Piedmont Mining: Stock Pick of the Weekby Jay Taylor, J. Taylor's Gold and Technology Stocks https://www.miningstocks.com
Stock Pick of the Week: PIEDMONT MINING COMPANY, INC.
Business: Exploration and development of gold and silver properties in
Nevada.
Stock Symbol: PIED
Shares Outstanding: 53,963,660
Tightly Held: 24,766,035
Initial Coverage: 10/11/03 @ $0.06
Price 11/3/06: $0.14
Market Capitalization: $7,554,912
Historical Silver Resource: 8,000,000 oz.
Progress Rating: “C”
Telephone: 212-734-9848
Web Site: www.piedmontmining.com
As with any business, especially in exploration which is the toughest
business in the world, management is the most important determinant of
success. It is because of my high regard for Dr. Robert Shields, the CEO of Piedmont Mining Company, Inc. (PIED), that PIED was first put on our recommended list on October 11, 2003. The Company didn’t even have a project at that time, but Dr. Shields’s ability to find gold and commence gold production in the early 1980’s in a part of the world where nobody believed there was any gold - South Carolina – and while Piedmont was still a private company before it went public - really impressed me. After commencing gold production in early 1985, Piedmont Mining then did go public in September 1987. But in 1992, AMAX Gold, a major gold mining company at that time, entered into a joint venture arrangement with Piedmont on Piedmont’s Haile Gold Mine property in South Carolina. Unfortunately for Piedmont, AMAX was subsequently acquired by a larger mining company that chose not to proceed with the development of the Haile. The parent company’s lack of interest in a property with the size and potential of the Haile combined with the extended bear market in gold of the 1980s and 1990s resulted in the Haile being shut down and PIED being forced into hibernation for the next ten years or so.
But having always believed in Dr. Robert Shields and having met with him from time to time over the years, I anticipated the day would come when he could employ his remarkable talents to revive Piedmont once again. The prospects of a turn around in the gold markets became more apparent during early 2003 at which time I met with Dr. Shields to see what his plans might be for PIED. Through those dark days, Dr. Shields kept PIED in good standing at considerable personal sacrifice. He and I discussed some possible ways PIED might be revived. In those early days, when the stock was quoted at one or two cents a share or even less, your editor rounded up some cash from a handful of friends who helped round up some loose shares in the public market at that time and tighten up the capital structure. This early “seed capital” was invested in PIED strictly on the strength of the track record of Dr. Shields and its other Board member at that time, Doug Donald, a former mining engineer and renowned mining stock analyst.
Exploration and Development in Nevada
Dr. Shields and his Board developed a business plan in 2004 that is
focused on exploring for gold and silver in a politically safe part of
the world – Nevada - where infrastructure concerns are minimal and which also happens to host probably the second largest gold environment in the whole world. In spite of opportunities in other countries, management has chosen to focus its efforts entirely in Nevada. Even before PIED had a full Board of Directors or any projects in its portfolio, your editor recommended this stock on October 11, 2003 at $0.06.
Subsequently, Dr. Shields added some exceptional talent to his Board of Directors and operating team. I believe any other junior mining company in North America would be hard pressed to find a more qualified Board than the one PIED has, starting with Dr. Shields himself. One of the key people on PIED’s Board is Lewis B. Gustafson - Vice President - Exploration and a Director. Dr. Gustafson is exceptionally well known in the industry and has guided PIED in acquiring its portfolio of six exploration properties, any one of which could catapult PIED to much higher levels with exploration success. It is also my understanding PIED could be close to entering into agreements on one or two other properties in Nevada as well. At present, its six projects are located in prominent gold and silver bearing belts in Nevada. Following is a brief summary of these projects:
The Trinity Silver Project
Pershing County, NV
The Trinity Silver project is the most advanced stage project in PIED’s property portfolio. It is located 16 miles northwest of the town of Lovelock in Pershing County, Nevada. The property consists of 59 unpatented mining claims and about 5,000 acres of fee land, about 5,800 acres in total. It is about 25 miles northwest of the Rochester Silver Mine, one of the largest silver mines in the US, and about 10 miles southeast of the Seven Troughs gold district. AuEx leased this property package from Newmont Mining Corporation in late July 2005.
