The Nevada Gold Rush Portfolio

by: Simit Patel

As I spent time scouring through the thousands mining companies out there in the quest to find potential big winners as well as safe bets for appreciation, I find myself continually referring to the same territories again and again. Certain properties with the right geography to make mining cost-effective, a pro-mining legislative environment, and an established infrastructure constitute many of the most compelling opportunities. Combine that with companies that have highly talented management teams and a healthy balance sheet, and I'll be inclined to invest.

And it is with these considerations in mind that I find myself obsessing over certain parts of Nevada. Specifically the Carlin trend, which has proven to be the gift that keeps on giving. Here's a nice article for investors on the geology of the Carlin trend. Nevada has prospered greatly due to the mining industry, and has the regulatory framework in place to allow for cyanide heap leaching and continued mining of low grade ore at economically viable rates. And while it is obvious the U.S. has some pretty significant problems, I still think it is a favorable jurisdiction relative to the options for miners -- especially on the state level in Nevada. If nationalization of mines does occur as part of the process of reconciling the 15+ trillion USD in debt the U.S. has, I would suspect mines to be compensated with a decent amount of dollars, devalued as they may be, so I consider the risk acceptable and the risk/reward ratio to be favorable.

Here's a short run down of companies I've invested in as part of my "Carlin Trend Portfolio":

Newmont Mining(NYSE:NEM) and Barrick Gold (NYSE:ABX) -- Both of these companies are big players, producers, and dividend issuers. Their presence here is important, as it makes them well-positioned to be acquirers of the smaller explorers in this area. I expect both them (especially Newmont) to increase their dividend yield as the price of gold accelerates. See my previous coverage of these two for their value as safer dividend plays. I do like Newmont more than Barrick as I think it has greater dividend potential and its riches were built largely on the Carlin Trend. It has what I regard as a bit of a "home field advantage" when it comes to Nevada.

Eurasian Minerals (NYSEMKT:EMXX) -- Thanks to its recent acquisition of Bullion Monarch, Eurasian Minerals now has a 1% royalty on a property mined by Newmont that previously served as Bullion Monarch's entire revenue. This deal illustrates the potential that Carlin has, especially when Newmont is here to serve as the "smart money" capable of pushing prices higher.

Evolving Gold (OTCPK:EVOGF) -- Another explorer I think is promising, and a solid potential acquisition target. See my previous coverage.

One I haven't purchased yet, though is on the target list, is Rye Patch Gold Corp (OTCQX:RPMGF). This is another explorer that has the right idea: Build a team with geological talent and expertise that can find promising properties, focus on Nevada, and establish deals with big players to do the heavy lifting. In my opinion, Rye Patch meets those requirements and has Kinross Gold (NYSE:KCG) as a shareholder with a 15% stake.

One that I currently don't like, but am keeping an eye on because I think it could be something interesting at some point, is Great Basin Gold (NYSEMKT:GBG). The company is on the Carlin Trend, as well as some other areas, and have some production going on already. But its balance sheet has more debt than I like to see relative to its production, and cost per ounce leaves something to be desired. Still, though, it's trading basically at book value. If there's some type of broad sell-off in gold stocks that pushes Great Basin down to less than half its book value, I think it might be worth revisiting. At the end of the day, I do believe gold is going to go past $5,000 in time. And when it does, people are going to love the Carlin Trend even more. At those type of gold prices, Gold Basin's operations look much healthier and its positioning in the Carlin Trend will be enviable. Of course, while I do consider it likely that gold will go beyond $5,000, I do not like to invest in mining stocks that require that outcome to be favorable -- and so I'll need to see Gold Basin become irresistibly cheap before taking the plunge.

There are, of course, many companies focused on the Carlin Trend, for the reasons noted in this article. It is a space I'll be watching closely.

Disclosure: I am long OTCPK:EVOGF, ABX, NEM.

Additional disclosure: I am long Eurasian Minerals (EMXX) and may initiate a position in Rye Patch Gold Corp soon.