A few familiar names and a familiar philosophy: from Northern Miner. I have to think ELD is a great price under 30. I thought 36 was it. Northgate, another in a series like National Gold (Mulatos; see second article below), and XCAL (Sleeper), who have excellent assets (really deals for excellent assets is more accurate), but no capital/partners or access to either. On NGT note that they have brought in Chester Miller (on the Alamos deal), pretty successful old timer.
Investment Commentary
Analyst sees best buys at bottom of food chain
Gold analysts have watched the yellow metal's sluggish performance for several years now, with some keeping the faith better than others. John Ing of Maison Placements Canada still ranks among the most bullish, though he concedes that recent price rallies have been short-lived, in part because of a stronger-than-expected U.S. dollar.
Looking ahead, Ing believes the greenback is vulnerable to a major correction that would send shock waves through currency markets. He also says slashing interest rates isn't enough to kick-start America's economy, which is plagued by structural problems caused by high debt levels, and overcapacity and overinvestment in the technology sector.
As for the gold industry, Ing says mine supply has declined steadily because of low prices. Furthermore, central bankers have restrained sales since the Washington Agreement, and falling interest rates have made it less profitable for producers to sell forward and hedge. "Thus," he adds, "the inevitable law of supply-and-demand must take hold, and gold's widening deficit will cause an explosive upward move, sparked initially by short-covering."
Although rallies to date have benefited mid-cap producers such as Goldcorp, Agnico-Eagle Mines and Meridian Gold more than their senior counterparts, Ing believes that small-cap companies are the ones to watch in the months ahead. "This junior-priced group is trading, on average, at half of the market-cap multiple per ounce of the more senior stocks -- they're simply better buys."
Ing's top ten picks include numerous "fallen angels," former high-flyers grounded by low prices and negative investor sentiment. The list includes Crystallex International (KRY-T), whose share price soared to more than $11 based on a quixotian quest for the Las Cristinas 4 and 6 concessions in Venezuela. Although that legal battle came to naught, the gold company has since reinvented itself by acquiring the Tomi mine and Revemin mill to complement the San Gregorio mine in Uruguay. "Crystallex should produce 125,000 ounces this year, and has targeted 200,000 ounces in 2002 at a cash cost under US$200 per ounce, up from 95,000 ounces last year," Ing says.
Eldorado Gold (ELD-T) also made the list, despite reporting a loss of $900,000 on revenue of $9.3 million last year. Ing says the company's fortunes depend on the wholly owned Kisladag project in Turkey, which could produce 100,000 oz. annually. Eldorado expects to produce 115,000 oz. this year at an average cash cost of US$129 per oz.
Glamis Gold (GLD-G) got a thumbs-up for its new flagship mine in Honduras, which began production last year. The US$27-million, St. Martin mine is expected to produce 80,000 oz. annually over a 10-year life. Cash costs at this heap-leach operation are a mere US$113 per oz.
Another of Ing's picks is junior producer High River Gold Mines (HRG-T), which last year cranked out 127,000 oz. gold at a cash cost of US$133 per oz. from mines in Manitoba and far-eastern Russia. Buryatzoloto is now Russia's third-largest producer, turning out 127,000 oz. at a cash cost of US$160 per oz. (shared by High River and its local partner).
Iamgold (IMG-T) was an obvious choice, given the stellar performance of the Sadiola Hill mine in Mali, operated by partner AngloGold. Cash costs last year were a mere US$102 per oz. Iamgold also owns 40% of the nearby Yatela mine, which hosts 12.3 million tonnes grading 3.6 grams gold, with a cash cost of US$175 per oz. "Iamgold is a potential takeout candidate, possessing strong cash flow and manageable debt load," Ing writes.
Kinross Gold (K-T), though a senior producer, made the list owing to its "junior" share price and the progress made to restructure its balance sheet and pare high-cost operations. "The shutting down of Refugio [in Chile] eliminated a costly cash drain," Ing notes. "Meanwhile, Fort Knox in Alaska is processing higher-grade feed from the True North satellite deposit, increasing low-cost ounces. Kubaka in Russia continues to perform well, and the discovery of the high-grade Birkachan deposit might extend that life."
Ing is also watching Miramar Mining (MAE-T), though he concedes that an improved gold price is needed to give a boost to the company's work at the Hope Bay joint venture in Nunavut. It is the largest exploration project in Canada, with seven rigs at work on surface and two underground.
