E Pershing Gold – Steady Insider Buying And A Catalyst For Revaluation

Insider buying guarantees nothing, but there is really on one reason for insiders to be spending their own cash on shares. They believe those shares are going higher in the future for some reason.

After identifying an opportunity such as this I next try to reverse-engineer why insiders seem to think that shares are a good buy.

For Pershing Gold I believe that reason may be that the market will soon (relatively) be re-valuing the company as it transitions from developer to producer.

The Market Treats Producers and Developers Very Differently

Pershing is a pre-production gold developer.As a pre-production company, Pershing’s stock price is valued relative to its net asset value at a pretty sizable discount to gold companies that are in production.

Source: Pershing Gold Corporate Presentation

With a valuation of 0.6 times, its Net Present Value Pershing’s valuation is only 40 percent of that of Richmont Mines (RIC) and Timmins Gold (TGD). The discount to Klondex Mines (KLDX) is even larger with Pershing receiving only 30 percent of what Klondex does.

The market is of course, correct in this valuation difference. A producer has a reliable cash flow stream and has de-risked its assets. A true cash flowing ability of a development stage is much less well defined and therefore riskier.

But Pershing isn’t just valued at a discount to the gold producers in the chart above. It is also being valued at only half the valuation of the two other development stage companies included (Roxgold and TMAC).

That could explain the steady insider buying.

The Catalyst for the Company Would Be the Move to Production

The obvious catalyst for this valuation discount that the market is applying to Pershing’s share price being removed is the company becoming a cash flowing producer.

If the company’s projections are correct (see the chart below) Pershing’s cost per ounce of production will be in line or better than all of the other companies in the previous NPV chart. 

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Disclosure: I don’t own any shares of companies mentioned in this article.

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Intelligntinvestor 4 years ago Member's comment

In December 2016, NDEP (Nevada Division of Environmental Protection/Bureau of Mining Regulation and Reclamation Phase) issued the Reclamation Permit for Phase I expansion of the Relief Canyon Mine. Pershing Gold also has the approval from Bureau of Land Management for Relief Canyon Mine Expansion. Now, Pershing Gold has the permission to initiate the restart and expansion of Relief Canyon Mine. They are also working on air pollution control mechanisms. It shows that the company is progressing and investors seem happy about it (reflected in stock price).