(Editors' Note: This article covers a micro-cap stock. Please be aware of the risks associated with these stocks.)
Last week, Pershing Gold (OTCQB:PGLC) reported another set of excellent drill results around its main deposit at Relief Canyon in Pershing County, Nevada. Please see my September article on Pershing's first 7 drill holes. In that piece I remarked,
"On September 19th Pershing Gold (OTC:PGLC) released the results of 7 diamond-core step-out holes, all of which hit gold. Four had significant intercepts of high-grade (0.2 ounces per ton, "opt" or greater)."
That press release, largely ignored by the market, demonstrated further evidence of a larger deposit and, importantly, higher grades. Last week's press release moved the ball forward again, both de-risking and substantially enhancing Relief Canyon's prospects.
More Than Meets the Eye in Last Week's News ...
It would be a mistake to conclude that last week's press release was more of the same, i.e. an extension of the company's September drilling results. A careful reading of this latest press release clearly demonstrates significant de-risking of the Pershing Gold story. For example, in the latest 7 drill holes that penetrated the Lower Zone of Relief Canyon,
"All seven of the holes have intercepts with gold grades that are significantly higher than our January, 2013 resource estimate. The January, 2013 resource estimate reported average gold grades of 0.0188 ounces per ton ("opt") Gold for the NI 43-101 compliant Measured & Indicated gold resource. Additionally, six of the seven Lower Zone holes contain gold intercepts that exceed the average grade of the ore mined in the late 1980s."
In fact, a very important observation was put forth,
"The results emerging from the 2013 drilling program to date indicate that the grades of gold-bearing clay intervals in the historic drilling database may be underestimated. Several of the recently drilled core holes were drilled near reverse-circulation rotary holes drilled by previous owners. When compared to the reverse-circulation rotary results, the gold assays from the 2013 core holes typically have higher grades..."
Pershing has one more group of holes to report before submitting the entire dataset for a third party resource update. The new resource will be available in February/March of next year. In my opinion, the upgraded resource could contain a million ounces at a materially higher grade and improved mix of Measured, Indicated and Inferred. I strongly believe that a million ounces in Nevada, at a past-producing site, with permitted and built processing facilities, is worth considerably more than a million ounces almost anywhere else on the planet.
A Million Ounce Resource Likely Just the Beginning
Importantly, a million ounces is likely just the beginning as the expanded resource remains open in all directions. I would not be surprised to see multiple millions of ounces come from this growing deposit. Why? The technical team has proven that they can find gold and only a small fraction of Pershing's property has been explored. Key to the Pershing Gold story is GROWTH. Evidence of a possible blockbuster mine continues to emerge with each new drill hole.
In commenting on the significance of the Lower Zone intercepts in the North Pit, Stephen Alfers stated,
"We believe additional drilling in the North Pit will demonstrate that the Lower Zone has continuity underneath the current pit bottom and is likely to contain gold mineralization similar to the Lower Zone intercepts north of the North Pit...The tabular, low-angle geometry of the Lower Zone and the underlying gold-mineralized jasperoids is very favorable because there is potential for continuity and a significant volume of gold-mineralized material that will be amenable to open-pit mining. We anticipate that the assay results for the remaining 16 holes drilled this year will show strong gold mineralization..."
It now appears likely that the company will be able to delineate a large tabular resource, amenable to low-risk open pit, heap leach mining. Tabular means wide intercepts and lower mining costs. With a gold price of $1,250/oz, Relief Canyon could become a solid producer and a valuable asset. At $1,600+/oz, the mine could be a substantial cash cow capable of aggressively funding new discoveries and development on the remainder of Pershing's extensive acreage.
Growing Resource and Grade Worth More in Nevada
Unlike many emerging producers, Pershing has the initial resource, ample historical / plus new data, in-place infrastructure and processing facilities, to be fairly confident that a mine is both economically and technically viable. Further, the capital required to reach first production is quite manageable. Of course, the manner in which the company raises the capital is an important factor in assessing Pershing Gold's relative value. I'm on record as saying that the company would be able to raise a combination of equity, debt and royalty finance in 2013. I was wrong. Capital markets and gold prices did not cooperate.
However, next year Chairman/CEO Steve Alfers will be in a much stronger position to obtain non-dilutive capital. Recall that coming from Franco-Nevada (FNV), Alfers is well prepared to negotiate and execute an attractive royalty or steaming deal as market conditions improve. Project-level debt funding should be obtainable closer to the start of operations in 2015. In the meantime, the company continues to execute superbly on this year's drill campaign and is comfortably funded well into next year.
Takeout of Pershing Gold a Reasonable Outcome
Pershing Gold is prudently de-risking the past producing Relief Canyon Mine and substantially increasing the size and grade of the deposit at the same time. While few investors are thinking about M&A at a time when gold prices are under pressure, Pershing Gold is very well positioned for a number of billion dollar + companies to consider. Interest in North American and especially Nevada-based assets is high. For example, Barrick Gold (ABX) effectively designated Nevada its most important jurisdiction. Two of Barrick's five main gold mines are in Nevada, the prolific Goldstrike and Cortez mines.
Pershing Gold would fit neatly into Barrick's Nevada portfolio. By my estimate, Pershing's all-in costs will be significantly lower than the $955/oz costs of Goldstrike in the nine months ending September 30, 2013. Please see further details on the Goldstrike mine on Barrick's website.
By no means is Pershing Gold the only junior gold company in Nevada. Other emerging producers include Midway (MDW), Corvus Gold, (OTCQX:CORVF) Rye Patch (OTCQX:RPMGF), ATNA Resources (OTCQB:ATNAF) and Paramount Gold & Silver (PZG). However, none of those have what Pershing has. Namely, 4 key attributes continue to stand out in Pershing's favor. Most importantly, Pershing is the only emerging junior that owns fully permitted processing facilities. Second, Pershing will reach initial production at a remaining capital cost well below peers. Third, Relief Canyon will be in production well before all (except Midway) and fourth, the company's ore grade is shaping up to possibly be one of the best (heap leachable) grades in Nevada.
Pershing has demonstrated access to capital and zero debt. Strong financial backers include Coeur Mining (CDE), corporate financier Barry Honig and highly successful billionaire investor Dr. Philip Frost. Mr. Honig continues to show his support for the company with open market purchases. In fact, his most recent transaction was for 563,000 shares on December 3rd.
I've been questioned about my long-standing loyalty towards Pershing Gold. For example, detractors complained to me that the January, 2013 reported ore grade of 0.0188 opt was too low. That concern should be put to rest as the grade could end up at or above 0.03 opt. Compare that to peer heap leach projects in Nevada. Another concern is that there has been a push back of scheduled first production. It's hard to name a single junior that isn't experiencing significant delays or a lot worse. Meanwhile, Pershing moves prudently forward with a project that keeps getting bigger and better.
At a time when many juniors are being left for dead, several projects stalled due to high cost structures and low grades, several more without access to capital of any kind at any cost -- Pershing Gold is no doubt attracting the attention of mid-tiers and majors. Investors may be surprised at what unfolds next year, there are multiple catalysts to watch for, including an updated resource report, PEA, upgraded stock listing and achieving key permits and funding initiatives. I continue to be supportive of Pershing Gold and look forward to all that 2014 has to offer.