By Steven Ralston, CFA
There are eight intriguing aspects to the multifaceted investment case for Pershing Gold (OTC Markets:PGLC), but when one tries to assess their merits one by one, it tends to dilute the primary proposition that a) the company has acquired the past-producing Relief Canyon gold mine with considerable NI 43-101-compliant resources and recently modernized gold processing facilities and that b) management is fast tracking the development of the mine back to the production stage. Stephen Alfers, formerly Chief of US Operations at Franco Nevada (FNV:NYSE), was appointed CEO in February of this year and is spearheading the advancement of the mine, at which gold production is expected to recommence in 2014. Not only has the company's debt position been significantly reduced, but also, with the spin-off or sale of early-stage projects, Pershing Gold is entirely focused on restarting mining operations at the Relief Canyon mine and expanding the estimated resources on the surrounding 24,780 acres, on which the company recently acquired the mineral rights. Already three exploration programs have discovered additional gold mineralization both at and immediately adjacent to the Relief Canyon mine and also at several geophysical anomalies elsewhere on the company’s adjoining mining claims.
Headquartered in Lakewood Colorado, Pershing Gold is a junior gold company focused on the development of the Relief Canyon mine and adjacent properties. The mine is located on the southwestern flank of the Humboldt Mountain Range, approximately 16 miles east north-east of Lovelock, Nevada. In late August 2011, the company, then known as Sagebrush Gold, opportunistically acquired the mineral claims on a 1,020-acre gold property (including the past-producing Relief Canyon mine and a fully functional and recently refurbished gold processing facility) in a bankruptcy sale held for the benefit of the former creditors of Firstgold Corp. The creditors, (Platinum Long Term Growth LLC and Lakewood Group LLC) were paid $12.0 million in cash and $8.0 million of Senior Notes for the property. Then in September, Sagebrush Gold also obtained important operating permits, namely the Plan of Operations from the BLM and the Reclamation and Water Pollution Control permits from the Nevada Division of Environmental Protection. As a result, the company was authorized to conduct exploration drilling on certain approved sites. On March 5, 2012, Sagebrush Gold changed its name to Pershing Gold in order to better reflect the company’s focus on developing the Relief Canyon mine and surrounding claims, which are all in Pershing County, Nevada.
The Relief Canyon mine is located at the southern-end of a gold and silver trend that lies along the Black Ridge fault in the Humboldt Mountain Range. From north to south over a distance of 10 miles, the mines include Spring Valley (owned by Barrick Gold /Midway Gold), Rochester and Nevada Packard (Coeur d'Alene Mines) and Relief Canyon (Pershing Gold). Located in the Antelope Springs Mining District, each mine has a unique geological profile, but all share the Black Ridge fault, which either was the conduit of or truncated (depending on your interpretation) the mineralization (gold, silver, mercury, etc.) of the trend. Looking at the mines that parallel the Black Ridge fault, Spring Valley is a higher-grade porphyry-hosted gold system, followed by epithermal quartz vein deposits at the Rochester and Nevada Packard mines, and then in the south, the deposits are hosted by sedimentary breccia (Relief Canyon).
The Relief Canyon mine is composed of three open pits (the North pit, the Southwest pit and Lightbulb pit); all located near the southwest border of Section 16 Township 27 North, Range 34 East. The 1,020-acre property also includes the gold processing facilities and mill site claims which are situated less than two miles to the west in Section 18 of the same Township. Both sections, along with all other even-numbered sections, are public lands administered by the U.S. Bureau of Land Management (BLM). The intervening one mile square (Section 17 and other odd-numbered sections in the area) are private lands once owned by the railroad at the turn of the century. This checkerboard pattern of property ownership in Pershing County for 20 miles along both side of the original railroad right-of-way (now the Interstate 80 corridor) has created impediments for the overall economic development within the county and specifically has constrained the exploration of minerals and the development of mines. However, management has astutely begun to consolidate the mineral rights of the properties surrounding the Relief Canyon mine.
In the first half of 2012, Pershing Gold significantly advanced the consolidation of the Relief Canyon mining district in the southern portion of the Pershing gold and silver trend through several strategic acquisitions that added approximately 23,000 acres of BLM mining claims and private lands to the initial core asset of 1,020 acres encompassing the Relief Canyon mine and gold processing facility. Specifically, in March, Pershing Gold acquired the Pershing Pass property, which is comprised of approximately 9,700 acres of mining claims south of the Relief Canyon mine. And, in April, Pershing Gold acquired the mineral leases from Victoria Gold Corp. (TSX:VIT-V) and subleases from Newmont Mining (NEM:NTSE) on approximately 13,300 acres surrounding and to the south of the Relief Canyon mine.
