The Curse of the Hidden Nugget is Lifted as Osceola Gold (OTC: OSCI) Readies for Full Scale Production

  • Fully permitted mine with equipment mobilized and imminent operations
  • World ranked junior miner with highest quality ore of 15 g/t
  • $3.93 billion in reserves
  • Grossly undervalued – tenth of reserves represents $.56/share
  • Low floater

This is a cute TRUE story but by the end of this report you are going to feel like you are the thief that stole the nugget.  This stock story is that good. 

In 1877 a prospector named Darling found a massive 24 pound nugget on the Verzan claim in Dry Gulch which is only 2 miles away from the existing Osceola mine. Darling had been working for Verzan only two hours when he drove his pick into the dirt and could not pull it out. He glanced around to see that no one was looking and then he began to dig in the gravel with his hands. Upon catching a glimpse of the great nugget, he immediately covered it again, working to loosen the pick and went on digging elsewhere. At the end of the day he drew his pay from Verzan and that night made off with the nugget.

He was a remorseful thief and met with Verzan a couple days later on the streets of Ward which was an old mining town near Ely.  He invited Darling to have a drink and upon sitting down, Darling began to cry, confessing that he had stolen the Nugget. Verzan, feeling sympathetic, was about to promise forgiveness when Darling reached into his shirt and pulled out 14 bars of gold. He had had the record breaking nugget melted down by assayers in Ward.

Osceola Gold Corporation (OSCI) ended its prolonged market silence with an explosion of news that has yet to fully resonate with investors.  Over the past 2 years there were bits and pieces of development on the mine posted and shared on facebook and twitter but this announcement eclipsed all postings with actionable news and data.  In the past, the postings included mobilization of equipment on site and infrastructure investments in support buildings and specialized equipment.  In addition there were test runs that appeared to produce results but no formal announcement from the company with regard to the quality of the pay dirt until now.  In the latest release the company indicated that “the tests conducted by Silver State Analytical … yielded an average of 5 grams per ton processed.”  Management is clearly taking an overly conservative approach to the story, but the massive reserves accessible to mine have been verified for decades by 3 independent surveys.  The conclusion is simple.  There’s billions of gold on the claim and they are ready to mine it.  This is actionable news.  Investors will also see in this analysis that from a value perspective this is the most undervalued junior miner in the world and has the highest quality ore of any junior miner coming in at 15 g/t. 

High Quality Pay Dirt

According to, gold pay dirt is reported in grams per tonne (g/t) and works out to $45 per gram assuming the current spot price of gold is $1400 per ounce.  High-grade gold is classified as anything over 2 grams per tonne for bulk tonnage mining.  The pay dirt at the Osceola Mine is well above the threshold for high quality pay dirt.  The other factor to consider is the thickness of the pay dirt.  A good thickness is about 100 meters deep.  For the past 2 years there has been little to no official statements from Osceola Gold regarding the quality of the pay dirt.  All investors have been able glean on Facebook are large nuggets that were pulled out of the dirt and a series of starts and stops, in addition to the numerous challenges of maintaining a cohesive crew looking to build a productive operation. 

It is abundantly clear that pay dirt was “processed” during this period, but not reported until now.  The average yield on the processed pay dirt was 5 g/t which includes the processing of pay dirt during periods where the crews experience everything from frozen pipes to a broken shaker screen.   The key takeaway is that these tests were under very harsh conditions and that there may be considerable upside to the yield once operations begin.  The company commissioned a survey from Geo Scan in June 2016 which unveiled concentrations up to 15 g/t.  To give investors perspective look at the Aurelian Resource expel which had intercepts of 216 meters of 12.8 g/t in its Fruta Del Norte Deposit in Ecuador, which is currently owned by Lundin Gold (FTMNF).  On the news the stock shot from $2.00 to $22.00.  The extreme grade and thickness of the pay dirt played a major factor in valuation.  No premium in terms of market capitalization seems to be given for this high quality paydirt.      

