Nevada Pacific Gold
Silver Stock Report
by Jason Hommel, June 22, 2004
In the first few weeks of writing my report on silver stocks, a number of readers brought many new silver companies to my attention. Nevada Pacific Gold (NPG) was one of them that stood out of the crowd, and was brought to my attention by one reader. NPG has one very large silver exploration project, Amador Canyon, and numerous gold projects.
As of June 2004, NPG has 47.4 million shares, fully diluted. There are 3.5 million warrants about to expire on July 15th at $1.35 Cdn, which may not be exercised unless the share price rises significantly. (Hint: don't bid the share price up to over $1.35 Cdn, or about $.98 U.S.!) There are 39.3 million shares outstanding, but I always count the shares as fully diluted when I'm so optimistic about a company. With a price of $.98/share Canadian, and counting by the fully diluted shares, even the warrants about to expire, this gives a market cap of about $34 million, U.S. Trading symbols to get a quote at Yahoo! finance: NPG.V (Canadian venture exchange) NVPGF.PK (U.S. pink sheets listing).
I own stock in about 15 silver companies. I've acquired most of my silver stocks in private placements. I almost participated in NPG's last private placement, but, instead, acquired all my shares in the open market. Of all my positions in silver stocks, my position in NPG is my largest that has not been in a private placement. For more about private placements, see my website, silverstockreport.com
David Hottman, Chairman of NPG, said two things that really caught my attention. First, the exploration potential of Amador Canyon was huge. It may contain from 200 million ounces of silver up to a billion ounces of silver. It was estimated that Amador Canyon may contain from 50 to 250 million tonnes of material with a grade from surface samples averaging 4 ounces of silver per ton (up to 75 oz./ton!). Unfortunately, the overall size of thetonnage is not contained at the company website, perhaps due toregulatory demands (not 43-101 compliant). This is a relatively low-grade silver exploration deposit, but potentially very large. Although it had notbeen drilled, drilling is taking place now, with a 10,000 foot drill program. NPG announced on April 19th, 2004, that they started drilling AmadorCanyon, so results may be in soon.
At one time, this silver project was owned by Sunshine Mining, one of the three very large silver companies in Cour d'Alene. The other two companies are Hecla and Cour d'Alene. This goes to show that a major silver miner was interested in the Amador Canyon silver project.
Second, David Hottman said that the value of the company lies mostly in the many gold properties in Nevada. He told me that perhaps 90% of the value of the company was in the 10 gold projects, and only about 10% of the value of the company is in their large silver project.
Now, I'm a silver bug, and believe silver is far undervalued as compared to gold. I want silver investments, and leverage to silver, I don't want gold investments. Since silver is so cheap, this creates a situation where actually mining silver is generally not profitable. And so, in this environment, silver properties, if you can find them, are cheap, and undervalued--and perhaps undervalued even by David's own assessment that this project might represent about 10% of the value of the company.
I don't normally include companies on my silver stock list if they have such a small portion of the value of their company in silver. Nevertheless, I have invested in NPG, and I put it on my list, because the exploration potential for Amador Canyon seems so large to me, in terms of the potential cost for investors in NPG to acquire those resources in the ground by buying shares of NPG.
Doing the math, it works out like this: If you divide the market cap of $34 million dollars for NPG, by the potential silver resources of 200 to 1000 million ounces, you might pay from $.034 to $.17 per ounce of silver in the ground when buying NPG stock. And this does not even include all the gold properties!
Admittedly, NPG does not have "silver resources" as defined by Canadian guidelines, 43-101. To qualify for that, multiple rounds of drilling need to be evaluated and calculated by a qualified geologist. At the present time, NPG is still awaiting the results from the first round of drilling at Amador Canyon, so although drill results are expected soon, a 43-101 qualified resource calculation is not yet in the works.
I know there are increased risks since there are no measured and defined resources. But this is why I like Nevada Pacific Gold. They also have all those gold properties, which I look at as a measure of safety and increased diversification.