Silver mineralization was first discovered at the Trinity property by US Borax in 1981. Following exploration by US Borax and Santa Fe Pacific Gold Corp. from 1982 to 1986, US Borax operated an open pit mine on the property from 1987 to 1989, producing about 5 million ounces of silver from 1.1 million tons of oxidized ore before the property was then completely reclaimed. Santa Fe explored the district from 1990 to 1992, but since then no further work has been done on the property. Reports by US Borax after the cessation of mining indicated that the property still contains over 4 million tons of shallow mineralization grading about 2 ounces of silver per ton, incompletely drilled with vertical holes.
Last year, PIED completed geologic mapping of the pit area as well as a program of 3,700 feet of angle core drilling below the pit in mid-June. These holes were designed to confirm higher grades of silver reported
from rotary drill holes drilled in the 1980s and to provide geologic
information on the structural controls of mineralization and alteration.
Out of ten holes, four contained 5 to 10 ft. thick intercepts of 10
ounces of silver per ton or greater, with a highest intercept of 26.99
ounces of silver per ton. While these results were encouraging, in
talking with management I learned they think results would have been
better had technical problems with core recovery not occurred. In its
press release, AuEx (also now a recommendation of this letter) stated the
following “These results confirm the presence of high grade silver values
below and adjacent to the Trinity mine pit and encourage further
exploration of this and other similar targets on the property. Silver
mineralization extends well beyond the limits of the mine itself and
other structural zones that appear to source silver mineralization are
present.”
The management teams of both AuEx and PIED are now putting their
geological brains together to plan the next drilling program. PIED has
spent over $330,000 on this project in this past year, which is
considerably more than the $75,000 they were required to spend in
the first year. PIED can earn a 51% interest in this project by spending
$1 million on exploration and development within the first 3 years, and a
60% interest if it funds another $1 million of expenditures after that.
They can purchase this entire 5,800 acre property package from Newmont
for only $500,000 during the first 3 years, subject to a royalty of 5%
when silver prices are over $10, but one of these royalty points can be
bought down. I can tell you in speaking to both Ron Parrett of AuEx and
Dr. Shields of PIED that both companies have high hopes of being able to
develop this into a viable silver mine.
The Dutch Flat Gold Project
Humboldt County, NV
Piedmont can earn a 51% interest in this property by spending $2 million
for exploration over five years. It can increase its interest to 70% by
funding the completion of a feasibility study thereafter in this property
that is located 19 miles northeast of the town of Winnemucca and 15 miles
north of Golconda in Humboldt County, Nevada (“Dutch Flat”). The property
is accessed on the west side from Dutch Flat Road, a well maintained
paved/dirt road. The property consists of 114 unpatented mining claims
and they are located in a well regarded geological address being at the
northern end of the Battle Mountain – Eureka Trend, at the southwest end
of the Hot Springs Range and about 11 miles west of the Pinson Mine.
Some placer gold production reportedly took place from this property in
the past. The map on your left reveals the location of numerous mining
shafts (half-filled squares), adits (Ys) and prospect pits (X) in earlier
days, suggesting the potential for higher grade visible gold perhaps at
depth. However, the immediate target is a low grade disseminated gold
open pit target at the surface.
Amax Gold owned this property from 1982 through 1988 during which time 49
drill holes were put down on this property and a reportedly low grade
gold resource was calculated. In talking to Dr. Shields, I understand
management expects to receive data from prior work which should be
helpful in planning the next phase of drilling. According to Columbus
Gold, from which PIED is earning its interest, prior drilling outlined a
broad zone of low grade gold mineralization (average approximately 0.01
oz. gold/ton) traceable for 4,000 ft., and open in both directions and at
depth, along the southeast margin of the Dutch Flat granite. While grades
of 0.01 may appear low, as Dr. Shields says, “not all gold ounces are
created equally.” By that is meant that it can cost a lot more to mine
ounces of gold in remote and unfriendly regions than it does right of an
interstate highway in Nevada. An open pit deposit with easy access and
all of the required infrastructure at hand and with gold at over $600, we
think Dutch flat has a reasonable shot at becoming a gold mine. Moreover,
given the widespread occurrence of old shafts and adits on this property
and given surface samples of up to 1 oz. gold/ton, we think the potential
for a higher average grade could evolve here as PIED conducts further
drilling at Dutch Flat.
