the world.

LOWER PLATE AT TONKIN SPRINGS

New interpretations supported by age-dating, mapping, core drilling and fossil identification suggest that there is a much larger package of Lower Plate rock at Tonkin Springs, than was previously believed to exist (Figure 1 and 2).

Why is Lower Plate important to your share price? This is where major gold discoveries are made within Nevada's Carlin and Cortez Trends. The presence of Lower Plate rock near surface greatly improves the odds of making a discovery at Tonkin Springs!

We Are Excited about our Future!

[VP of Project Development and former Newmont exec] Eric Saderholm is adamant, "I agree with others that are working on the U.S. Gold team that the projection of the Cortez linears (structures hosting Cortez Hills gold) run right at us. It is apparent to me that we have all the right ingredients for large discoveries and ounce additions. It's time to put it all together and take our best shots at success."

I bought a considerable position late last week between $4.50 and $4.81. It is true that the technical picture is currently bleak, but I don't think it will look so bad a month from now.

USGL.OB 1-yr Chart

DISCLOSURE: I am long USGL.OB. Not a recommendation to buy or sell any security. For informational and educational purposes only.

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Comments

[Bob Kirtley_:]

We are also long and intend to hold this stock, allowing them the time to do the required work. The chart doesnt look good, but this could be a great time to buy and average down.

2006 Sep 18 09:03 AM

[J P:]

Not long USGL, but am long WKR, NPG, CGR, and TNS. USGL still intends to acquire these companies, and will likely do it for a premium of some such. Its an interesting question, now that USGL is much cheaper, whether these companies are a better investment or whether USGL is a better investment...if USGL goes down between now and the acquisition more than these companies do, then USGL might be a better investment, even with the premium (assuming you buy it after it goes down, not now.)

USGL is working on a listing on a major american exchange, and when that happens they will recommence the offers, I expect.

2006 Sep 18 04:36 PM