Since I invested in NPG about 35 weeks ago, they have done one very large private placement for about $7.8 million Cdn in January, 2004. They used most of this money to acquire a gold-producing property, the Magistral mine in Mexico, which will give the company a positive cash flow. The price for the Magistral was $8 million, U.S., so there remain a few more payments to complete the purchase.
NPG is increasing production at the Magistral gold mine to where it can produce 40,000 ounces of gold per year at a cash cost of US$250/oz. It has an 8-year mine life. At $400/oz., and cash cost of $250/oz., 40,000 oz. works out to $6 million, U.S. per year.
Although this is an outstanding return in its own right, the purpose of this cash flow is to take the profits and use them to further develop their many big gold properties in Nevada.
Nevada is the location of huge gold deposits, and many major mining companies have their projects there, such as Placer Dome, Newmont, and Barrick. The state of Nevada produces about 8 million ounces of gold per year, which is exceeded only by South Africa and Australia. The Carlin Trend in Nevada is said to be the second largest and richest gold mining area after Witswatersrand in South Africa, and has produced 50 million ounces of gold up to today, and is said to still contain 100 million ounces of gold. Furthermore, politically, Nevada is very friendly to mining, and is probably one of the safest locations on earth to mine gold.
The Magistral gold mine in Mexico is an outstanding return on shareholder's investment in the recent private placement. Can such returns really be true? I believe they are, because there have recently been many other acquisitions in Mexico by other mining companies such as PAAS, SSRI, and other juniors that also work out to exceptionally low P/E ratios such as from 1 to 3. See also Genco, Endeavour Gold, and Avino.
Not everybody can be a mining expert and travel to Mexico to scout around for under developed mining projects. I'm not. But I can spend the time on my computer, and invest in the companies run by such professionals, and take advantage of the opportunities they bring to the investing public.
Just this evening, while writing up this report, I noticed that NPG optioned another gold/silver property in Mexico that, typically, "has seen no exploration using modern methods."
David Hottman, Chairman of Nevada Pacific Gold, is a mining professional that I trust, because he's already been involved with success. David Hottman was a founding member of Eldorado gold. "During his tenure, Eldorado's market capitalization grew from Cdn $7 million in 1992 to a peak of Cdn $781 million in 1996." Eldorado is now a strong mining company that trades on the AMEX under the symbol EGO, with a market cap of $650 million, with a recent high of $992 million at the end of 2003.
In addition, Richard Barclay, CEO, has a similar track record of success in the mining industry, as founding President and CEO of Eldorado Gold Corporation.
Nevada Pacific Gold has come a long way in the last 35 weeks. To recap, they raised $7.8 million Cdn, acquired a producing gold mine with significant cash flow, and are now drilling Amador Canyon.
Whether the share price will go up or down in response to the drilling results at Amador canyon, I expect that Nevada Pacific Gold will ultimately continue to grow and be a success.
Finally, this brings me to one of my most important considerations. What is management's view on silver? On June 1, NPG announced in a press release, "Silver will now be stockpiled for the foreseeable future." This is outstanding! I asked David about this, and it's only a small amount of silver, perhaps 50,000 ounces. However, this shows that management understands the silver story very, very well. Actions speak volumes, and this means the company will not hedge. It also shows that NPG believes that silver functions as money, as a store of value, better than paper cash!
In conclusion, please be cautious about excessively bidding up the price of a stock after you read an article on the internet. I own shares of NPG, and NPG has not paid me to write this article. Therefore, one of the ways I will be compensated is by a rising share price, and my shares are all free trading with no hold period. Always view the company website, and call the company first, to confirm any information you read, and to get the latest information.
(604) 646-0188 David Hottman
Please remember that there are many silver stocks to choose from, and NPG is not the only stock that may provide good leverage to rising silver prices. The reason I created my silver stock report in the first place is to help provide access to, and information about, the many different opportunities available to silver stock investors, and so that investors will be less likely to be unduly influenced by articles like this one. Therefore, please be sure to read my free silver stock report at silverstockreport.com