Pershing Gold Fast Tracking Redevelopment of Relief
Canyon Mine
By Steven Ralston, CFA
There are eight intriguing aspects to the multifaceted
investment case for
Pershing
Gold
(
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 188
th
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.
(PGLC): ETF Research Reports
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