Dome HiHo Project
Lander County, NV
Piedmont can earn a 51% interest in this project by spending $2 million
on exploration, development and claims maintenance over the first five
years. The property is located 35 miles southeast of the town of
Winnemucca, Nevada, and about 13 miles south of Valmy on U.S.
interstate I-80. The Dome HiHo property is also located approximately 9
mines west of the Phoenix-Fortitude gold deposits, along the Lone Tree
Marigold and Millenium trend of gold mines, and within two miles of the
North Peak, Trenton Canyon and Buffalo Valley Mines. The characteristics
of mineralization here at Dome HiHo are similar to gold ores in the
nearby mines, and numerous rock samples from the property have assayed
from one to 23 grams of gold per tonne.
Recent mapping and sampling have identified several new gold targets on
previously undrilled areas of the property. In late 2005, 14 reverse
circulation holes were drilled in the northern part of the HiHo claims.
Eight of these holes intersected significant intervals of gold
mineralization. The two best intercepts were 25 ft. of 0.14 oz. gold/ton
and 30 ft. of 0.024 oz. gold/ton. Management has received permitting for
the next phase of drilling, which includes 4 or 5 drill holes to test the
southern extension of the main structural zone. This drilling could
be conducted in the next few months
The Dome HiHo property is an early stage exploration play, but, based on
its excellent address in geological terms as well as some sniffs of gold
and mineralogical similarities with other gold mines in the immediate
area, PIED might have a good chance of at least coming up with some good
drill holes in the not too distant future.
Pasco Canyon Gold Project
Nye County, NV
PIED can earn a 60% interest in this property from AuEx Ventures by
spending $1 million on exploration and development over five years.
Pasco Canyon is located about 55 miles north of Tonopah and about 14
miles northeast of the Round Mountain Gold Mine, the largest heap leach
gold mine in the United States.
Pasco Canyon is an epithermal gold target within an alteration zone that
was initially defined from satellite imagery. This property is located at
the junction of two calderas within the Toquima Caldera Complex. This
Caldera Complex is associated with the Round Mountain gold deposit (10
million ounces of gold produced to date), the Gold Hill deposit (with a
resource of 2 million ounces of gold), the Jefferson Canyon and the
Corcoran Canyon gold deposits. A program of detailed geologic mapping and
sampling has now been conducted to define drill targets. Drill sites have
been selected and a drilling plan for several, one thousand feet deep
holes of reverse circulation drilling has been submitted to the US Forest
Service for approval.
The deep drill holes are planned on the basis of the geologic model which
suggests that higher grade gold mineralization may exist at depth
compared to surface outcroppings where values are low. We view Pasco
Canyon as a “wild cat” target, to use an oil exploration term. But if
they intersect gold mineralization at depth it is the kind of shot that
could come up big.
Bullion Mountain Gold Project
Lander County, Nevada
PIED can acquire a 100% interest in this property by purchasing it
outright for $500,000 during the term of the agreement which lasts for
ten years, subject to a 3% NSR royalty. The royalty could be reduced to
1% by the payment of an additional $1,000,000.
The Bullion Mountain Gold Project is located approximately 21 miles
southeast of the town of Battle Mountain and approximately 8 miles
west-southwest of Crescent Valley in Lander County, Nevada. The property
consists of the 17 unpatented ‘Bully’ claims on Bullion Mountain in the
northern Shoshone Range and in the Battle Mountain - Cortez trend. This
property is located approximately 8 miles north of the Gold Acres and
Pipeline gold mines; about 16 miles north-northwest of the Cortez and
Cortez Hills gold deposits; about 22 miles southeast of the
Phoenix-Fortitude gold project and about 30 miles southeast of Piedmont's
Dome-HiHo project.
