Santa Comes In April For Dip Buyers Of This Miner

The stock of this gold explorer with projects in Wyoming and Nevada plunged last week, and Fincom Investment Partners explains why the firm believes it's a bargain.

Usually when a miner's shares suddenly plunge, or jump, there is a company-specific reason, such as disappointing news, newsletter recommendations, a big discovery, etc.

We met with U.S. Gold Corp. (USAU:NASDAQ) at the recent ROTH Capital Conference. We came away impressed. Although not listed as company management, Luke Norman, who co-founded Gold Standard Ventures Corp. (GSV:TSX.V; GSV:NYSE), is both an investor and co-founder of U.S. Gold. Luke brought along former Newmont and Gold Standard superstar geologist Dave Mathewson to manage a promising project—smack in the middle of Nevada's Cortez Trend.

Since we have followed Luke for the past seven years, and respect him, we listened. We will outline several reasons why we like this story, but first, we believe savvy investors should act—we have—since this past week shares took a sudden, unexpected plunge.

In this case, we could not find anything. No news, no rumors. Nothing on any message boards. Just silence and a plunging stock.

A bloodbath, or a bargain?

Source: Stockcharts.com

With only 17 million shares issued, and a U.S. NASDAQ listing, it is easy for the machines to push a small company around, but even so, the trading patterns were indicating a serious panic-type selling, without regard for price.

By Thursday morning, shares had slid down to a $21 million market value—a bargain since USAU has about $8.5 million in cash, so there's no financing coming either. Plus, U.S. Gold is a two project Company: a nearer-term producing mine in friendly Wyoming, along with a "lottery ticket" in Nevada, overseen by a geologist who has found more gold in Nevada than just about anyone.

Copper King has some attractive numbers. From the January 2018 PEA: Long life at 17 years; per annum starting at 47 thousand gold ounces plus 10 million pounds copper. Excellent IRR of 33%, backed by low CAPEX of $113 million. The project is open for expansion.

This looked attractive, to us. We like the fact of a solid project advancing towards permits, and thus value keeps growing, but since such projects often get lost in the ADD-afflicted world of hot money mining investors, we also like the combination with the Nevada property—where just one whiff of discovery should send the shares soaring. Thus, two worthwhile projects were selling for a net $13 million valuation!

But we always have to wonder. . .did we miss something?

Turns out we did not. Our source—a third party who actually knows what they are doing—informed us—and they spoke with the seller—a small fund apparently decided to blow out of their shares last week for end-of-quarter "window dressing."

Looking at the trading action, this made sense. We know many small (and even large) hedge funds are currently under tremendous pressure. This past quarter was not kind. Investors are pulling out of hedge funds; some fund managers may find themselves in the horrible position of actually having to work for a living. Like at Walmart (NYSE:WMT).

Our guess is this fund blew out of anything that wasn't deeply "green," in order to convince their investors that "next quarter will be better." We feel very sorry for U.S. Gold shareholders who have had to sit through a bizarre, sharp share decline. We hope they didn't panic and sell.

Source: U.S. Gold Corp.

OK. These things happen. Markets can be rough.

In sum: We are dip buyers. Here's why:

• Tight share structure of only 17 million shares. No investor warrants. Room to develop. Well cashed with about $8.5 million.
• 2018 should be an "inflection" year as Copper King project advances toward Prefeasibility and permitting. Any whiff of discovery in Nevada should be explosive.
• Talented people who know what they are doing. Holy cow, is this ever important.
• Minimal cash guzzling. This we cannot stress enough. Can advance Copper King towards permitting, without spending a small fortune; limited drilling in Nevada. We like this approach, greatly so, as neither ourselves (nor anybody else) knows when the next upleg in gold will occur. As shareholders, we do not want to see the share count get blown out by excessive spending—and money raising—especially at these low levels.
• All recent financings have been at higher prices, including $12 million at $2.64 in 2016. We must confess: We like buying a stock at half what prior investors paid, especially after major fundamental improvements.

Investors should look at the U.S. Gold presentation for themselves: www.usgoldcorp.gold.

Joseph Reagor, the sharp mining analyst at ROT Capital Partners, has a $3 price target. That will look conservative if Dave Mathewson, who is as excited as he ever gets, hits in Nevada. Even better, investors are "getting" the Nevada upside "for free"—Copper King in Wyoming can easily cover, in our opinion, the current $22 million valuation, which, as noted, includes $8.5 million in cash.

With potential value drivers coming in 2018, we are happy to buy, and sit, with USAU shares at what we consider to be "Santa" prices.

This is a bargain.

Disclosure:

1) Frederick Lacy: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: U.S. Gold. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company currently has a financial relationship with the following companies mentioned in this article: None. Additional disclosure below. I determined which companies would be included in this article based on my research and understanding of the sector.

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