Northgate Exploration (NGX-T) also got the nod, albeit with the caveat that a refinancing bridge is still needed. The company acquired 95% of the struggling Kemess gold-copper mine in northern British Columbia, previously operated by Royal Oak Mines. Annual production is forecasted at 260,000 oz. gold and 74 million lbs. copper, at a cash cost of less than US$150 per oz., net of byproduct credits.
Philex Gold (PGI-T) was cited for the "elephant-sized exploration potential" of the new Boyongan copper-gold discovery in the Philippines. Operator Anglo American holds rights to 60% of the project, where drilling last year returned 365 metres grading 0.81% copper and 1.9 grams gold. Two subsequent holes returned 388 metres of 1.07% copper and 2.03 grams gold and 393 metres of 1.58% copper and 2.39 grams gold, respectively. A resource estimate is expected later this year, or in early 2002.
Ing also is keeping an eye on St Andrew Goldfields (SAS-T), which recently raised $6 million and eliminated almost $3 million of debt. The junior is focused on advancing the Taylor gold project, near Timmins, Ont., which hosts 2.5 million tonnes grading 7.76 grams gold per tonne. "An underground development project, expected to cost $20 million, could result in St Andrew's becoming a 50,000-oz. producer," Ing notes.
Alamos, National Gold seek merger
7/12/01
Vancouver -- Attempting to move the large Salamandra project forward, National Gold (NGT-V) is proposing to merge with fellow junior Alamos Minerals (AAS-V).
The combined entity would be called National Gold.
The companies have inked a letter of intent. It would see Alamos shareholders getting one National Gold share for every three Alamos shares held.
With $430,000 in its treasury, Alamos has advanced National Gold $100,000 on a promissory note and has agreed to provide, either by a promissory note or arrangement of additional funding, a further $250,000. This would be payable after National Gold arranges a deferral in capital payments for the acquisition of Salamandra and before the completion of the merger.
National Gold took over the advanced Salamandra project late last year from Placer Dome (PDG-T) and Kennecott Minerals, a unit of Rio Tinto (RTP-N). The $10.5-million deal was originally slated to close at the end of February.
However, regulatory hurdles forced National Gold to bump the date ahead to mid-March. Financial problems then resulted in a second extension, forcing Placer and Kennecott to defer $2.75 million of the closing payments to July and to agree to pay the $1.6-million refundable IVA tax. This enabled National Gold to close the deal.
The Canadian Ventures Exchange has requested that National Gold complete a $1.6-million financing before July 15 and an additional $2-million financing by Aug. 30. If these obligations are not met, the company may run afoul of the exchange's maintenance requirements and be downgraded to the status of inactive trading.
National Gold is negotiating with Placer and Kennecott to restructure the hefty capital repayment arrangement, which calls for payment of $3 million in the first year. The remaining $7.5 million is secured by a debenture and payable at the end of the fourth year. The debenture carries a 7% interest, which is payable semi-annually.
The vendors retain a 2% net smelter royalty on the first 2 million oz. gold produced.
The 151-sq.-km property is located 400 km south of Tucson, Ariz., in the Mexican state of Sonora. It hosts the 3.4-million-oz. Mulatos gold deposit.
Within this deposit is Estrella, a high-grade core that holds a measured and indicated resource of 11.5 million tonnes grading 3.16 grams gold per tonne, using a 2-gram-per-tonne cutoff.
National Gold has hired Nevada Mining Consultants and Mintec to prepare a scoping study for production from the high-grade zone.
According to National Gold, the preliminary report shows that the Mulatos deposit contains more than 4.7 million oz. gold, in all categories, at a 0.5-gram-per-tonne cutoff. This is an increase from the originally reported 3.4 million oz. at a 0.8-gram-per-tonne cutoff.
Since 1993, Placer and Kennecott have spent more than $50 million exploring the property. Based on a cutoff grade of 0.8 gram gold per tonne, a 1997 feasibility study pegged the measured and indicated resource at 68.3 million tonnes grading 1.57 grams gold.
A 1999 feasibility study envisioned a 17,500-tonne-per-day, open-pit operation. Capital costs are pegged at US$120 million. Operating costs for a heap-leach operation are estimated to be $5 per processed tonne at a gold recovery rate of 66%.
Mineralization is hosted in a large, high-sulphidation gold system, which is found preferentially stratabound in felsic volcaniclastics and porphyritic flows. Alteration is well-zoned, extending from a gold-bearing core of silicic and pyrophyillite clays to kaolinite-illite-dickite clays and finally to a propylitic zone.
An updated scoping study is expected shortly. |
