By Karan Kumar – Exclusive to Gold Investing News
Having won a legal claim over exploration rights last month and with news of a gold discovery baring encouraging results from a Phase 1 drilling program, Rye Patch Gold Corp. (TSXV:RPM) seems to have entered 2012 on a high note. Even though the Vancouver-headquartered gold and silver exploration firm’s stock rise has not kept pace with the encouraging news, the company’s chief executive remains positive.
Rye Patch is exploring trends in Nevada, the world’s fourth-richest gold region. The company has about 3.9 million ounces of gold and gold equivalent resource at its various projects. On January 5, Rye Patch announced that “sufficient evidence of a Carlin-type system is present to warrant follow-up core drilling” at its 100 percent controlled Garden Gate Pass Project in Nevada. However, the shares closed down nearly 12 percent that day and slid another 8.5 percent on January 6.
Bill Howald, Chief Executive Officer of Rye Patch, said in an interview on January 5 that he wondered if investors “were expecting that we would find wide intercepts with high-grade gold right away during the very first phase of drilling. Obviously that would have been wonderful but as you know it is highly unlikely that the first 6 holes will find an ore body, especially when you are drilling at a place that is covered with gravel and has no exposed bedrocks.”
He added: “What does happen is that every new drillhole provides more information that leads to the building up of a critical knowledge base, which hopefully results in a discovery. We are certainly working toward that at GGP and feel very positive about it. We hope that investors will see positive results in the coming months as we conduct a follow-up drilling program.”
At its Rochester property, also in Nevada, Rye Patch announced on January 9 a discovery of gold and silver deposits, sending its shares up 9.3 percent. “Rye Patch is excited by the initial assay results which constitute five new discovery areas. The assays demand immediate follow up,” the statement said.
Rye Patch acquires property
The biggest rise in Rye Patch shares — of more than 80 percent — came on December 5, when they closed at C$0.71, after the company said it had acquired land and mineral rights by staking open, locatable public lands which contain gold and silver resources in the Rochester mining district in Nevada. Rye Patch said that a unit of Coeur d’Alene Mines (NYSE:CDE) had failed to pay the mandatory claim maintenance fee payment to the US Bureau of Land Management and if “a claim owner does not pay the fee on time, the claim is forfeited and void.” On December 21, Rye Patch was granted claim to the land and its shares rose 21.2 percent to close at C$0.80. But they have fallen since then.
Vikas Ranjan, an analyst at Ubika Research, said he believes the current fair value for Rye Patch is C$1.52 per share, more than twice its January 17 closing price of C$0.63.
“Because of the company’s aggressive exploration program… and its undervaluation relative to its peer group, it could become an irresistible acquisition target for bigger mining companies such as Newmont Mining (NYSE:NEM) and Kinross Gold (TSX:K), which are also operating in the Nevada gold district and could face depletion of their existing mineral resources through continued production,” Ranjan said. “We understand that based on the exploration spending, the company is finding gold equivalent ounces at US$1.25 per ounce, which is extremely low by the industry standards.”
As Rye Patch moves towards its goal of a 5-million ounce gold inventory, the company says it wants to “build a critical mass of quality gold and silver ounces in the ground to entice a buyout.” Nevada is the world’s fifth largest gold producer accounting for nearly 8 percent of total annual global production and 79 percent of annual US production. But Nevada’s gold production has declined from over 8 million ounces in 1998 to 5.34 million ounces in 2010. As a result, major mining companies in Nevada are seeking to replenish their reserves, placing Rye Patch in an excellent position to supply new gold.
Securities Disclosure: I, Karan Kumar, hold no direct interest in the companies mentioned in this article.