Submitted by Frank Rollins as part of our contributors program.
A shocking job transition a few months ago preceded a 200% stock rally and should have flagged the attention of every American gold investor. The commotion has finally settled — along with the stock price of this curious company — and it is finally time to investigate a very perplexing event. In the end, investors might come to understand one of the most overlooked events of 2012.
With almost no warning, a press release was issued on February 10th stating that the Chief of U.S. Operations at Franco-Nevada (NYSE: FNV), a mining behemoth valued at over $6 billion, had quit his job. After his long tenure and very sizable compensation package, Steve Alfers decided to jump ship.
- Schlumberger’s 2Q’16 Revenue And Earnings Continue To Drop As Drilling Activity Remains Weak
- “Healthy” Food Options In The Core Menu Can Drive Revenues For McDonald’s
- Verizon’s Yahoo’s Internet Business Acquisition: Yahoo’s Internet Business Was Underperfroming
- Barrick Gold’s Q2 2016 Earnings Preview: Higher Gold Prices And Cost Reduction Initiatives To Boost Results
- Textron’s Q2 Earnings: Top-line Propelled By Increased Sales At Aviaition And Industrial
- JNJ’s Q2 Results Reaffirm Our Stance For Pharmaceutical Growth
He left for the most unlikely of places- a deserted hole in the middle of Nevada.
Most investors never read the press release, and those who did had no idea what it meant. To a few, however, it came as no surprise that within two months the share price of his new company had doubled. Of course, everyone else read the press release after the rally and was left scratching their head: Why did Alfers leave? Why was this chief executive not enjoying the security (and payroll) of Franco-Nevada as he neared retirement? Most of all, what was his crazy new mining company with zero revenues called Pershing Gold (OTC: PGLC)?
The Man Who Turned $50M Into Billions
After graduating from the University of Virginia School of Law, Alfers’ first career was not gold mining, but law. Having grown up in a Nevada mining family, Alfers spent his first 20 years giving counsel to companies needing help navigating corporate regulations in his home state. He worked with companies from multinational conglomerates to small ranches with mining claims. Later, Alfers branched out of law as his skills progressed, eventually securing a few executive positions. Over these years, he participated in the exploration and development of famous Nevada mines like Gold Quarry, Long Canyon, Round Mountain, and Northumberland.
By the time 2002 arrived, Alfers left his advisory roles to start his own company, where he found a passion for building companies from the ground up. When he started NewWest Gold, the company had roughly $50 million in assets. He structured those assets to raise financing, initiated work on mining, and found success quickly (most notably on his Long Canyon project). Alfers ended up creating 19 gold discoveries and packaged the sites into four main development projects. During this time, his original assets of $50 million at NewWest Gold had merged into Fronteer Gold for a value of CDN$186.9 million, the assets of which were later acquired when Newmont Mining purchased Fronteer Gold for CDN$2.3 billion in cash. That was the end of the story for Alfers’ first company (and his multi-thousand-percent return on his original investment). In 2007, Franco-Nevada, one of the largest natural resource companies in the world, hired Alfers.
The Billion-Dollar Position that Still Wasn’t Enough
As a lifetime expert in the Nevada mining industry, things at Franco-Nevada went very well for Alfers. From 2007 to the end of 2011, Alfers drove the growth of Franco-Nevada’s domestic operations. He served as senior consultant for the exploration and development drilling of the Long Canyon discovery and soon was promoted to Chief of U.S. Operations. With investments in over 250 companies around the world, Franco-Nevada receives royalty payments from thousands of mineral projects. Alfers led the company to increase its royalty and residual revenue while enhancing side operations, securing Franco-Nevada’s position as a front-runner in the mineral rights industry.
The Bankrupt Hole in the Ground Gets a New CEO
Barry Honig, director at a new company called Pershing Gold (then called Sagebrush Gold), approached Alfers with a proposition. Barry offered Alfers the chance to leave Franco-Nevada, a $6 billion company, to join him at a penny stock with assets of (drumroll please)… an abandoned, bankrupt mine in the middle of nowhere.