A Komatsu 380 front loader can normally scoop 6 yards of dirt into a bucket.  Each yard of ore normally represent 1.5 tons.  This means 6 yards in a bucket equates to 9 tons with each scoop.  At 1 g/t a bucket is worth $405 ($45 x 9 tons).  At the Osceola mine the worst case scenario for a bucket of ore is 5 g/t which means each scoop of the front loader is worth $2025! On the high end or 15 g/t each scoop could be worth as much as $6075.  At full scale production the company estimated 100 tons per hour which is equivalent to 11 scoops per hour.  Using the worst case scenario yield of 5 g/t that equates to $22,500 per hour when they are at full scale production.        

Using the chart above reveals worst case and best case production level through some simple multiplication.  Assuming 5 g/t and a 240 hour month simple take 1200 g and multiply by $45.  So on the low end it ranges from $54,000 monthly up to $486,000 at max capacity. 


A geological report revealed that sizeable reserves exit and gold production in this area could be traced back to 1875.  This production continued on an off until 1975.  Just 12 miles down the road at a claim called dry gulch a miner found a 24 pound nugget which would be worth over $400,000 today.  Adjusting the Skookum Geological Report from 2010 into the current gold price investors can extrapolate the revised value of the reserves. In addition recent mining revealed the stratigraphy from the MAV #5-H claim contains gold from the surface to the bedrock.  The reports also indicates that the average yield in the Solomon#3 was over double the other claims.  The claims can be broken up into 3 districts, the Mary Canyon, MAV 5, and the Solomon claims.

The formal study done by the Skookum Geological Report was taken and readjusted to $1400 gold price in the graphic above and uncovered proven reserves of $1.68 billion.  The overburden is estimated at just 10 – 30 feet before the paydirt is uncovered making this a simple earthmoving project.  Even though there is no feasibility study, the technical mining plan is clear and straightforward.  The satellite photos clearly define the placer channels and the alluvial fan.  The company will scoop up the pay dirt in these channels process it through the washplant and recover the gold.  The gold being recovered is close to 20 karat quality and through improved mining methods up to 90% of the gold can be recovered.  With a current production capacity of only 100 tons per hour and assuming non-stop production, it would take approximately 32 years to go through just the Mary Canyon region.  Based on this pace it’s reasonable to assume the company will quickly ramp up production to expand operations saving investors from a costly round of dilution.    

Note: Placer Deposits do not fit the traditional definition of gold reserves

Junior Miner Analysis

There are 3 primary data points to look at when evaluating a junior mining company.  The most important factor is the measured and indicated reserves known as proven and probable reserves.  These reserves are calculated by a geologist and approximate the number of ounces that could be recovered if mining operations commenced.  The next factor investors want to consider is the longevity of the project after they mine out the proven reserves.  This is essentially the estimated or inferred reserves that the geologist can reasonably estimate from the core samples and geology.  The final element is the quality of the ore.  The higher the quality of ore, the less risk that the mine will be shut down due to low commodity pricing.  This is why it’s essential to look at the grade of the ore and the cost of extraction when evaluating the risk.  Placer deposits typically enjoy the lowest cost of gold production and can weather any commodity cycle and therefore have the lowest risk profile.

Capital Expenditures (CAPEX) Correlate to Risk of Dilution

Planned CAPEX plays a major role in evaluating the potential dilutive impact to the stock price.  A very high CAPEX means that a lot of money will need to be raised in the future to get the mine operational.  A low CAPEX traditionally means that it will take less fundraising to get the mine operational.  There are instances however when a low CAPEX is not good.  For example, if the company isn’t investing in technology to extract the metal more efficiently, then that could pose a risk to the company.  The highest CAPEX project among the junior miners is the Livengood project.  That mine will usurp a large amount of funding even though the project contains massive reserves.  The other drag on the Livengood project is the relatively low quality of the ore.  In contrast to the Livengood project the Osceola project has virtually no CAPEX risk and is essentially operational.  The Osceola project also enjoys the benefit of a high quality ore making it one of safest projects to invest in because the risk of dilution is so minimal. 


