RC: As they say, when you want to find a mine, the best place to look is in the shadow of a head frame. Nevada is the home of many world-class mines. It has the Carlin and Battle Mountain trends. It is easier to find elephants there because Nevada is where the elephants roam.
TGR: Which Nevada gold companies are your particular favorites?
RC: Let’s start with Pershing Gold Corp (NASDAQ:PGLC). It has the past-producing Relief Canyon mine, which has 809,000 ounces (809 Koz) gold Measured, Indicated and Inferred. The project has a short-term path to production: 6–12 months, once the decision is made. It is fully permitted and will require capital expenditures of only ~$12 million ($12M).
In addition, the company has been finding some spectacular gold intercepts just north of the mine, including 9 grams per ton over 14 meters (9 g/t over 14m) and 7.03 g/t over 16m. Pershing’s management actually thinks that it might be hitting a feeder system that could be a source for millions of ounces of gold.
Finally, the company has a good management team. Steve Alfers, the CEO, is the former head of U.S. operations for Franco-Nevada Corp. (FNV:TSX; FNV:NYSE). He left Franco to join Pershing, which speaks to how highly he values it. Alfers has experience in finding assets, including Long Canyon, which was sold to Fronteer Gold. His permitting people are quite strong. This is a solid company from top to bottom.
TGR: What’s your opinion of the Relief Canyon internal cost estimates published Nov. 19?
RC: What’s significant is the AISC of less than $800/oz. If this number holds, Relief Canyon will make money pretty easily, even at $1,050/oz gold. We are currently more conservative and are forecasting AISC to average $866/oz for Relief Canyon—more conservative, but still economic in the current gold price environment.
TGR: This Nov. 19 estimate does not include the latest assay results, correct?
RC: No, it does not. Given how good these results are and that the company continues to drill, it could potentially add many more ounces and improve the economics further still.
TGR: How does Pershing stand for cash?
RC: It’s in a fairly good position with about $13M now. It will likely need to raise a little more once the production decision is made.
TGR: Pershing’s land package was augmented significantly in January with the purchase of land from Newmont Mining Corp. (NYSE:NEM). Could Newmont be a suitor for Relief Canyon?
RC: Potentially it could be. Newmont may be waiting to see how much exploration upside there really is at Relief Canyon before it decides to pull the trigger.
TGR: How do you rate Pershing?
RC: A Buy rating and a 12-month target price of $8.55.
TGR: What else do you like in Nevada?
RC: Premier Gold Mines Ltd. (PG:TSX). This is one of those companies that has bought good properties at good prices. Its 100%-owned McCoy-Cove project is looking pretty solid, but more important is South Arturo, which we recently visited. Premier owns 40% of this, and Barrick Gold Corp (NYSE:ABX) owns 60% and is the operator. South Arturo should go into production in the middle of 2016, and will transition Premier Gold into a producer for the first time in its history.
We’re excited because Premier Gold will probably get a multiple expansion as a result. The key thing to note about South Arturo is that there is likely tremendous upside here as Barrick could be keeping its numbers on the project in-house. As far as we know, this project has ~ 440 Koz gold, which speaks to a two-year mine life. Of course, a company such as Barrick wouldn’t spend all this capital just for two years. So we expect a significant increase in ounces underground. In the meantime, Premier should realize $50–60M in cash flow over the first two years from South Arturo.
TGR: Besides the properties listed above, Premier has three others in Ontario. Hasaga is 100%-owned, while Trans-Canada Geraldton is a 50/50% joint venture (JV) with Centerra Gold Inc. (CG:TSX; CADGF:OTCPK) CADGF:OTCPK) and Rahill-Bonanza at Red Lake is a 44/56% with Goldcorp Inc. (G:TSX; GG:NYSE). Is this JV strategy a good one?
RC: It makes a lot of sense in the current environment. Premier has several good assets, but it does not have a history of developing and building mines. Its team is composed of a lot of former executives from Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). These people do have the history, but it’s a bonus that the company can get some of the best names in the business, such as Barrick and Goldcorp, to help it out. Premier has its fingers in many pies and has spread the risk to bigger and more experienced companies so that it can devote more attention to its earlier-stage projects.
TGR: How do you rate Premier?
RC: A Buy rating with a 12-month target price of $4.25.
TGR: Which Canadian junior producer do you like?
RC: We like Primero Mining Corp. (P:TSX; PPP:NYSE), which produces in Ontario and Mexico. Primero was once a market darling. It got a real kicking for its acquisition of the Black Fox mine in Ontario through its purchase of Brigus Gold. That mine has struggled for quite a bit but what we’ve seen over the last couple of quarters is that it seems management may be turning Black Fox around. It looks to be on the path to becoming an economic mine, as opposed to being a fixer-upper.
TGR: What about Primero’s Mexico mine?
RC: That would be San Dimas, a world-class mine located on the border of Sinaloa and Durango states, a safe part of Mexico. It had a strong Q3/15, reducing its gold-equivalent AISC there to $454/oz.
TGR: What is the company’s overall gold-equivalent AISC?
RC: It’s $775/oz for Q3/15. As Black Fox continues to progress, the overall AISC should continue to come down. I really am a little surprised just how fast Black Fox has come along.
TGR: How do you rate Primero?