Nevada: The Mother Lode

 |  Includes: ABX, CDE, GG, GSV, KGC, NEM, PGLC
by: Randall Radic

When speaking of Nevada, most people associate glitz and glamor with the Strip in Las Vegas. However, Nevada is becoming famous for another kind of glitz and glamor - the kind that sparkles - gold. In 2007, Nevada's gold mines produced six million ounces of gold, a number that fell to five and a half million ounces in 2011. That decrease in supply was offset by a 33 percent increase in the price of gold.

Nevada's gold mining industry has evolved in two directions: the so-called major gold companies mine and produce gold, while the so-called juniors perform exploration and discovery. When one of the juniors makes a significant discovery, the majors come along and buy them out. According to the Chicago Financial Times, the cost of the average buyout is $150 per ounce of predicted reserves.

The world's fourth largest gold mining company is headquartered in Nevada: Barrick Gold Corporation (NYSE:ABX), which produced just over three million ounces of gold in 2011. Two of Barrick's mines - Goldstrike and Cortez - accounted for two-thirds of that production.

Other major companies with operations in Nevada include Newmont Mining Corporation (NYSE:NEM). Newmont produced 1.7 million ounces of gold in 2010. Goldcorp Inc. (NYSE:GG) believes its Marigold Mine has over two million ounces of gold reserves. Goldcorp shares rose significantly in the last few days. At last check, GG shares were trading 1.78% higher at $36.11.

And Kinross Gold Corporation (NYSE:KGC) operates an open-pit mine with proven and probable reserves of 1.4 million ounces of gold. Kinross Gold, which carries out its gold production and exploration activities in Canada, U.S., Russian Federation, Brazil, Ecuador, Chile, Ghana and Mauritania, rose recently to $7.78. At last check, the stock was trading 3.61% higher at $7.74 on above average volume of 9.38 million. Kinross Gold will release its second-quarter results on August 9.

Stocks in all these companies are undervalued at the current time, especially with their earnings growth estimates which range from 23 percent for Barrick to 8.6 percent for Newmont.

Nevada's gold production should increase as more gold reserves are discovered and new mines are established. The juniors will make the discoveries. And there are a number of aggressive juniors in Nevada: Pershing Gold (NASDAQ:PGLC) just announced a new discovery located at their Relief Canyon property, and upped their land holdings from 1,100 acres to 24,000 acres. Pershing also made an important strategic acquisition with the purchase of a $15 million processing plant at its Relief Canyon property. Then Pershing signed a deal with Victoria Gold and Newmont Mining. Pershing recently closed a private placement with Coeur d'Alene Mines Corp. (NYSE:CDE), Pershing's neighbor to the north and the largest silver producer in the United States.

Another junior, Gold Standard Ventures Corporation (NYSEMKT:GSV) is exploring and developing properties in the Carlin Trend area. Initial results have been positive and Gold Standard Ventures is projecting new discoveries - perhaps in the millions of ounces range. The company is drilling to verify and expand the development.

Nevada's juniors rely upon a well-understood concept in the gold mining industry: nothing succeeds like success, which translated means the best place to discover new reserves of gold is right next door to current deposits. Deposits tend to occur in bundles. And Pershing Gold, Gold Standard Ventures and the other juniors in the state appear to be located in prolific areas with good infrastructure.

With the price of gold well over $1500 per ounce, future trends indicate that investing in the gold industry, especially in Nevada, should prove rewarding.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.