Smart Money Flows Into Pershing Gold

Company announces some large-scale buys ahead of its resource report release

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May 11, 2016
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The are few things more reassuring as an investor and in particular a small-cap investor than the financial and operational backing of a billionaire guru. Similarly, there are few things more indicative of upside potential than large-scale institutional share buying ahead of a major milestone or catalyst. Pershing Gold Corp.’s (PGLC, Financial) most recent SEC filings tick both of these boxes and, in doing so, make the company an attractive allocation for any investor looking to piggyback the exposures of the smart money.

For those not familiar with Pershing, it’s a development stage gold-mining company poised to start production at its first major project. The real estate in question is a Nevada-based mine called Relief Canyon. It’s located in the same region as some of the U.S.’s biggest producing properties, operated by incumbent names in the space – Barrick Gold Corporation (ABX, Financial) and Coeur Mining Inc. (CDE, Financial) to name just two. Pershing has spent the last half decade drilling at the property with the goal of expanding its resource estimate, which currently sits at 739,000 measured and indicated and 70,000 inferred ounces of gold, as of July last year.

So who’s investing in Pershing, and what’s making them buy in now?

Barry Honig, Florida-based billionaire investor and philanthropist, just acquired more than 2.5 million shares at a price of $3.65 per share across four separate transactions. At the same time, Donald Smith of Donald Smith (Trades, Portfolio) and Co., one of the premiere gurus here on GuruFocus, picked up 1.85 million Pershing warrants, with a strike value of $4.35 each, across two separate transactions.

The purchases come just ahead of the company’s release of its latest National Instrument (NI) 43-101, which is scheduled to hit markets before the close of the second quarter this year. For those not familiar with the mining space, an NI 43-101 is a document that outlines pretty much every reportable aspect of a metal-producing mine and details its reserves and production capabilities. That the two above-mentioned billionaires are picking up millions of shares just weeks before Pershing is set to release its latest version of this report speaks volumes for their expectations of what it contains.

This potential upside catalyst aside, however, there’s another reason Pershing is drawing smart money – its production costs. The price of gold is low, and production costs have become increasingly important for miners of all sizes across the last half decade. Specifically, a figure called the all in sustaining costs (AISC) has become an industry focus. AISC is a measure of all costs associated with the mining and processing of one ounce of gold and as such, represents a miner’s profitability on its production.

In its latest report, Pershing revealed its AISC at $725 to $775 per ounce of gold – some of the lowest costs in the industry (average came in at around $920 per ounce during 2015). With gold priced at around $1,270 currently, Pershing’s margin on the 739,000 measured and indicated ounces is between $495 and $545. This equates to a close to four times multiple on the company’s current market capitalization. As gold increases, the margin widens, and Pershing makes even more per ounce.

Pershing is a company with a near-term upside catalyst, a host of billionaire backers and one of the widest margins on production in the gold mining space. With an ever-increasing inferred resource and a potential further expansion of this resource announced before the end of this quarter, it could be a nice exposure to a smart money allocation ahead of the 43-101 release.

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