Patriot Gold is a junior gold exploration company headquartered in Nevada. I stumbled upon PGOL after Canamex hit very high grades in their Nevada drilling program this summer:

http://finance.yahoo.com/news/canamex-intersects-360-feet-0-120000023.html

After digging through filings, I quickly realized that the property was actually owned by Patriot Gold. I finally spoke with a consultant at the company on the phone and eventually met them in person this summer. Initially, there was concern because Patriot didn’t announce these results until almost 2 weeks after Canamex released them. I think this is part of the opportunity here because Patriot has done little in the past to create awareness for their company and stock. However, this has begun to change and I believe they have quite a loyal long term shareholder base that will be reluctant to sell anytime soon due to the impressive value the company now offers at a paltry $6MM market capitalization.

The company has an attractive low cost model of farming out development to other junior’s to prove out their properties. Currently, they have 2 exciting properties, one offering a foundational value for the stock (Moss in Arizona) and one providing significant exploration upside potential (Bruner in Nevada). This is not to say Moss doesn’t have exploration upside because clearly it does and the resource should grow considerably from current levels. Northern Vertex is a publicly traded company that has spent about half of their $8MM drilling commitment to earn into a 70% owner of the Moss property. They recently have updated a 43-101 resource of approximately 1 million ounces of good grade gold: http://patriotgoldcorp.com/news.php?id=36

Nobody seems to know about this stock! NEE.V has a $70 plus million dollar valuation currently and their flagship property is Moss. They have one other early stage prospect but I believe most of the value on Northern Vertex is being placed on their Moss involvement. Say it’s $40MM and another 500,000 ounces added to the 43-101 at Moss with the remaining funding (half of what they’ve done so far), theoretically takes the valuation to $60MM (if not way more-plus the entire value the market is putting on NEE could be because of Moss). Patriot owns 100% but gives up 70% at that point. 30% of $40MM is twice the market cap of Patriot currently. 30% of $60MM is almost 4 times the current valuation of PGOL at 20 cents per share. I’ve added another equation to value the stock below that is even more relevant and conservative in my view.

According to this article on Stockhouse:  http://www.goldinvestmentletter.com/junior-gold-valuations/
PGOL is still heavily undervalued. I wrote this to our subscribers in October:

“Interesting numbers if you use this as a metric….puts a million ounce deposit at $46,000,000 value, which PGOL has at Moss. If you use their 100% ownership currently it puts the stock’s fair value at $1.71 (I used $45 per ounce and 19 cent stock price). However, we know NV will earn in their 70% but using current 1MM ounces that still puts fair value at .52 cents per share for PGOL. The reality is that they’ll prove up another 500k ounces or so before they earn in to that level so you can tack on another quarter, or 75 cents or so per share, total. I think the valuation will go to somewhere in the middle of 52 cents and $1.71. My target has been loose, 50 cents-$1 to allow wiggle room and an upgrade. If Bruner results heat up again $1.71 is more realistic. So, I’m holding/buying more Patriot on any pullbacks. I actually hope it goes down one more time but I think this week we could break out. In any event, I think we’re in really good shape with this one and early to the party.”

The beauty here is that Patriot has annual expenses of about $250K. They don’t need much money to grow significantly, which is unique in the mining business. I believe that as NV gets closer to or finishes spending their $8MM commitment to earn into 70% of Moss, they will make a bid for Patriot Gold. Or, at minimum, will make a bid for Patriot’s 30%. This could include several scenarios in terms of structure but I would speculate PGOL would entertain a cash lump sum, Net Smelter Royalty, and Northern Vertex shares to participate in the upside of the project further. The cash component alone could be multiples of Patriot’s current share price. We haven’t even really entertained the potential at Bruner! If Canamex continues to have any success with their drill program at Bruner it could add additional firepower to the shares of PGOL.

This is a tiny market cap company and does carry a lot of risk just based on their size and primary business. But, from a risk/reward perspective, I love it. You can cut any analysis you like but they all point to a much higher share price. I’ll stick with a 50 cent to $1 range for now but believe there could be upside to those levels depending on how things shake out. If junior mining company valuations move back to a more reasonable and historical $80-100 an ounce in the ground valuation all of the examples here double. I think that will be the case in the sector over the next 12 months or so as mining shares creep back to reasonable values against the price of gold.

It also looks like the consolidation here near previous highs for the stock is nearing an end. MACD is looking to turn positive and besides a couple quick flushes below it, the %) DMA has proven to be solid support. I believe Patriot Gold can be accumulated up to 25 cents per share fairly aggressively and believe it merits exposure in junior mining stock investors portfolios.

 

 

 

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