Seeking Alpha
Deep value, long only, research analyst, CFA
Profile| Send Message|
( followers)  

Summary

  • Pershing Gold's June 23rd corporate update provides useful information, including the possible discovery of a new gold/silver zone 2 miles north of Relief Canyon.
  • Company remains on track for first production next year with some analysts calling for 80k ounces of gold per year as soon as 2016.
  • Pershing is unique in the small amount of remaining capital required to reach production and its 100% owned, built and permitted heap leach facilities.

Pershing Gold (OTCMKTS:OTCQB:PGLC) recently raised $9 million in fresh capital. Although investors might not like to see equity dilution, this deal was done at the market price and is restricted stock. This means that Pershing remains debt-free and unhedged, two attributes that continue to make it a prime takeover target. At a time when most junior gold companies are still finding it difficult to impossible to raise capital, Pershing's committed financial backers are dead set on getting Pershing over the finish line.

I think it's important to note that the company's management team has been keeping investors better informed over the past several months. In the company's most recent corporate update on June 23rd, Pershing notes some important milestones and achievements. From that press release CEO Steve Alfers said:

"In this progress report on our 2014 program, we first announce the filing with the Bureau of Land Management ("BLM") of our Notice of Intent to drill a new silver rich gold target approximately two miles north of our Relief Canyon Mine area,"

This is exciting news as it mentions silver in a prominent way and opens up a new area of discovery. Investors have always known that there must be silver north of the Relief Canyon mine because Coeur Mining (NYSE:CDE) is a major silver producer at its Rochester mine located just a few miles away. Alfers goes on to say:

"The high gold values and the very high silver values in these samples taken approximately two miles north of Relief Canyon Mine suggest a new and different type of mineralized system from the one we are developing within the Relief Canyon Gold deposit."

Again, this is significant in that the company could be onto another viable deposit in addition to Relief Canyon, this one with a possible major silver component. I've always known that Pershing's 25,000 acres was a target rich zone with the possibility of hosting multiple mining complexes; there was a question of how quickly viable new deposits could be found. Make no mistake, this is still early days, but highly encouraging news in my opinion.

Results from a Second Master Composite Column Leach Tests Confirm Solid Recoveries

Results from a second test show 81.8% gold recovery from a 91-day leach period vs. the master composite column reported in May at 79.2% gold recovery in a 71-day leaching period. Alfers noted:

"We continue to be very pleased with the high gold recoveries and short leaching time frames in the column leach tests. These results clearly demonstrate the viability of using heap leach processing to recover gold from the Relief Canyon deposit."

Pershing Gold anticipates that a final report on the column leach metallurgy tests will be available in the third quarter of 2014.

Updated NI 43-101 Report and Internal Economic Analysis

Pershing Gold is updating its NI 43-101 report from March 31st. This detailed work is expected to be completed in the next few months. Following this report, the June 23rd press release says:

"Pershing Gold plans to complete and to make available the results of an internal economic analysis based on the MDA resource estimate, the gold recovery results from the McClelland Labs metallurgical study, the Company's work with equipment manufacturers and consultants to finalize and optimize mine processes, and current costs and commodity prices. Results of the internal economic analysis are expected to include estimates of anticipated production, cash costs and all in sustaining costs."

Some investors have been waiting for a Preliminary Economic Assessment, "PEA" from the company. Pershing believes that at this stage the completion of an internal economic analysis based on a third party resource estimate and verified gold recovery testing results can be done more efficiently, cost effectively and quickly than a PEA. Most important to me is that this internal economic analysis will include estimates of production, cash costs and all in sustaining costs--exactly what the market is waiting to see.

My final comment from the June 23rd update press releases is the following quote:

"The Company is continuing to advance discussions with the BLM to authorize reopening the Relief Canyon Mine under the current Plan of Operations. BLM officials toured the mine and processing facilities in May and are currently reviewing the Company's updated reclamation cost estimate, which is typically BLM's final step prior to authorizing a Plan of Operations."

This follows on similar comments made in Pershing's 10-k and suggests to me that initial mining activities could start before the 2nd half of 2015.

