NEW YORK (
) -- While analysts and investors alike have been betting on
to be the next takeout candidate, they may be overlooking junior explorer
U.S. Gold is an $887.06 million exploration company with two silver and gold deposits in Nevada and a silver deposit in Mexico. Rough calculations are that once the mines start producing in late 2013 or early 2014 they will deliver 200,000 ounces of gold and gold equivalent per year at $600 an ounce.
These figures are dwarfed by NovaGold, which is a $3.2 billion company and has two of the largest gold deposits in the world. NovaGold's share of Donlin Creek, which is co-owned with
, will be 800,000 ounces of gold annually for the first five years of production. Its other property, Galore Creek, where it partners with
, is still waiting for estimates.
NovaGold has to pay up for these properties, however, whereas U.S. Gold's price tag is more palatable.
U.S. Gold will spend $18.9 million on exploration this year while NovaGold will spend $23.4 million on Donlin alone. U.S. Gold has funding until summer 2011 and currently has $5.5 million in gold bullion and $18.5 million in cash, divided between U.S. and Canadian dollars.
NovaGold had money for two more years after the company recently made $6.7 million from the exercise of warrants in the third quarter as well as $175 million from a
The company has $172.8 million in cash and cash equivalents with working capital of $150 million. NovaGold's costs after these two years are staggering at $4 billion total for both projects, which won't come on stream until 2015 at the earliest.
. But after speaking with U.S. Gold CEO Rob McEwen I wondered why not his company?
First of all, shares are up 179.6% year to date, potentially signaling that, in addition to high gold prices and positive exploration results, investors might like this stock for another reason.
The company is worth under $1 billion compared to the industry's most recent acquisitions by
which bought smaller companies for $3.34 billion and $2.1 billion, respectively.
U.S. Gold's Nevada deposit is in the Cortez Trend and is nearby Barrick's Cortez property, which holds 35 million ounces of gold. Not only does the proximity speak to the potential of U.S. Gold's Nevada project, but large companies on the market to buy tend to look near their existing mines for more potential.
U.S. Gold's silver mines in Mexico -- El Gallo and Palmarito -- also have high grade silver, something which is missing from some newer properties according to McEwen.
"Deposits that are being put forth, the grade of those deposits have dropped dramatically," he said. Previously, high grade was considered 70 grams per ton and McEwen argues that some companies are calling their metal high grade at just 3, 4, or 5 grams per ton. El Gallo has measured and indicated silver resources of 106 grams per ton.
High silver and
have also given birth to a new kind of buyer, the private kind.
, owned by Brazilian billionaire Eike Batista, recently made an offer to buy
for $1.47 billion, marking a significant shift into individuals buying inexpensive metal companies. Since U.S. Gold's market cap is of the same vein it might look attractive not only to the senior producers but to wealthy individuals as well.
In addition, McEwen owns 21% of the company and would benefit big from a takeout. But is he interested?
McEwen was responsible from transforming Goldcorp from a $50 million company to an $8 billion company and isn't in the habit of dumping a company at the first sign of a good offer. But the offers are plentiful and profitable. When Goldcorp and Kinross Gold bought
, respectively, they paid about $1,000 an ounce for the gold in the ground.
McEwen has also hinted, subtly, that a partnership or buyout might be something he would consider. During a recent conversation, he told me that U.S. Gold will need to do some financing in the next six months in order to fund exploration and development and that he was looking at all options.
McEwen's long-term goal is to have U.S. Gold qualify for the
within five years which means the company must have a market cap of $3.5 billion plus, or annual production of 300,000 to 400,000 ounces.
In order to do that, McEwen says U.S. Gold would be "looking to build our own assets and it's likely we will have to look to combine with someone else to get to that point within that time frame."
McEwen was very cagey and refused to give any names but said he was open to all possibilities including China.
China is one of the leading consumers of gold in the world and cannot produce enough to satisfy internal demand leaving the country looking outside its borders for regular gold flow. China imported more than 200 tons of gold in the first 10 months of 2010.
China National Gold Group
, the No. 1 gold producer in China, recently announced a partnership with
Coeur D'Alene Mines
for half of its gold concentrates from its new Kensington Mine in Alaska, so these kind of deals aren't out of the realm of possibility.
"At the moment that's a long way from where our operations are," says McEwen, "
but anything's possible in the future."
So far analysts opinions are mixed. Vedant Mimani, managing director of Atyant Capital, likes U.S. Gold because of the cache that comes along with McEwen, but "we do not think it is a likely takeover target in the short term."
Mimani argues that McEwen won't be interested in selling the company until he delivers more value to get the best price for shareholders. "Instead we can see U.S. Gold as a consolidator of projects to form a larger mining company."
J.C. Doody also agrees and says that U.S. Gold is popular because of McEwen and although recent drill results in Mexico are promising, the "site
the middle of
a major Mexican marijuana growing province." Doody's thinks that
would be a more likely takeover candidate.
U.S Gold has a preliminary economic assessment out in January of 2011 for its Mexico project followed by a pre-feasibility study on its Gold Bar property in Nevada, which should provide investors, partners and potential buyers with more information.
Written by Alix Steel in New York.
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