As viewers of the Discovery television series Gold Rush know, mining for gold is a difficult and risky business. One of the purest exploration-stage gold companies, Valor Gold (VGLD.OB), has all the characteristics of such a Gold Rush venture: Lots of uncertainties and a high-risk/high-reward proposition for investors seeking a massive payday. This article will look at the history and current state of Valor Gold including its gold properties, Nevada's mining renaissance, Carlin trend discoveries, and the outlook for this unique company.
Drilling for "Elephants"
Valor Gold was established in May 2012 when Pershing Gold (NASDAQ:PGLC) sold two of its non-core projects to Valor Gold. Valor Gold then acquired a public company (Felafel) in order to be able to access the equity capital markets more efficiently. Pershing Gold still retains about 38% of Valor Gold and 1% of the net smelter return royalties and production royalties of Valor Gold's two projects, North Battle Mountain and Red Rock.
Valor Gold operates in an area of Nevada widely regarded as "elephant country." The state's north-central region is world-renowned for elephantine gold discoveries, including the following multi-billion-dollar gold mines. Valor Gold operates...
6 miles from Newmont's (NYSE:NEM) McCoy Cove Mine (6 million ounces of gold)
15 miles from Newmont's Pipeline Mine (10 million ounces of gold)
18 miles from Barrick Gold's (NYSE:ABX) Phoenix Mine (8 million ounces of gold)
20 miles from Barrick's Cortez Hills Mine (15 million ounces of gold)
Valor Gold's North Battle Mountain and Red Rock projects (both leased for up to 99 years) are located on the Eureka-Battle Mountain gold trend. Its North Battle Mountain project consists of 36 unpatented lode mining claims on 700 acres. This project already has geological mapping and gravity tests performed, and the company is currently identifying the best drilling targets.
As mentioned above, the Red Rock project is six miles east of Newmont Mining's (NEM) McCoy Cove mine, 15 miles west of Barrick Gold's (ABX) Pipeline Mine, 18 miles south of Newmont's Phoenix mine, and 20 miles west of Barrick's Cortez Hill mine. In addition to proximity to the Eureka-Battle Mountain, Valor Gold's Red Rock project is also close to the Rabbit Creek and Caetano Caldera gold trends with two historic drill holes. This project has 269 unpatented lode mining claims on 5,600 acres.
Gold In North-Central Nevada
According to the U.S. Geological Survey, Nevada contains about 11% of the world's gold production and 74% of the United States' gold production. Specifically, north-central Nevada (where Valor Gold is located) has the highest concentration of gold in the nation. North-central Nevada is specifically rich in Carlin-type deposits that spread underneath large land areas. Indeed, Nevada's Bureau of Mines and Geology estimates that 192 million ounces of gold have been mined from Nevada in total, with 5.3 million ounces produced in 2010 alone. The New York Times highlighted the gold deposits in an area near Valor Gold and the significant job creation in that area.
Many investors do not realize that Nevada is experiencing an incontrovertible "second gold boom" due to Carlin trend gold mining. Carlin trends in north-central Nevada account for 1.4% of the gold that has ever been mined in the history of the world. New technology and sustained gold prices above $1500 per ounce have allowed companies to mine deposits that were not economically feasible in the past.
These technological advancements have also reinvigorated the silver market, which is often created as by-product of gold mining. (Mines in Nevada produced an estimated 7.4 million ounces of silver in 2010.) When added to a skilled workforce, favorable legislation, pristine weather year-round, and one of the safest countries in which to operate, Valor Gold is literally in the middle of a modern-day mining renaissance.
Beyond its promising geographical area, Valor Gold has a proven management and access to a friendly neighbor company, Pershing Gold. The two complimentary companies share a few key officers, including Barry Honig- a 9% shareholder in Valor Gold and board member at Pershing Gold. Second, David Rector is a director at both Pershing Gold and Valor Gold and has extensive experience with gold drilling companies. Finally, Valor Gold is led by CEO Arthur Leger. Leger has served as a consulting geologist for a number of exploration companies and has extensive business experience in the natural resource sector. The Valor Gold management team is also advised by a two-member geological board with extensive experience in gold exploration.
Outlook for Valor Gold
In summary, Valor Gold is located in one of the most concentrated areas for elephant-style gold deposits, sits within 20 miles of four multi-billion-dollar gold mines, benefits from one of the most favorable mining jurisdictions in the world, and has some of the most experienced executives in the exploration industry. The market is also stable: The average cost of gold mining is $500 per ounce, while the price of gold is currently above $1,700 per ounce. Finally, initial drilling at Valor Gold's Red Rock project is promising, with up to 13 grams of gold per ton of rock- a profitable deposit pending further study.
Although every exploration-stage company carries certain investment risks, if Valor Gold is able to find an economically-feasible gold deposit in north-central Nevada, it will likely be an elephant (for the multiple reasons listed above). With the price of gold sustaining all-time highs, many investors are looking for outsized potential to complement more conservative holdings like gold bullion. Valor Gold represents a prime opportunity for investors looking to participate in Nevada's mining boom.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: We seek IR business from all of the firms in our coverage, but research covered in this note is independent and for prospective clients. The distributor of this research report, Gould Partners, manages Takeover Analyst and is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence.