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Claude Resources Inc.
200, 224 - 4th Avenue South
Saskatoon, Saskatchewan S7K 5M5
Phone (306) 668-7505 Fax (306)
668-7500
Toronto Stock Exchange
Alberta Stock Exchange
Trading Symbol - CRJ
January 11,1999
CLAUDE RESOURCES INC. ("CRJ-T")
Madsen Drilling Encouraging. Reinstating Coverage;Buy (2)
Stock Rank
(Recommendation): 2 (BUY)
/ Industry Rank: 5
(All values in C$ unless
otherwise noted.)
EPS
1997
$0.29
P/E
7.6X
COMPANY PROFILE
Claude Resources Inc. is a lower cost junior gold mining producer with a
strong balance sheet, experienced management and an attractive mix of
long-term revenue generating assets. Claude's principal asset has been the
Seabee gold mine located 125 kilometres northeast of La Ronge,
Saskatchewan. This 100% owned and operated mine is in its seventh year of
production and has produced over 300,000 ounces of gold. At present
Seabee still has over 320,000 ounces of gold in reserves. The implied
present five-year mine life is conservative and likely to be extended by an
additional 3-4 years from resources. On April 6, 1998, Claude acquired
Madsen Gold Corp. located in the prolific Red Lake gold camp in
north-western Ontario. This 10,000-acre (4,000 hectares) property produced
2.8 million ounces before being closed in 1976. The Company expects to
place the mine into commercial production in the first quarter of 1999 with
annualised production of 50-60,000 ounces. In addition to these producing
assets, the company has two development prospects. 1) The 100% owned
Currie Rose property, (subject to a 30% net profits interest), surround the
producing Seabee property and is the Company's most advanced
exploration property. 2) The Amisk/Laurel Lake development prospect that
is a potential high-grade underground project (further work required). The
company has a 440 tonne per day mill within trucking distance of the
Amisk/Laurel Lake prospect. In addition to its mining properties, Claude
owns interests in several large oil and natural gas properties, most of which
are located in the province of Alberta. The 1,000 barrels of oil and gas
equivalent being produced per day from these properties currently results in
some $5 to 8 million a year in revenues and $1.0 to $1.5 million in free
cash flow.
EVENT
On January 7th, Claude released very encouraging diamond drilling results
from surface drilling at its Madsen gold mine property at Red Lake in
northwestern Ontario. Of the eighty drill holes drilled so far from surface to
only the second level, 50 intervals averaged greater than four feet grading
more than 0.10 ounces per ton (opt). Several intervals across 5 to 10 feet
averaged over 0.50 opt (US$150/ton value rock at spot prices). These
results from the McVeigh zone while very preliminary suggest that this zone
may be either a splay (continuation) or fold limb (folded "mirror image") of
the old Austin zone which produced 2.42 million ounces at a grade
averaging 0.30 opt from 1938 to 1976 at the Madsen mine.
IMPLICATION
Again while very preliminary, the implication is that the McVeigh zone may
host economic ore at todayÕs gold prices. How much ore and at what
grade remain to be determined. The company is currently accessing via a
ramp the McVeigh zone from the old shaft and underground workings
around the Austin zone. The drill intersections listed so far are encouraging
given that they only go to the second level of the mine whereas the mine is
currently de-watered to the 12th level. Over the ensuing months the
company intends to continue exploration drilling on the McVeigh and
perhaps complete a bulk sample of the McVeigh zone. Structual studies will
also be initiated to determine whether the McVeigh is the "other limb" of the
Austin zone or simply a splay of the Austin. If the McVeigh zone is the other
limb of the fold and mineralised similarly in grade and continuity to the
Austin zone, then the upside in the ounces could be substantial as
highlighted in the table below. The Austin zone produced over 2.4MM
ounces. The McVeigh could be some portion of that production. If the table
below were developed further it would also show that the Madsen mine
was the third largest gold producer in the Red Lake district with the sixth
highest grade from a total of approximately 18 former gold mines.
Mine
Years of
Production
Cumulative
Production
(MM oz)
Grade (opt)
Recovered
Campbell,
Red Lake
1949-present
9.35
0.640
Red Lake,
Goldcorp
1948-1996,strike-
3.15
0.371
Madsen,
Claude
Res.
1938-1976,
Q3/98-
2.42
0.289
Cochenour,
Goldcorp
1939-1971
1.24
0.538
VALUATION
At present we are discounting the gold assets at 5% with a gold forecast of
US$296 in 1998, US$330 in 1999, US$340 in 2000 and flat at US$340
thereafter. We have broken out the components of ClaudeÕs $2.55/sh net
asset value (NAV) as follows: C$1.72/sh for the Seabee asset; C$0.40/sh for
Madsen assets; C$0.20/sh for the oil and gas assets and approximately
C$0.23/sh in working capital. The company is debt free. The C$12MM in
value assigned to the Madsen asset only represents the present value of
future free cash flows from the ore left behind in the Austin zone by the
former miners. It does not include any value for the potential of the
McVeigh zone. Hypothetically speaking, if the McVeigh zone were to
"mirror" the Austin zone, then we estimate its NPV could be C$131MM or
C$4.29/sh at US$340/oz gold. It is very early days, hence estimates of value
for the McVeigh zone could realistically range from zero to C$131MM.
CONCLUSION
It is still very early in the exploration cycle but initial drilling results out of
the McVeigh zone at the Madsen mine are encouraging. As the company is
currently trading at only 86% of our currently estimated NAV which does
not include any upside for the prospective McVeigh zone we are re-instating
coverage of Claude Resources Inc. with a (2) BUY rating. Our one year target
price is C$3.25/sh. Chris Beer, CFA (416) 842-7886/ January 11, 1999
RBC Dominion Securities
The information contained in this report has been compiled by RBC Dominion Securities Inc. ("RBCDS-Canada") from
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RBC Securities - Madsen Drilling Encouraging. Reinstating Coverage;Buy (2) - January
11, 1999
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