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US Gold Corp (USAU) Jettisons Dataram Memory and Becomes a Pure Play Gold Exploration Company

11/27/2017


NASDAQ:USAU

Since it reported its July 31, 2017 quarter, US Gold Corp (NASDAQ:USAU) has completed its transformation from Dataram the tech company, to a pure play gold exploration company and is well on its way executing its exploration plan. Since its merger with Dataram in May, the company has moved swiftly to revamp management and its board to align with the gold business and away from the legacy add-in memory products for computers business. It also has raised capital to support the cash burn required to search for gold while generating no revenues. With a war chest, key personnel, and territory assets, the company has made progress in exploration at both at Keystone and its Copper King properties and has acquired the Gold Bar North property to fill in territorial gaps.

For the second quarter ending July 31, 2017 the company reported no revenues and operating expenses of $3.2 million of which $1.4 million was compensation and $768,000 was for exploration. The company also took a write-off for the sale of the Dataram computer business of $6.1 million resulting in a loss of $1.00 per share of which $0.35 was from continuing operations. There were a reported 9.3 million average share for the quarter and 12.4 million shares on September 13, 2017. Net cash used in operating activities was $3.0 million, which is the number to keep an eye on, as the company will continue to need to raise cash to support its exploration activities. During the quarter the company sold a net $500,000 of preferred stock to support this cash burn. On the July 31, 2017 balance sheet, USAU reported having cash of $4.4 million, down from $6.8 million in the April 30, 2017 quarter, a reduction of $2.5 million.

After the July 31 quarter ended, many events have occurred at US Gold. 

In August 2017, the company closed on the purchase of Gold Bar North Property, a gold development project located in Eureka County, Nevada. It was bought from Nevada Gold Ventures, for $20,479 in cash and 15,000 shares of stock. Mr. David Mathewson, who is now US Gold’s Chief Geologist, is a member of Nevada Gold Ventures. US Gold says Gold Bar North is synergistic with its Keystone properties and the historic Gold Bar Mine. This property consists of 49 unpatented lode mining claims. US Gold plans to work on permitting, advanced mapping and geophysics, drill target identification and ultimately drilling on the property in 2017.
 
Throughout August, 348,898 shares of stock were issued for various purposes including: for the purchase of the Gold Bar North Property, and for payment to management, directors, and consultants to US Gold. After August, the company completed the sale of 1,388,889 shares of common stock on October 10, 2017 at $1.80 per share for net proceeds of $2.5 million. These actions combined have increased the share count to the 14.1 million primary shares outstanding today.

On October 5, 2017 sold 1,388,889 shares of common stock at $1.80 per share generating gross proceeds, before underwriting discounts and commissions and estimated offering costs, of approximately $2.5 million. Laidlaw & Company (UK) Ltd. is acted as sole book-running manager for the offering. The underwriter has an option to purchase from us up to an additional 208,333 shares of our common stock at a price of $1.674 per share. If exercised its option in full, the total proceeds to US Gold, before expenses, would be $2.7 million.

Completing the transition, on October 13, 2017, U.S. Gold Corp, sold Dataram Memory, the original legacy business headquartered in Princeton, NJ. In the year ending April 30, 2017, Dataram generated $17.4 million in revenues down 31% from the year before and lost money. By selling this wholly own subsidiary, US Gold Corp. became a pure play gold exploration company. It sold all of the stock of this subsidiary to Leading Testing Laboratories, Inc. (LTL Group) for $900,000 in cash. Dataram Memory’s business was the development, manufacturing and marketing of computer add-in memory products for use with workstations, computers, and servers. The net proceeds from the sale of Dataram Memory are still to be distributed, on a pro rata basis, to shareholders of record as of May 8, 2017. However after expenses costs associated with the legacy Dataram Memory business and the sale thereof including: $142,500 for legal and accounting expenses, $74,000 for financial advisory fees, $261,400 for repayment of Dataram Memory’s debt, $10,000 for agent expenses, and $125,000 reserved for payments to be made in connection with legacy litigation settlement, net proceeds are estimated to be only $286,500. The result is a gold business unencumbered with the management of a computer company. Because of this sale, Anthony M. Lougee who had been with Dataram since 1991 and was its CFO, resigned as of October 17, 2017, as the CFO of US Gold. A new CFO has not yet been appointed.

On November 10, 2017, U.S. Gold appointed Andrew Kaplan as an independent director of the company. He was also was appointed to the Nominating and Governance Committee, Audit Committee, and Compensation Committees of the Board of Directors. Since he was appointed to the Board of Directors and the Audit Committee, US Gold has regained compliance with Nasdaq Listing Rule 5605 that states that a majority of the board of directors must be comprised of independent directors, and requires an audit committee to be comprised of at least three independent directors.