The continuity of mining claims in this area of Pershing County (where this checkerboard pattern of alternating control of mineral rights exists) is critical to the optimal exploration and development of the economically-viable gold deposits. For Pershing Gold, in particular, the consolidation of mining rights expanded the NI 43-101-compliant gold resource by 67% from 155,000 ounces to approximately 258,000 ounces Au. The 43-101 Technical Report for Relief Canyon completed in June 2010 for Firstgold Corporation modeled the Relief Canyon mine deposit utilizing the assay results of holes drilled both on Firstgold’s claims on BLM land in Section 16 and on the adjacent former railroad lands in Section 17; however, the report only presented the mineral resources that lay within Firstgold’s claim block. With Pershing Gold’s acquisition of the mineral rights in Section 17, the remainder of the deposit model now can be attributed to PGLC. In addition, the geophysical anomalies surrounding and to the south of the Relief Canyon mine can be more easily explored and developed in both even- and odd-numbered sections based on geological exploration techniques and not hindered by prior claim boundaries.
A geological understanding of a mineral deposit is a key element in the discovery process, and an important underpinning for the design of gold exploration programs. The selection of the appropriate exploration methods are significantly influenced by the characteristics of the targeted geological model, the type of gold deposit and the geologic setting. Stratigraphic analysis or the study of rock layers provides insights into the identification of gold resources. The study of these subsurface formations, including their history and composition, aid trained geologists in pinpointing the location of potential gold mineralization. The objectives of stratigraphic analysis are to identify and delineate underground formations that contain economically-viable gold deposits.
The low grade gold mineralization in the North and South pits at Relief Canyon is contained within a mineralized breccia (rock composed of broken mineral and rock fragments cemented together) zone underlain by the Cane Springs limestone formation and overlain by the Grass Valley shale formation. The breccia horizon varies in thickness from 30 feet to over 300 feet, but averages roughly 100 feet. It has been interpreted that in the mineralizing process, hydrothermal fluids were trapped under the Grass Valley shale formation and migrated laterally, since much of the gold mineralization occurs in the breccia (the dominant host rock) near and at the contact with the Grass Valley formation (Auld Lang Syne Group) with some mineralization also occurring in the lower Cane Springs formation (Star Peak Group).
North Pit Koipato Group
As the assay results from Pershing Gold’s 2011 Phase I and 2012 Phase I exploration campaigns were analyzed, a new geological model was formulated. Not only did the drilling expand the low-grade gold mineralization found in the breccia horizon at the open pit mines and on trend to the southwest, but also new deposit zones of higher grade gold were detected, namely a Feeder zone and the Lower zone. When Firstgold controlled the mineral rights of the Relief Canyon mine between 1995 and 2010, most of the exploratory drilling targeted the delineation of the open pit mines; and therefore, the average depth of the 178 reverse circulation drill holes used in the resource estimate was only 503 feet as these predominantly shallow holes were testing for near surface mineralization. However, Pershing Gold's average drillhole depth in the Phase I drilling programs exceeded 950 feet as the company tested for possible deeper gold mineralization. As a result, deeper deposits were discovered between the Grass Valley and Cane Springs formations, along with a noteworthy revelation that at Pershing Packard anomaly in the northern end of the property, gold mineralization was detected in the Koipato Group. This is significant in that the silver and gold mineralization at the Nevada Packard mine and Rochester silver district immediately to the north (between one and five miles) occurs in the stockwork quartz veining hosted by the upper portion or Weaver formation of the Koipato Group.
The Nevada Packard mine is owned and operated by Coeur d'Alene Mines (NYSE:CDE and CDM: TSX), which interestingly purchased 10,937,500 shares of Pershing Gold in June 2012, thereby not only aiding in the financing of Pershing's exploration program, but also acquiring a 4.3% ownership position. In 2011, Coeur d'Alene Mines produced 1.4 million ounces of silver and 6,276 ounces of gold from its Rochester mine, where proven and probable reserves are estimated to be 29.6 million ounces of silver and 247,000 ounces of gold.
Pershing Gold has conducted multiple geophysical surveys (Controlled-Source Audio-Frequency Magnetotelluric, Induced Polarization/Resistivity, gravity and magnetics) that have detected several geophysical anomalies that have merited exploratory drilling. Reverse circulation and core drilling have produced initial positive results at five anomalies (from north to south): Pershing Packard (in Section 5 and mentioned above), the Range Front target in Section 9, the North target area (which extends at least 500 feet north of the North pit in Section 16), the Southwest target in Section 20 and the South Relief project in Section 19 approximately one mile south of the gold processing facility. Follow-up drilling is planned. The recently acquired Pershing Pass property to the south is slated for geophysical survey studies this winter with early-stage general reconnaissance, mapping and soil sampling having been conducted thus far in 2012.