Market Buzz on Pershing Gold Continues to Grow

On May 28th, Cantor Fitzgerald initiated coverage of Pershing Gold with a Buy recommendation and a Price Target of $0.55 per share. In that report, the analyst points to a strong management team, a "nearly-new" processing facility and the past-producing mine being near production. This detailed report from a respected sell-side firm was a vote of confidence in Pershing's development into an attractive, low-risk Nevada producer. Further, the report touched upon some of the key metrics that investors are after. For example, Cantor estimates an all-in sustaining cash cost of $743.5/oz and production of nearly 85,000 ounces of gold in 2016. Importantly, Cantor's work only contemplates the growing Relief Canyon project, not other projects that may come to pass in over the next several years.

Recall also that Pershing Chairman/CEO/President Steve Alfers was in Switzerland in May where he made a presentation at the European Gold Forum. Institutional investors are increasingly coming across the Pershing name as Alfers attends high profile conferences like this one. In the presentation, he explained that the Relief Canyon Mine project is shaping up to have the capacity to produce up to 80,000 ounces per year. This would be a solid, low-risk open-pit mine with which to grow, and organically fund, the company's further exploration and development.

More recently, on July, 2nd, Ed Karr was interviewed on the Gold Report. He had a lot of good things to say about Pershing Gold including:

"My number one pick is Pershing Gold Corp. I have been a Pershing shareholder for a few years, and it has been exciting to watch the company develop....And Pershing Gold has just announced a new discovery, which is two miles north of its three main pits. That property is very close to the border with Coeur Mining's Rochester mine. Coeur Mining is already a shareholder in Pershing Gold and knows the situation on the ground very well. This discovery is a brand new, high-grade mineralization system that could very easily extend up into the Rochester mine/Coeur Mining properties. Pershing Gold has already announced some drill results at very good grades. Pershing Gold has announced a recovery rate of 81.8%. Pershing is also forecasting about an 80 Koz per year production; Pershing's all-in costs should come in at $750/oz."

Also in the Gold Report, Robert Chang, the Cantor analyst of the May research report on Pershing reiterated his Buy recommendation on June 23rd:

"With pedigreed management and an excellent jurisdiction, we remain very positive on Pershing Gold Corp....the company has announced its mid-year 2014 progress report, which was highlighted by significant progress towards re-opening the Relief Canyon Mine along with ongoing development drilling to expand the Relief Canyon resource and identify new exploration targets."

Importance of Nevada Growing

As many mid-tier and major gold companies continue to face severe challenges in foreign jurisdictions like Indonesia, Chile, the Dominican Republic, Russia and Kyrgyzstan, even Mexico with its recent tax increase -- the importance of doing business in the U.S., and specifically in Nevada, is increasingly clear. Both Barrick Gold (NYSE:ABX) and Coeur Mining reiterated that Nevada is front and center of their respective growth plans. Barrick in particular has been stung by a series of problems outside the U.S. including Pascua-Lama on the border of Chile and Argentina and the Pueblo Viejo project in the Dominican Republic.

With gold prices near $1,300/oz, down from $1,900/oz in September, 2011, gold companies can ill afford to take on resource nationalism alongside mine development and funding risks. Therefore, dozens of companies with far flung operations in remote corners of the world are anxious to revisit Nevada, (home to about three-fourths of all U.S. production). Barrick and Newmont Gold (NYSE:NEM) have been shedding high-cost, high-risk operations in places like Africa and Australia, to double down on Nevada. This trend is certain to continue. Gold producing assets in the state will increase in value as M&A activity escalates. Pershing is expecting to be in production next year. As such, Pershing remains a prime takeout candidate.

Conclusion

The Pershing Gold story continues to advance towards production next year. New discoveries are being made and the company's expert exploration and development teams are hard at work on a number of additional drill targets from in-fill drilling to step-outs to brand new areas of interest. Nevada is one to the best jurisdictions to mine gold and many mid-tier and major gold companies have been badly burned outside North America. Pershing is unhedged, debt-free and owns permitted and built heap leach assets that have a great deal of strategic value. The company has been doing a good job at updating the market this year. I expect to see further de-risking, value-creating news developments in coming months.

Disclosure: The author is long PGLC. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Pershing Gold Remains On Track For 2015 Gold Production