Shareholder Updates

US Gold gives shareholders frequent updates on its progress and activities. In a letter to shareholders on November 3, 2017, the company opined on its valuation based on its gold and copper assets. Using 14.1 million shares, today the company trades at a market value of $22 million and an enterprise value near $18 million. Contrast that value with an estimate of the company’s potential gold and copper holdings and it is a significant discount. No doubt this is in part due to the transition of the company from Dataram, a technology stock to a vastly different gold exploration stock. Certainly there has been shareholder turnover as the company transitioned from tech to gold, and potential new gold investors may not be aware that the stock exists due to the unconventional way the company became public. Rather than via an IPO which gains publicity through the process and the investment banking firm, management chose to gain access to public markets through the merger with an already public company.  The company cited the Preliminary Economic Assessment (PEA) report authored by Mine Development Associates, and dated August 24, 2012, that showed the Copper King resource alone had a $160 million net present value at a 5 percent discount at the then $1,100 per ounce gold price and $3.00 per pound copper price. Today, gold is above that price, and trades at $1,294.20 per ounce. Copper now trades at $3.06 per pound. 

In addition to Copper King, Dave Mathewson, the renowned VP and Head of Exploration at US Gold believes that the Keystone project, has the potential to be bigger than the “Railroad” project, which he successfully explored during his time with Gold Standard Ventures. The Keystone property encompasses approximately 12 square miles (7,500 acres), located in central Nevada. It lies 10 miles southeast of Barrick Gold’s Cortez Hills mine on the Cortez Gold Trend. Dave has a long successful history of exploration and has led teams credited with exploration discoveries including; the Tess, Northwest Rain, Saddle, South Emigrant properties in the Rain District, and North Mike, and Deep Gold Quarry.

Most Recent Company News Is An Update on Copper King

Two weeks ago US Gold updated shareholders on the current state of the Copper King project located in southeast Wyoming in the Silver Mine mining district. The property is about 1,120 acres in size.

During 2017 the company has performed a number of tests and is now in the process of drilling four drill holes to test geophysical responses. These hole locations were picked based upon ground magnetic and IP surveys that the company did this summer and fall. These targets have never before been drilled. The locations are shown on the map indicated by CK PDH 17-01, CK PDH 17-02, CK PDH 17-03, and CK PDH 17-04: 

In June, U.S. Gold had Wright Geophysics to perform a ground magnetic survey. This survey agreed with earlier historic magnetic work. It defined a complex lithological structural setting with two major fault sets. Then in October, Zonge International Geosciences performed an induced polarization (IP) survey. The results of the survey were that new exploration targets were defined, previous summer aero-mag survey results
were confirmed, and a moderate strength chargeability anomaly that correlates directly with known copper mineralization and revealed possible extensions to mineralization both to the east and west was confirmed. 

In parallel with testing, the company continues to make progress with permitting. The company is working with the state and local authorities to advance the project. The Copper King claims are all located on all State of Wyoming lands and the state of Wyoming officials have been supportive of efforts to advance the project as the state stands to collect a 5% Net Smelter Royalty (NSR) on the project. 

Keystone Continues on Track

In October, management updated shareholders on the 20 sq. mile Keystone project in Nevada. Then it announced it planned a drilling program of a combined nine to ten holes to be conducted on both the Keystone and Gold Bar North projects. Part of the challenge of the exploration is the large area involved. In addition to test holes, it is also pursuing Environmental Assessment (EA) for the entire project for its expanded 2018 drilling program. Management describes the drilling plans in detail as follows:

The fall drilling program will provide the first drill hole tests of several identified target opportunities indicated from recently obtained detailed gravity data in combination with stream sediment, altered cobble, soil samples, and detailed geological mapping. Four proposed, widespread scout holes will provide an initial assessment of three of four gravity lows that have been recently identified to be present within the much broader north-northwest-trending gravity and magnetics corridor interpreted by a geophysical consultant, to closely match the north-northwest-trending corridor that frameworks Barrick's Cortez deposit and vicinity. 

After that, two to three holes will follow up on the initial 2017 RC drill holes that provided significant gold, pathfinder geochemical results, and deposit model characteristics within the Sophia target zone. An additional hole is designed to provide an approximate two-mile scout-hole step-out to the southeast within the Sophia target zone. 

In addition, one to three scout holes will be drilled on the Gold Bar North property located four to five miles to the southeast of Keystone. This discovery opportunity consists of a large, shallow colluvial-covered, altered, and mineralized horst of what is believed to be Horse Canyon and Wenban Formations. In 1989 and 1990, Newmont drilled several shallow holes into this host, intersecting altered siltstones and limestones, and multiple intrusives beginning as shallow as 43 feet. In 2006, Tone Resources also drilled two holes into this blind target horst, also obtaining favorable gold system indications. 

At $1.60 per share USAU trades at a price below it recent stock offering price of $1.80 and well below the Preliminary Economic Assessment (PEA) report authored by Mine Development Associates, and dated August 24, 2012, that showed the Copper King resource alone had a $160 million net present value of gold. Armed with upwards of an estimated $4.1 million in cash at the end of the October 31, 2017 quarter and solid exploration results to date, USAU could be worth a look by gold exploration investors. Certainly the stellar team assembled for this pursuit would be reason enough to be interested.

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