Last week, I went to visit Premium Exploration (PEM on the TSX-V), a Canadian-listed gold explorer and developer with an exciting project in Idaho. I think this stock is poised for success. Let’s take a look at the weekly chart below …

You can see that Premium Exploration has been making higher lows as it coils up for a potential breakout. Weekly momentum is positive. Still, this volatile stock may visit its uptrend again — I would view that as a buying opportunity.

I visited Premium Exploration’s gold project in Elk City, Idaho. That’s the same part of Idaho I wrote about in last week’s Uncommon Wisdom column — the site of a huge gold rush starting in 1860.

In fact, along the way to Premium Exploration’s Friday-Petsite gold project on its extensive (28 kilometers long) property, we passed piles of rocks dug up a century or so ago by prospectors looking for placer gold. Boy, did they find it! The Central Idaho gold region produced more than 4 million ounces of gold from mostly placer projects.

So, the region is gold-rich. And Premium Exploration’s property appears to be richer than most. Premium has put together a land package along the Orogrande Shear Zone, a geologic formation that has sparked fires in the eyes of many prospectors. At Friday-Petsite, Premium Exploration has a NI 43-101 compliant inferred resource with 549,000 ounces of gold to start with. And it has the potential for much, much more.

For starters, Premium Exploration also owns the Buffalo Gulch project a few miles away. That project has a historic (non 43-101 compliant) resource of 115,000 ounces. Buffalo Gulch was test-mined and fully permitted by Bema Gold when the bottom fell out of the gold market, and the project was shelved in 1992.

Both Friday-Petsite and Buffalo Gulch have the potential to be open-pit, heap-leach operations, which lowers potential costs.

Like many junior miners and explorers, Premium Exploration was hit hard by the 2008 financial crisis. The good news is the financial crisis has passed, and Dundee Securities spearheaded a $10 million financing which just closed in July. Result: Premium Exploration is set very well financially, and it has what could be a company-making discovery on its Idaho property.

Good News Will Likely Keep Coming

Premium did an 800-meter drilling program on the Friday-Petsite project that ended in May 2009. Its next drilling program ran 2,000 meters and ended in October 2009. This year, it is wrapping up a 10,000 meter drilling program. Results from the current drilling program will be doled out for the rest of the year and into 2011. I expect there will be good news that will drive the price of the stock higher.

Why do I think that? Well, Premium hasn’t drilled a disappointing hole on the Friday-Petsite site, at least not yet anyway. And some of the holes have been “spectacularly awesome,” to quote Premium’s Vice President of Exploration, Michael Ostenson. Results include 5.74 grams per metric tonne (g/t) of gold over 76 meters, 3.65 g/t over 74 meters, and more than 9 g/t over 25 meters.

Sean on the scene at Premium Exploration’s drilling site in Idaho.

What’s more, a whole new zone was discovered in last year’s Phase 2 drilling. This lower block is above the cut-off grade of the existing zone, so it should add ounces to the resource. The lower block is not factored into the resource yet.

The 549,000 ounces in the inferred resource has an average grade of 1.13 g/t, with a cut-off of 0.5 g/t. This is a bulk-tonnage deposit with a high-grade core, however the grade seems to be improving as Premium Exploration develops the target at depth.

The 10,000-meter drilling program the company is wrapping up now could potentially A) move some of the known resource from the “inferred” to the “measured and indicated” category, B) extend the size of the known resource, C) raise the grade of the known resource and D) prove that there is a worthwhile gold zone beneath the first zone.

These are all potentialities; nothing is proven yet. But here’s more good news …

• Premium Exploration has working capital of $9 million, and potentially enough from in-the-money warrants that CEO Del Steiner says the company won’t have to raise money for quite some time to come. To see my video interview with Del, point your web browser here: http://tinyurl.com/28g26jy.
  
• There is a LOT of institutional interest in this company — high rollers from across North America and even Australia have already lined up to get a piece of the company.
  
• The company has solid management. Del Steiner is a hands-on CEO who is squeezing his dollars to get the most out of them. Michael Ostenson, the vice president of exploration, is an experienced exploration geologist who earned his stripes at Stillwater and AngloGold.

So where is the company going? Well, it costs a lot of money to develop a gold mine, so the obvious step would be to eventually joint-venture with one of the big boys. Before that happens, Del Steiner says they’re aiming to have a compliant resource of at least 1 million ounces.

Investors are expecting positive results from this year’s drilling program. Now we have to ask ourselves “is the good news priced in?” While it could be, there could also be good news we don’t know about yet. If that’s the case, Premium Exploration might be cheap.

This is a speculative company — any one of a number of things could go wrong. I just think there is a lot more that is going to go right. And I was very impressed with the company and the people involved.

Smart People Like This Stock

Premium Exploration did pay for my airfare to Idaho and put me up in a Quality Inn for my stay. I do not own any Premium Exploration stock — you know that Weiss Research’s policy won’t allow me to hold stocks I recommend — nor did I receive monetary compensation from Premium Exploration.

I did have an intangible benefit from my trip — getting together with top-notch analysts including Dan Pisenti, Marshall Berol and Rick Ackerman. I also enjoyed talking again with Al Korelin and his better half Kathy. And I got to meet veteran investor Roger Weigand for the first time. These very smart people are all very interested in Premium Exploration. That should tell you something.

If you want to listen to Al’s broadcast from Idaho — which features in-depth interviews about Premium Exploration and includes an interview with me — point your web browser here: http://tinyurl.com/24vkjjn

Bottom line: I think Premium Exploration is an excellent stock to own for the long-term. Do your own due diligence before you buy anything.

Until next time,

Sean