In July this year, we published a piece outlining a number of reasons why the time was right to take a position in Pershing Gold (OTCQB:PGLC). The piece compared development stage mining investments to early stage biotechnology investments, with the similarity rooted in taking a position ahead of key progress updates in anticipation of positive news and the upside momentum that results. Of course, these positions are not random entries; investors should aim to gather as much information as possible before committing in order to shift the commitment from guesswork to educated action. In the previous piece, we highlighted the pending release of an updated technical report and suggested that investors who waited until after the report's release to take a position may have to do so at a premium to the then-quoted price. Fast forward to today, the report is complete and - despite our predictions - we have seen very little movement in the price of PGLC stock. With this in mind, what progress has the company made over the past six months, what insight can we gain from the updated technical report, and what might 2015 hold for Pershing? Let us take a look.
A quick introduction
For those not familiar with Pershing and its relief Canyon mine, here is a brief introduction. The Relief Canyon mine is located on a gold and silver trend in Pershing County, Nevada, with a history of successful production.
Prior to Pershing's acquisition of the property, the mine had produced 131,000 ounces of gold and 111,000 ounces of silver. In the last four years alone, the resource estimate of the property has increased from 155,000 ounces au to more than 700,000 ounces au as of March this year - an increase of over 360%.
The property is currently under what the industry refers to as "care and maintenance," meaning the property has a fully equipped processing facility that the company expects will be recommissioned alongside the property's support infrastructure - with this recommissioning expected to take place during the first half of next year.
On a fundamental level, this puts the Pershing property at an automatic advantage compared to numerous other junior mining companies at a similar stage of discovery, both on a permitting front - the relevant permits and regulatory processes can take years to complete - and a cost front - a facility such as the relief Canyon processing plant can cost tens of millions of dollars to build and maintain.
Now, what progress has the company made over the last six months towards achieving production?
$US12.2M raised in private placement
On July 31, 2014, the company announced that it had raised approximately US$12.2 million gross proceeds from the sale of just under 36 million units, with each unit comprised of one share of common stock and a warrant to acquire 0.4 of a share of common stock pursuant to subscription agreements with certain accredited investors. Pershing reported that it expects to use the net proceeds to advance its Relief Canyon project.
Looking at this in line with the company's financial reporting, total operating costs during the three months ended September 30, 2014 were US$3.97 million. In its last 10-Q, Pershing reported US$10.44 million in cash and cash equivalents. It is reasonable to assume therefore, that the US$12.2 million raised accounts for a large portion of this figure, and that - at a burn rate just short of US$4 million -the remaining cash should allow Pershing to operate until at least the beginning of Q3 2015. This initially may not seem too long a period, but constant financing requirements are a reality of the junior gold mining space. A US$12.2 million placement illustrates that - even at a time when gold prices are depressed - investors are willing to allocate capital to Pershing. While this obviously cannot be taken as a sure-fire sign that the company will make it to production, it does show that there is capital willing to support the company.
Higher Gold grades reported
The next big announcement came on September 15, 2014. On this day, the company announced that - as part of its 2013 drilling program in the North targeted area of the relief Canyon mine, seven diamond core drill holes had intercepted high grade gold mineralization. Further, the company reported that the highest grade of intercept of these holes revealed 5.2 feet of 0.867 ounces per ton of gold ("optAU") or 29.7 g per ton ("GPT") and that the thickest grade of these holes measured 86.1 feet of 0.104 optAU (3.562 gptAU).
Table 1 below illustrates the results of the drilling. One significance of these results is that the majority of the intercepts listed have higher gold grades than the company used to calculate its measured, indicated and inferred resource in its most recent resource estimate.
In response to the drill results, Stephen D. Alfers, Pershing Gold's Chairman and CEO, stated, "These results suggest that a program of replacement diamond core drilling in areas with previous Reverse Circulation ("RC") drilling may significantly increase the Relief Canyon gold resource because core drilling can achieve better sample recoveries compared to RC drilling and thus provides more accurate information about the location and grade of gold mineralization."
New Technical report released
On December 2, 2014, Pershing announced that the Mine Development Associates ("MDA") of Reno, Nevada had completed the latest technical report for the Relief Canyon mine. This technical report was one of the highlights of my previous article covering the company, and its results could be the near-term driver behind Pershing's stock price over the coming quarters.
So what did the technical report reveal about the Relief Canyon mine and its prospects? First, it's important to mention that the technical report offers a snapshot of the mine's resource estimate based on drilling completed throughout 2013, and includes metallurgical recommendations based on the results of column leach tests completed during 2014. This means that it does not include any results from 2014 drilling. The company expects to update the market with its results from the 2014 drilling program during 2015.
With this said, the updated technical report restated that the relief Canyon mine holds a measured and indicated resource of 552,000 ounces of gold and an inferred resource of 165,000 ounces. This, however, may well expand next year when the company completes its updated resource estimate and includes the results from the drilling program mentioned in the previous section. With Pershing expecting to drill a total of 95 holes by the end of this year, and up to 120 throughout the first two months of next, there will more than twice as many holes on which the company can base its estimates in the 2015 report.
With this said, what are the key points we can derive from the updated report? The company has not yet released the report, but in its press release announcing the completion, we can gain insight into Stephen Alfers' interpretation. According to the press release, the report identified an opportunity to reduce the levels of uncertainty regarding the gold intercepts that lay below the water table in the historic reverse circulation drill hole database by drilling core halls in these areas.
As mentioned in the previous section, the company has already taken advantage of this opportunity with the reverse circulation drill holes reported in the September press release, and there is reason to believe that gold mineralization is underrepresented as a result of difficulties arising from covering samples that lie beneath the water table. Quoted directly from the technical report, "The exclusion of some of the North area mineralized intercepts from the reverse circulation drill-hole database has undoubtedly eliminated some mineralization that is real."
To conclude the interpretation of the report, and taken directly from conclusions in the report itself, Stephen Alfers explained, "The Technical Report reaches an important conclusion about the Relief Canyon Mine," stated Alfers. "The report finds that the currently available metallurgical testing data are adequate to support our current mine plan for the Main Zone ores that we are planning to process using heap leaching."
Simply put, while the report did not take into consideration the most recent drilling program - the results of which are likely to be more revealing about the actual resource size at the site - it did conclude that the previous estimations were at least on point, and likely to have been understated. Further, it suggests that the company is on track to maintain its current momentum and drill program.
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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.
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