Submitted by Morgan Smith as part of our contributors program.
While companies like Pershing Gold (PGLC), with a market capitalization of under $70 million, do not regularly draw a great deal of attention by investors, significant news can place them in the public eye. The recent announcement that Pershing had completed a private placement with Coeur d’Alene Mines Company (CDE) is significant and bears further investigation. Additionally, the results of its second phase drilling program at the company’s Relief Canyon Mine make it even more interesting and give it some context.
The Private Placement
- What Will Be Coach’s Revenue And EBITDA Breakdown In 2016?
- How Much Can Instruments & Accessories Segment Add To Intuitive Surgical’s Revenues In The Next 5 Years?
- What Is EOG Resources’ Fundamental Value Based On 2016 Estimated Numbers?
- Brexit’s Impact On E-Trade: Delay In Rate Hike Could Hurt Results
- Can There Be A Silver Lining For Diageo In The Aftermath Of The Brexit?
- Why We’re Raising Our Price Estimate For Barrick Gold To $19
Under the terms of the private placement, Coeur d’Alene acquired 10,937,500 shares of Pershing stock at a price of $0.40 per share. Also participating in the transaction was a private shareholder of the company, whose acquisition of 1,562,500 shares drove the total capital raise for Pershing to $4 million. In addition to the shares, these two investors received terms that guaranteed their right to participate in any future financings so that each could maintain its respective ownership interest. The deal comes at a healthy premium over the prevailing stock price. Pershing has been trading in the mid-thirty cent range.
This type of cash infusion from one of the major gold miners like Coeur d’Alene is not uncommon, but represents a significant vote of confidence in the long-term prospects of the company receiving the money. Other majors like Newmont Mining (NEM), Goldcorp (GG) and Barrick Gold (ABX) make similar investments when they are justified. In this case, I believe this move is catalyzed by Pershing’s location.
Pershing is strategically located in a hot mining area. The Rochester Mine has produced 100 million ounces of silver and 1 million ounces of gold thus far. It is expected to produce between 2.6 and 2.9 million ounces of silver and 30,000 to 35,000 ounces of gold this year. The Florida Canyon Mine has produced 2 million ounces of gold up to this point.
It is important to realize that with Coeur d’Alene’s market capitalization of $1.45 billion, a sub-$4 million investment does not represent significant risk, even if that investment became worthless. With regard to the use of the proceeds, Executive Chairman and Chief Executive Officer, Stephen Alfers, stated, “As the largest U.S.-based primary silver producer and a growing gold producer, we are very pleased that Coeur has chosen to make this significant investment in Pershing Gold. We plan to use the proceeds to continue our exploration and development efforts at our Relief Canyon properties, including the Pershing Packard exploration project, and for general corporate purposes.” The expansion of the drilling project at the Relief Canyon mine is of critical importance to the future success of the company.
The company announced earlier this month that it completed the second phase of its drilling plan at the Relief Canyon mine. The results from the initial 12 holes are promising. The holes are located west of the current pit boundary, and the results are noteworthy because they suggest that there is significant mineralization beyond the borders of the current pit. Furthermore, the results indicate that the gold deposits are more than double the length of those discovered by companies that had operated the mine in the past.
The drilling program being pursued by the company has two principle objectives. According to Mr. Alfers, “These results represent real progress toward our first goal to expand known mineralization and advance the Relief Canyon Mine towards production. Our second goal is to generate targets and drill new discoveries on our 25,000 acre land position in the Humboldt Gold and Silver Trend in Nevada. Earlier this year we drilled new targets generated by our exploration group. Those results are pending.” The combination of success in the drilling of the initial holes and the positive momentum in expanding operations are each positive signs for the company. Overall, the company seems to be positioning itself well, particularly with the recent influx of capital that secured an important piece of financing.
Putting the Company in Context
Pershing has been trading steadily around the mid thirty-cent range since early May. Between June 18th and June 20th when the completion of the private placement was announced, Pershing jumped from 34 cents to 37 cents. Despite this small jump, I think shares could head higher based off of the value of the project. Coeur d’Alene made the investment because the results of the first 12 holes Pershing drilled under phase 2 at its Relief Canyon Mine drilling program showed better results than previous drilling by Southern Pacific Land Company in 1984. Specifically, the results show that SPRC-140 intercepted 100 feet of .44 grams per ton of gold, while RC12-017 got 0.504 grams per ton of gold. SPRC-140 was drilled by Southern Pacific Land Company, and RC12-017 was drilled by Pershing Gold this year. This represents a 15% increase at an added depth of 100 feet. Pershing Gold knows what it is doing, and Coeur d’Alene put its money where its mouth is.
Transparency/Disclosure: I am not a registered investment advisor and do not provide specific investment advice. The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research. I am a consultant to a third-party and have received one hundred fifty dollars for independent research. Always discuss investments with a licensed professional advisor before making any financial decisions. Statements made herein are often “forward-looking statements” as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. While I have researched this company thoroughly, my due diligence is not a substitute for your own.