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Junior Producer Discovers Gold Near Arizona's Most Productive Mine [UPDATED]

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Bullfrog Gold announced that it found high-grade gold near one of Arizona's most historic and famous gold mines. But the company carries risks. Here's what investors need to know.

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Bullfrog Gold (OTC:BFGC), an exploration-stage gold company whose Newsboy Project is fully funded for the next 18 months, recently announced that it found unusually high-grade gold approximately 7 miles east of the Vulture Mine, one of Arizona's most historically productive mines.

The Newsboy Gold Project

After drilling five holes in its Phase 3 program at the Newsboy Gold Project, located northwest of Phoenix, Arizona, the company reported 13.9 ounces gold per ton at a depth of ten feet. Reverse circulation drilling was used, and drill cuttings were sampled every five feet and then split. The samples were assayed according to U.S. and international QA/QC standards.

In 2012, Bullfrog discovered higher grade mineralization during the company's Phase 1 and Phase 2 drilling programs. The discoveries triggered a return to the main Newsboy deposit for Phase 3 drilling. The goal was to determine if further development was warranted.

Gold Sector Needs Some Encouragement

Analyst reports on the gold industry show signs of caution. As precious metals investors know, the price of gold has been declining over the past few months. As the analysts gaze down into their crystal balls, they come away with different visions of the future. Analysts at several top-tier research firms are positive on the long-term prospects of junior gold producers. In a recent report, analysts at Morgan Stanley predicted that gold would be the "best commodity for 2013."

Remember, though, that gold has always been volatile. Over any three week period, there is a seven percent chance that the price of gold will change by ten percent. And historically the price of gold equities is more unpredictable than that of the commodity. The best thing about gold stocks is that investors usually receive a 2-to-1 leverage by owning gold equities instead.

Risks for Bullfrog Gold

Like any smaller company, Bullfrog Gold carries certain risks. The company has only been around for two years, and its operating history consists of preliminary exploration activities. Comparable to all exploration-stage companies, Bullfrog has no income producing activities from mining or exploration. As it expands its mineralization, its end-goals are to either develop and produce its projects or complete transactions with major producers. If it fails to identify enough ounces of gold on its properties, however, shareholders will end up disappointed.

Exploring for gold is an inherently speculative business. Although Bullfrog Gold's land package is strong and contains prime locations near operational mines, not every exploration-stage land package is ultimately converted into producing mine fields. Although Bullfrog Gold has obtained financing for its Newsboy Project from its debt facility of $4.2 million available until March 31, 2014, the full amount of the loan is due to be repaid on or before December 10, 2014. If Bullfrog Gold is unable to raise project-level financing from a major producer by this time, this debt repayment could come at the cost of equity dilution.

Still, the company has the advantage of excellent management. CEO Dave Beling, who 26 years ago managed the Hycroft mine, now owned by Allied Nevada (NYSEAMEX:ANV), knows how to build a successful mining company. If Bullfrog wants to be successful, the company will have to execute correctly and leverage its assets.

Conclusion

For the most part, a 'growth for growth's sake' mindset seems to pervade the gold mining industry at the present time. With its recent Newsboy discovery, Bullfrog might be well-positioned to take advantage of the industry's current attitude.

CORRECTION: This article previously stated that Bullfrog Gold was debt free. This is incorrect. This article previously stated that Bullfrog's goal was to be acquired by a major producer. This is only partly correct. In fact, if it is not acquired by a major, the company is willing to develop and produce its own projects. These changes are reflected in this story.

(Also see: Will We See Consolidation in the Gold Mining Industry? and Looking for Higher Yields, Investors Shun Gold.)

Twitter: @RandallRadic
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