Needless to say, Alfers did not immediately jump at the offer. He probably laughed. Here he was, an executive at one of the world’s leading mining companies, and Honig was proposing a job transfer to a company with a net worth less than Alfers’ personal net worth. After Honig persisted, however, Alfers agreed to drive out to meet Honig at Pershing Gold’s Relief Canyon. Honig gave him a tour of the deserted facility and encouraged Alfers to think about it.
Alfers thought. Hard. Then finally, after a few weeks of contemplation, he made a decision that shocked the mining industry and is still barely understood by most American gold investors.
Alfers joined Pershing Gold and became its CEO. Contrary to what most people in the industry thought, however, it was not a blind jump into the abyss. Alfers had been calculating.
For one, Alfers would actually continue to work with Newmont Mining, despite technically leaving the company. Because Pershing Gold’s primary property was Relief Canyon, a 1,000-acre sliver of land bordered by Newmont and Coeur D’Alene property, it would need regular communication with Newmont. (Indeed, Alfers and Honig have already negotiated hundreds of mining claims and 13,300 contiguous acres in a $2 million deal with Newmont.)
In addition to its close proximity to Newmont, Pershing Gold offered a unique opportunity to have ownership in property nearby one of the most productive silver mines in the world: Rochester Mine. Coeur D’Alene’s (NYSE: CDE) Rochester Mine produces over a million ounces of silver per year, and Pershing Gold’s mine is just a few miles away and in the same physical trend.
Third, Alfers saw something in the company’s SEC filings that piqued his interest. Dr. Phillip Frost, a self-made billionaire with absolutely no experience in gold mining, had invested millions in Pershing Gold. Alfers explained what he thought about the investment when Dr. Frost later increased his stake, “It speaks volumes when such a renowned investor as Dr. Phillip Frost continues to increase his stake in Sagebrush Gold. This demonstrates his confidence in the team we are building to carry out the vision we have laid out.”
Fourth, and most importantly, Alfers had performed his own due diligence on the company, Already an expert at evaluating mines, Alfers realized that Pershing Gold owned a $20 million mine that went bankrupt due to the previous company’s excessive expenditures and poor foresight, not because the mine did not contain enough gold. To the contrary, the mine’s gold reserves continue to exceed even Alfers’ experienced expectations. The previous company had spent millions of dollars building Relief Canyon facilities and its state-of-the-art processing plant without focusing on getting the mine up and running. The prior company ran out of cash before they could start extracting gold, and as credit conditions tightened, the company was forced to declare a premature bankruptcy. Pershing Gold had the fortune of stepping in a few years later and purchasing the abandoned project at a significant discount, acquiring all of the previous company’s facilities in the process. Although they have been out of maintenance for a few years, the physical mine and its ore processing facility are more than Pershing Gold will need for many years of operations.
After considering everything above, Alfers decided to join the company. If he had wanted to make a good salary with a stable equity package, he would have never left Franco-Nevada, so clearly he thought there was opportunity at Pershing Gold. Only one question remains: Will he make a multi-thousand-percent return on this investment like he did with his original company?
Nowadays, Pershing is working on final resource testing at Relief Canyon, additional test drilling on other targets, and getting ready for restoring its dusty facilities during the upcoming months. Most land negotiations are complete, as are most of the key hires for the executive team. Alfers is working out of Colorado headquarters, close to the notable Colorado School of Mines which will provide young talent for any lower-level hires. For the near-term future, Pershing Gold will be advancing its efforts at Relief Canyon, adding mineral ounces to proven reserves, and of course, and keeping an eye out strategic land acquisitions.
The rest is yet to come. Alfers did indeed leave a $6+ billion company to join a penny stock. Maybe investors should revisit that forgotten press release and ask themselves why a man of his stature would make that choice.