One way to evaluate the miners is to normalize their market cap with respect to the size of their reserves.  This ratio in effect reveals if the miner is either undervalued or overvalued.  The glaring standout on the Gold Miners valuation chart is the Fruta del Norte mine which appears to be grossly overvalued but adjustments must be made due to its high quality of ore.  Only OSCI contains a higher level of ore than the Fruta del Norte mine.  By all measures the Osceola mine is the most undervalued property in the sector.  Investors need to be wary of using this ratio without remembering to factor in the quality of the ore.  The Toroparu mine might look like a steal because it has great reserves and the market cap is low in comparison but that the mines ore grade is low and the mining plan involves a huge capital expense which is likely to result in dilution. 

Future Catalysts for Osceola

The next catalyst should be an announcement that production has started or a corporate update about production plans.  Based on the last press release they increased their surety bond to 497,433.  A surety bond is used to cover the state’s cost of reclamation in case the mining company, in this case Osceola Gold, defaults on its reclamation obligations.  This money is held in trust by the state while the mine is operational.  Payment of their Surety bond is required for them to have a valid mining permit.  The next corporate update should give more refined projections and details of their plan.  After production has commenced it’s customary to give periodic updates regarding the throughput of the mining operation and the corresponding gold production giving investor an idea of yield. 

Market Structure

The company is pink current with 298 million shares authorized and has 297 million outstanding which is 1 million shares to their authorized limit.  The company has no structured debt.  Recent financing seems to have been accomplished in off balance sheet transactions at $.01 that raised close to $116,000.  Based on the recent update this money was spent to get the mine fully permitted and operational.  With cash flow right around the corner it’s not expect that the company would increase the share count or enter into any dilutive financing arrangements.  It’s more likely that they will fund expansion out of existing cash flow.  


Besides the clearly operation risk of placer gold production this story has a little hair on it.  In 2016 they got into a litigation with Securities Counselors, their former attorney.  Reading the disclosure is like reading an epic tale of he said she said.  The punch line is that they have a settlement agreement, but it’s not in writing and hasn’t been recorded with the court.  So it’s too early to sound the all clear, but the clouds have surely parted.  They also had a cease and desist on their mining activities.  Given their remote location and one active claim almost in the center of their claim this boils down to a nosey neighbor situation.  In the latest press release they announced the cease and desist was lifted after they “completed all the requirements necessary to be in compliance with the Nevada Department of Environmental Protection (NDEP) and the Bureau of Land Management (BLM).”  This means that the tip from the nosey neighbor wasn’t valid and that they are now operational and should be for some time. 

Investment Summary

There is a lot of gold in the ground, a fully permitted mine, and a plan and workforce to mine it.  The current $12 million market capitalization covers on a conservative basis two years of operating profits.   Without taking into account the billions of dollars’ worth of ore the stock is trading at a multiple of 2 times extremely conservative earnings estimates.  The estimated value of the ore ranges between $1.68 to $3.93 billion.  The stock is trading at a 99% discount to its most conservative asset value.  This stock is very illiquid with a big spread, but is probably one of the most tightly held public companies.   There are very few shares in the float.  Reasonable estimates place the floating number of shares under 2 million out of the 298 million shares issued.  This low floater means that this stock could be very volatile if it gets any institutional interest.  The expected beginning production should be close to 2000 grams per month which represents $90,000 per month at a yield of 7.5 g/t. 

As the crews get comfortable with the operations and work out the production kinks it’s reasonable to think that production could double and the grade or ore could increase.  Within 6 – 9 months the plant should be operating round the clock and the cash flow should support the expansion of production in the form of a larger wash plant.  This gold mine is a very special find.  It is completely derisked and has mining equipment in place and contains some of the highest quality ore of all the junior miners.

If the stock trades at a 90% discount to the estimated amount of gold content on the property the stock target price should be $.56.  Given the recent positive price action in the gold market and the almost pristine quality of the ore the long term price target is $1.40 which would put the valuation more in line with the Lundin Gold’s Fruta del Norte project.  If you feel like a thief buying stock at these low levels blame it on the Curse of the Hidden Osceola Nugget.  Just remember to share the story because that is the only way to break the curse!

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