Southwestern shares dive on China gold mine news
By WENDY STUECK
MINING REPORTER
Friday, May 9, 2003 - Page B12
VANCOUVER -- Shares in Southwestern Resources Corp. plummeted nearly 40 per cent yesterday after the company released drill results that one analyst said indicate a gold deposit in China may not live up to some investors' expectations.
Analyst Glenn Brown of Haywood Securities Inc. said in an interview that the drill hole results indicate the Boka gold deposit is not as straightforward or potentially as easy to develop as some investors believed.
"The problem is that the market had developed an interpretation that Boka was a big, even sheet of mineralization over a great distance," he said. "I still consider there is good exploration there. The question is, what do you pay for it?"
Mr. Brown said he would recommend the stock as a speculative buy if it falls below $7.50.
However, in a research note yesterday, Octagon Capital Corp. analyst Julian Baldry, who has written positive reports on Boka's potential, said the grades are "extraordinary" and "uniformly above economic levels." Mr. Baldry has a $28 target for the stock.
Southwestern yesterday released results that showed grades ranging from 1.29 to 9.06 grams of gold a tonne from four drill holes. The results confirm that the Boka Gold deposit can be developed into a large mine, Southwestern vice-president of exploration Daniel Innes told Bloomberg News.
"Boka is a very large and robust gold system that will require extensive drilling to define the limits of the mineralization," the company said yesterday.
Southwestern shares fell by $5.17 yesterday to close at $8.83 on the Toronto Stock Exchange. Nearly three million shares traded hands, 14 times the three-month average volume.
The shares had soared in recent months on speculation that the company's Boka gold project, in the Yunnan province of southern China, could compare in size and grade to Barrick Gold Corp.'s Pierina mine in Peru.
Pierina, in production since 1998, is one of the biggest and lowest-cost gold mines in the world, and is expected to produce 908,000 ounces of gold this year at a cost of $86 (U.S.) an ounce.
Southwestern shares took off in December, after the company said it had begun a drilling program on the property and that recently conducted tunnel sampling had turned up "spectacular" results, with one 34.5-metre-long vein yielding 75.2 grams of gold a tonne.
The stock rose from a close of $2.13 (Canadian) last Oct. 30 to as high as $19.20 on Jan. 14, and closed at $14 on Wednesday.
The stock was halted briefly yesterday and plunged when trading resumed.
Southwestern has been working on the property in China since last fall. The area has been mined for several years by peasant miners who dug tunnels on the site. Southwestern is developing the project with a Chinese government-owned agency, Team 209 of the Yunnan Nuclear Industry. Southwestern can earn a 90-per-cent interest in the project by spending $4-million (U.S.) over four years on exploration and paying a fee of $1.7-million to its Chinese partner.
Southwestern has exploration projects under way in Peru and Argentina. It also holds 34 per cent of Canabrava Diamond Corp., which is hunting for diamonds in Canada and Brazil.
Speculation over Southwestern's potential bonanza in China came as the price of gold was heading up, leading to renewed investor interest in gold equities. Gold prices climbed to six-year highs of close to $380 an ounce in February before the war in Iraq, but have since dropped back beneath $350.
Barrick Gold was the biggest gainer on the S&P/TSX gold subindex yesterday, closing up by $1.04 (Canadian) or 4.6 per cent at $23.46. Vancouver-based major Placer Dome Inc. gained 49 cents or 3.3 per cent to close at $14.94.
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