Gold is trading around US$1,700 for more than a month already while energy prices have collapsed. In this setup the big gold producers are making a ton of money. Every larger miner with an all-in sustaining cost around US$1,000 (AISC) should be literally printing money here. The small guys however are still struggling. Yet, slowly more funding is coming into the junior and exploration sector while big producers certainly start looking for ways to deploy their cash.
As well, the ongoing tremendous volatility and continued uncertainty due to the global coronavirus (COVID-19) pandemic have brought gold and gold mining back into the spotlight. As it looks now, it is just a question of time until gold prices will reach the 2011 all time highs around US$1,920. Once these all time highs are taken out, gold should advance towards the mid 2,000s without too much problems. Therefore, the rally in the gold mining sector is still in its early stages and could easily run another two or three years.
While the senior miners have been already and strongly moving higher, the next group within the sector should be juniors followed by exploration companies. One promising but small company in the exploration sector is U.S. Gold Corp. (NASDAQ: USAU), a publicly traded, U.S. focused gold exploration company with a portfolio of several high potential exploration properties. While their Copper King property is located in Southeast Wyoming, Keystone and Maggie Creek are exploration properties on the Cortez and Carlin Trends in Nevada.
10:1 share consolidation in March
In March, U.S. Gold Corp. did a 10 for 1 reverse split. Now, the company has a very tight share structure as there are only 2.9 million shares outstanding (fully diluted 3.76 million) which leads to a market cap of currently US$12.02 million. As most brokers, financial advisers and especially institutional investors in the United States cannot recommend or buy into penny stocks, U.S. Gold Corp. now trading around US$5 certainly is above the critical threshold here. As well the stock continues trading at the Nasdaq as it regained compliance with Nasdaq’s minimum bid price through this stock consolidation.
Also in march U.S. Gold Corp. completed a US$2 million raise through a securities purchase agreement with certain institutional investors. Now, the company has about US$2.6 million cash in the bank and no debt. This cash should take the company probably through the next 12 months. However, at some point U.S. Gold Corp. will have to raise more money. Of course, in this increasingly bullish environment for gold, this should not be that big of an issue. But it is important to mention, at the same time, if the stock does perform, the warrants from this last raise sitting at US$7/share might get exercised and could bring in another US$2.5 million.
Updated economics for Copper King
Generally, U.S. Gold Corp. is combining robust economics with district-scale exploration, in mining friendly U.S. jurisdictions. Its Copper King project has near term production potential as a development stage, gold-copper-silver-zinc project located in the Silver Crown Mining District in Southeast Wyoming, 20 miles west of Cheyenne. The claims consist of 2 state leases with a total area of 1,120 acres. The resource comprises of 120 drill-holes, totaling 18,105m, within the Copper King deposit. The high-grade mineralization is exposed at the surface surrounded by a large, lower-grade zone with potential for expanding.
Copper King Internal Update March 2020. Source: U.S. Gold Corp.
The updated economics of Copper King showed that based on a gold price of US$1,600 and copper at US$2.80 the NPV is at US$321 million with an IRA of 52%. Applying these numbers to the PEA block model pit optimization would increase the milled ore tonnage from 133 Mt to 170 Mt. and would allow a doubling of the proposed processing rate to 20,000 tons per day. This could generate an annual production of approximately 80,000 ounces of gold and 20 million pounds of copper! Project life would be approximately 11 years, but very likely extendable as the ore body is open for expansion in several directions (at depth, to the west and south-east).
These numbers certainly show the large potential of Copper King. If gold goes to US$2,000 per ounce, the NPV of Copper King will be around US$550 million. So there is huge leverage to the gold price. Normally, a development stage project like Copper King should be trading at 10 to 20% of NPV. And even at 10% of NPV, U.S. Gold Corp. would be a US$30 million market cap and a US$15 stock.
At Keystone U.S. Gold Corp. wants to prove a world class deposit
U.S. Gold Corp.’s other two projects are Keystone and Maggie Creek. These are district-scale exploration properties on the Cortez and Carlin Trends in Nevada. Keystone is just 10 miles south of Barrick’s (GOLD) Cortez Hills Mine Complex. Maggie Creek is approximately 10 miles northeast of Newmont’s (NEM) Gold Quarry Mine on the prolific Carlin Trend.
The target drilling should commence in 2nd half of 2020 and will hopefully at some point bring discovery success. The exploration team has extensive Nevada experience and has advanced Keystone to specific drill targets.
U.S. Gold Corp., Weekly Chart as of May 14th, 2020. Source: Tradingview
The last time I wrote about U.S. Gold Corp. was in April 2019. The stock had just broken out of a bullish falling wedge and consequently rallied from US$9.30 straight to US$15 within the following six weeks.
Since then, the stock has been in a multi-month downtrend with the coronavirus panic as the grand finale! This global panic and the stock-market meltdown took the share price all the way down to US$2.60 flushing out all the weak shareholders. From there, a sharp reversal followed in mid of March very likely marked the end of the overall downtrend. Within just 9 days U.S. Gold Corp. rallied from US$2.60 to US$12.65 while its daily trading volume exploded for a few days.
Now, the stock has calmed down and is trading sideways since early April. Technically speaking, pressure is often building in such sideways congestions which usually end with an explosive move. In the current gold environment, probability clearly points to a breakout to the upside. In that case, a rally towards US$7 to US$8 seems to be very likely. Above that the next resistance zone comes in around US$10.
On the downside, prices below US$3.75 would be a warning signal. But only if the stock trades below US$3 again the reversal has definitely failed.
U.S. Gold Corp. continues to make the right steps for a small exploration company. Last year they hired Ryan K. Zinke, now they did a reasonable stock reverse split and raised capital once again. Without a doubt, it is a small company but all their assets are in safe mining friendly U.S. jurisdictions which is getting a really important advantage given the increasing geopolitical tensions as well as the political instability in many other parts of the world.
With only 2.8 million shares outstanding, the tight share structure could quickly push the stock price to US$7 or even the recent highs around US$12. H.C. Wainwright & Co. has a 12-month target price of US$14.50. At current levels U.S. Gold Corp. seems to be a promising exploration bet and at the same time a long-term value play. However, investors will have to patiently sit through the ups and downs of such an exploration company.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article covers a microcap stocks. Please be aware of the risks associated with these stocks.