The Relief Canyon project is unique in that a recently refurbished and barely used gold processing facility is located within a mile and a half of the open pits. The facility includes a 750 tons-per-hour two-stage jaw and cone crushing circuit, a telescoping stacking system and an adsorption desorption-recovery (ADR) solution processing circuit with four 8-ton carbon columns, an acid wash system and capable of operating at a 3,000 gallons-per-minute (GPM). The fully-operational processing plant was originally installed by Lacana Mining in 1985 and updated with $16 million of improvements by Firstgold, mostly in 2007. Also, there is a 1,500,000-ton capacity, 18-acre heap leach pad, which was completed in December 2008 and operated for only a brief period between January and April 2009. The reclamation permit allows for the heap leach pad to be expanded 300% to 72-acres with a 7,000,000-ton capacity. Pershing Gold does not face a prolonged permitting process since Firstgold previously advanced the processing facility project by obtaining the required permits, licenses, and authorizations. The facility can be used to process the ore from both the Relief Canyon mine and nearby mines.
Having spun-off or sold its early-stage projects, Pershing Gold is now entirely focused on restarting mining operations at the Relief Canyon mine and expanding the estimated resource. Entering 2012, Pershing Gold held several early-stage mineral exploration properties. To better focus on its gold projects, in January, the company entered into an option agreement giving American Strategic Minerals (Amicor) the right to acquire the uranium exploration rights held by Pershing in consideration for $1 million and 10 million shares of Amicor stock. American Strategic Minerals exercised its option in June and obtained all of Pershing's uranium assets, which included the mining claims and leased mineral rights on 7,200 acres in Arizona, California and North Dakota. Also, Pershing’s two gold prospect properties located in Lander County Nevada (Red Rock and North Battle Mountain) were rolled into Valor Gold, which was then spun-off in July. According to the latest 10-Q filing, Pershing Gold retains 25,000,000 shares (approximately a 38.6% ownership interest) of Valor Gold (VGLD:OTC BB) and 6,880,000 shares of American Strategic Minerals (ASMC:OTC BB).
Lastly, it is important to consider the sponsorship of Pershing Gold by two investors, Coeur d'Alene Mines and Dr. Philip Frost. Previously, it was mentioned that Coeur d'Alene Mines acquired 10,937,500 shares of Pershing Gold. The shares were purchased in a private placement priced at $0.32 per share in June. Though no overt statements have been made concerning the intent of the transaction, Coeur d'Alene’s second-quarter MD&A (management's discussion and analysis) filed on SEDAR states that the investment in Pershing Gold was one of eight strategic minority investments in silver and gold development companies made by Coeur d'Alene during the first nine months of 2012.
Also, Dr. Phillip Frost, ranked by Forbes as the 188th wealthiest person in the U.S. with $2.4 billion, holds a beneficial interest in the company as Trustee of the Frost Gamma Investment Trust, which currently holds 49,481,271 shares (or 19.28% of the common stock issued) of Pershing Gold. Dr. Frost amassed his fortune in the pharmaceutical industry, primarily from selling Ivax (a generic pharmaceutical manufacturing and distributing company) to Teva Pharmaceutical (TEVA:NYSE) in 2006. His initial position in Pershing Gold was obtained in May 2011 when Pershing Gold (then Sagebrush Gold) acquired Arttor Gold LLC, which held the mineral rights at Red Rock and North Battle Mountain and in which the Trust held a 33.33% ownership interest. Subsequently, in February 2012, the Trust acquired a portion of the Senior Notes that had been issued to former creditors of Firstgold. Over the next few months, through a series of transactions, the Senior Notes ultimately were converted into shares of common stock and Series D preferred stock of Pershing Gold. However, displaying continued interest, Dr. Frost (through the Trust) purchased an additional 1,562,500 shares of Pershing Gold at $0.32 per share in a private placement in June 2012. All told, it is estimated that Dr. Frost, the current Chairman of the Board of Teva Pharmaceutical, OPKO Health (OPK:NYSE) and Ladenburg Thalmann Financial Services (LTS:NYSE), has invested nearly $9.8 million into Pershing Gold helping the company fund operations and exploration campaigns.
Dr. Frost was contacted to comment on his investment in Pershing Gold. He stated “I am confident that Pershing Gold will be able to bring the mine at Relief Canyon into operation. I am pleased with the physical resource potential of this company and the leadership of Mr. Alfers and his team. My continued investment speaks for itself.”
