Deep Value in U.S. Gold (USAU)
Good day everyone,
We are continuing our coverage of U.S. Gold Corp. (NASDAQ: USAU) a gold, copper, silver, and zinc exploration and development company.
Current price $12.83 per share
Outstanding shares (est.) 5.76 million
Float (est.) 4.74 million
Insider ownership 20.12%
The last time we talked about USAU was a month ago. Our current look at USAU shares indicates there could be some overlooked value there.
Last August the company installed Mr. George Bee as President. It’s interesting to note Mr. Bee’s background and what his contribution to USAU will be. All of Mr. Bee’s experience, and he has decades of experience, is in gold mining operations. He is the person a junior gold miner may hire to physically extract minerals from the ground.
Before his arrival, USAU was focused on its Nevada properties, Keystone and Maggie Creek, leaving the CK Gold property on the back burner. The company had a nice assessment, albeit a few years old, of the potential for CK Gold (then known as the Copper Ridge Project). The Challis Gold Project came to USAU with Mr. Bee.
The CK Gold property comprises about 1,120 acres (2 square miles), located just outside of Cheyanne, Wyoming, and is 100% owned by U.S. Gold Corp.
Now, the company is focused on the CK Gold project and for good reason. Last year we were telling you about the Copper Ridge Project and how a 2017 PEA (preliminary economic assessment) commissioned by the project’s former owner, indicated the potential for minerals valued at $200M.
Since 2017 USAU has updated the PEA through exploratory drilling; the CK Gold Project resource is based upon 120 drill holes totaling 18,105 meters and here is where it stands now:
926,000 Measured and Indicated oz gold and 223 million lbs. Copper.
174,000 Inferred oz gold, 62.5million lbs. Copper.
We want to focus JUST on the measured and indicated mineral quantities, ignoring the inferred mineral levels. Gold is currently priced at $1,863/ounce and the value of 926,000/oz would be $1.7 billion. Copper is currently priced at $3.64/pound and the value of 223 million pounds is $811M.
The CK Gold Project has a potential asset value over $2 billion.
The estimates also indicate 17 years to extract the minerals at a cost over $100M. So, how could these numbers relate to the value of USAU, a company currently valued at $71M? Let’s look at a possible scenario just utilizing the gold value, not the copper and let’s reduce the PEA assessment of 926,000 ounces of gold by 50%. We can also amortize the gold extraction over the 17 years estimated, and that the company cash burn could run $20M per year ($10M for mining operations and $10M for ancillary costs).
Those are some harsh scenario estimates, cutting the gold assessment in half, ignoring the copper, but we use them to illustrate a point. Given the scenario above the company could conservatively yield $30M in annual pre-tax income or $5.20 per share. So, what would the company value be at a P/E ratio of 5.0X or 10.0X? The answers are $149M ($26/share) and $299M ($52/share) respectively. Barrick Gold (NYSE: GOLD) currently trades at 13.6x P/E.
A PEA is an assessment, not gold in a vault. But we want to remind you that those 18K meters of exploratory drilling have yielded measurable amounts of gold and copper. It’s there.
We have maintained that USAU is a candidate for an exit to the big gold mining players like Barrick or Newmont. USAU President George Bee worked at Barrick Gold for 16 years. So, in an exit scenario what would a company pay to acquire USAU with potentially $2B in mineral assets? We don’t know, what do you think?
From a technical stand point the 14 day RSI is sitting at 48 following a drop in the share price from $17 to $12.83 indicating over sold conditions. It appears a reversal of this downtrend is starting with a bounce off from the 50 DMA.
We will have a follow-up report available soon,
The Traders News Source
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