Exploration and small-scale mining on these claims date back to the early
1900s. The only known modern exploration work on this property was
carried out by ASARCO in 1989 with the drilling of eight vertical reverse
circulation holes on the property obtaining intersections of 20 feet of
0.023 ounces of gold per ton; 10 feet of 0.204 ounces of gold per ton and
several other 10 foot intersections grading more than 0.01 ounces of gold
per ton. Assays of brecciated and limonitic surface samples on this
property have returned assays of up to several tenths of an ounce of gold
per ton. The Hilltop deposit, approximately 4 miles to the northwest, and
Tenabo, about 2 miles to the southeast, both host significant gold
mineralization in similar rock sequences. Detailed geologic mapping and
rock sampling have been completed, with several breccia zones and
porphyry dikes identified. Management is analyzing results of work to
date and has sited new drill sites and received a drilling permit for the
next phase of the exploration program, which could commence in the next
several months.
Antelope Ridge Silver/Gold Project
Eureka County, Nevada
PIED can earn a 100% interest in this project by spending $1 million on
exploring and developing the property. The only work commitment is that
over $100,000 must be spent on the project during the second and third
years of the agreement. The project is subject to a 3% NSR royalty
payable to the property owners, although that can be bought down to 1%
This property is located 9 miles southwest of Barrick’s Archimedes gold
mine. Exploration targets include both high-grade veins and 'manto' type
silver-zinc orebodies in the limestone. A program of detailed geologic
mapping and sampling has been completed and a biogeochemical sampling
program across the property was conducted in late 2005. A drilling
program has now been designed based on the results of these
investigations. A permit to drill seven reverse circulation drill holes
totaling approximately 3,000 feet has been granted by the Bureau of Land
Management. Anomalous silver assays have been found in siliceous wall
rocks exposed over about three quarters of a mile of strike length.
In view of the encroachment of winter snowfall, management hopes to carry
out a drill program on this project in the spring or summer of 2007.
SUMMARY & CONCLUSION
For a Company with six interesting exploration properties, two of which are fairly advanced (Trinity Silver and Dutch Flat) and a market
capitalization of under $9 million, this is an exceptionally undervalued gold stock. I would come to that conclusion even if PIED had a so-so management team. But PIED’s management is anything but so-so. As noted above, Dr. Shields was able to develop and bring into production an open pit heap leach gold mine in the early 1980s in South Carolina while Piedmont was still a private company. And his current management team now is arguably much stronger than in those early years. This time, he is restoring PIED in what I believe is still the early days of a new bull market in gold. John Hathaway, the renowned and highly respected head of the Toqueville Gold fund recently opined that with gold at $600 we could
easily see a tripling in the yellow metal’s price even without any
significant economic or geopolitical problems. Combine that scenario with success in any one or more of PIED’s projects and we could be
measuring Piedmont in dollars rather than pennies.
Of course, PIED will need to raise additional capital to move its
projects forward. Accredited investors (those with incomes of over
$250,000 per years and/or having a net worth in excess of $1 million)
might wish to contact Dr. Shields about a possible private placement in the near future. If you share your editors’ views about PIED and
the gold markets, you may want to consider either participating in the
private placement or buying freely traded shares at prices below $0.25 in the open market. The Company’s $13 million tax loss carryforward alone
makes it almost worth its current market value. Of course, as a
penny mining stock, PIED carries with it significant risk. Therefore, as always we strongly urge you not to allocate more than 5% of your overall portfolio to this or to any one stock.
EDITOR’S DISCLOSURE: Your editor has a considerable vested interest
in the success of PIED given what for me is a sizeable shareholding,
which I purchased in the early days of this Company’s reformation.
However, I want to emphasize that I have a long-term focus on PIED. At
some time in the future I will want to sell these shares– and, who knows, it might also be bought out. At present, I have not intention of selling my stock. If/when I ever do choose to sell, it would only be after I have either recommended the sale of PIED or advised you of my intention to sell.