As an analyst, numerous pieces of information are considered and evaluated in an effort to gain better insights into a company‘s operations and management's ability to successfully execute its business strategy. After having spent a considerable amount of time investigating and interpreting the Pershing Gold's business model and portfolio of mineral rights and leases, along with management's vision and ability to execute, eight relevant observations are particularly intriguing in assessing the investment proposition of Pershing Gold.
First, Pershing Gold opportunistically acquired Relief Canyon mine, a past-producing gold property along with a fully functional and recently modernized gold processing plant, in a gold producing area of Pershing County, Nevada. The value of the on-site, permitted processing facilities and massive heap leach pad should not be underestimated.
Second, the original 1,020-acre mining property was expanded by consolidating the mining leases and mineral claims around the Relief Canyon mine and at the southern end of the trend (not only through several acquisitions, but also by staking claims) that increased the total size of the lands controlled by Pershing Gold to over 25,800 acres.
Third, the consolidation of mineral rights expanded the NI 43-101-compliant resource estimate to 258,000 ounces of gold. In addition, the subsequent exploration program has enhanced the drilling database, which is expected to contribute to the further expansion of the resource estimate.
Fourth, recent drilling results have led to a new interpretation of the gold mineralization at Relief Canyon mine. Formerly, it was thought that the gold deposit was strata-bound between the Grass Valley shale and Cane Spring limestone formations. This mineralization in the Main Breccia zone is the basis for the resource estimate in the 2010 NI 43-101-compliant report. Under the new mineralization model, not only has the Main Breccia zone been expanded, but also two additional deposit structures (the Feeder zone and Lower zone) have been discovered in the North pit, both of which are new discoveries that are not in the current reserve estimate.
Fifth, several geophysical anomalies have been and are being investigated by reverse circulation and diamond core drilling, namely (from north to south) Pershing Packard (in Section 5 and mentioned above), the Range Front target in Section 9, the North target area (which extends at least 500 feet north of the North pit in Section 16), the Southwest target in Section 20 and the South Relief project in Section 19 approximately one mile south of the gold processing facility. Follow-up drilling is planned. The recently acquired Pershing Pass property to the south is slated for geophysical survey studies this winter with early-stage general reconnaissance, mapping and soil sampling having been conducted thus far in 2012.
Sixth, Roscoe Postle Associates has been contracted to provide an updated NI 43-101-compliant resource utilizing the results of the three drilling programs completed by Pershing Gold in 2011 and 2012. We expect the updated resource to include the expansion of the Main Breccia zone, the Feeder zone and Lower zone deposits detected at the Relief Canyon mine, along with the deposits in the Southwest target in Sections 17 and 20 immediately west and southwest of the Southwest pit. The updated NI 43-101-compliant resource estimate is expected to be announced sometime during the fourth quarter of 2012. Management expects that the updated resource estimate will be in the range of 600,000 to 750,000 ounces Au.
Seventh, the company has deep sponsorship from billionaire Dr. Philip Frost (Chairman of the Board of Teva Pharmaceutical, OPKO Health and Ladenburg Thalmann) and Coeur d'Alene Mines, which owns the contiguous mineral properties to the north.
Eighth, Pershing Gold is being led by an experienced CEO, Stephen Alfers, who left his position as the Chief of US Operations at Franco-Nevada to advance Pershing Gold from the exploration to the development stage. Prior to joining Franco-Nevada, between 2002 and 2007, Mr. Alfers was founder and CEO of NewWest Gold (NWG:TSX), a gold exploration and development company that at the end of his tenure was acquired by Fronteer Development Group (FRG: AMEX and FRG: TSX) for CDN $186.9 million.
Management is focused on advancing Pershing Gold to the production phase by utilizing the recently modernized processing facility to process the ore from the open pits at Relief Canyon mine. The preliminary economic assessment for the project is expected to be commissioned in early 2013. In addition, management is optimistic about being able to upgrade and expand the estimated gold resource. Since August 2011, exploration campaigns have been conducted to confirm and expand the estimated resource both in-and-around the Relief Canyon mine and at multiple anomalies targeted by geophysical surveys. Finally, management continues to be vigilant in looking for opportunities to further consolidate mining claims in the southern portion of the Humboldt Mountain Range through strategic acquisitions.
Management has cited that the development of the Relief Canyon mine and its surrounding mineral claims is emulating the advancement achieved by Allied Nevada in the redevelopment of the Hycroft mine. We find the unique circumstances and the focused redevelopment of the Relief Canyon mine of Pershing Gold to be intriguing, and we are closely monitoring the progress of the company, especially the expected milestone achievements of the completion of an updated NI 43-101-compliant resource and the re-initiation of gold production.
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