Golden Knight Resources:
James U. Blanchard III
Value And Growth On Sale
It's one thing to get a significant share of gold production from a 13 million ounce gold
deposit at a discount. Add in an exciting, global exploration portfolio for free, and you
can understand why Golden Knight is one deal you can't pass up.
In the world of junior mining shares, timing is everything...and the timing could not
be better to buy stock in Golden Knight Resources (GKR.T; GKRVF. Nasdaq).
With a bargain basement share price and a significant stake in one of the largest
gold discoveries of the decade, Golden Knight stands out as a great opportunity
to buy proven, near-production resources at a huge discount, right from under the
nose of the rest of the market.
In short, Golden Knight's combination of sound financing, great exploration
prospects and undervalued stock make it a must-buy company.
A Slam Dunk
The foundation of GKR's growth is the large Tarkwa deposit in Ghana, currently in
development under the management of GKR's corporate partner, Gold Fields of
South Africa.
Golden Knight originally acquired a 5 percent indirect interest in Gold Fields
Ghana Limited as a result of its merger with Mutual Resources Ltd. in 1995. In
1996 GKR bought an additional 12.5 percent interest in the company for about
$50 million, raising its stake to 17.5 percent.
With proven and probable resources of 13 million ounces of gold, the Tarkwa mine
should begin production of 120,000 ounces per year in early 1998, and ratchet up
to 250,000 per year by 2000 at an average cash cost of US$210 per ounce. With
additional capital investment, the site should produce over 500,000 ounces per
year by the year 2004. Tarkwa's mine life will be at least 20 years. So, Golden
Knight's equity share of Tarkwa production — 21,000 ounces in 1998 — should
provide the company a steady stream of income well into the next millennium.
Why So Cheap?
Trading as high as $10.10 last year, Golden Knight's stock took a dive in January
after high operating costs and the requirement for additional capital forced the
company to seek a buyer for its Casa Berardi mine in Quebec, a joint venture
with TVX Gold Inc. Further problems resulted in a shutdown of all mining at the
site in February.
Golden Knight chose to write off Casa Berardi and take a one-time, $58.8 million
hit to the balance sheet. Understandably, this drove the stock price down
dramatically. The stock's expected recovery was then squashed by the general
downturn following the Bre-X debacle and the sluggish gold market that followed.
The fallout from these dovetailing developments created a lingering — but not
necessarily accurate — negative perception that drove share prices down to their
current unrealistically low levels. For smart investors, that spells
"opportunity."You see, it is only a matter of time before the market revalues
Golden Knight significantly. As I have said many times in the past, the ideal time
to buy stock in any junior mining company is shortly before the first gold is
poured, at which time most of the risk evaporates, and the share is revalued
appropriately by the market.
The key here is that the first gold will be poured at Tarkwa in early 1998...just a
few months away...and the value of that production to Golden Knight is still being
discounted. When the benefits of that production "suddenly" appear, the market
will be forced to recognize GKR's value, and rerate the share price higher.
Icing On The Cake
Golden Knight's interest in the Tarkwa project alone makes it a solid junior mining
company; this company isn't going to go out of business anytime soon, no
matter what happens to the gold price. Getting Tarkwa at a discount is an
unexpected and welcome bonus.
But here's the real bonus: At current stock prices, Golden Knight's promising
exploration properties are handed over to you for free. And the company will have
more than enough money to properly explore these concessions. The recently
announced US$75 million financing for development of the Tarkwa site will
preserve Golden Knight's rich $12.2 million treasury (as of September 30, 1997),
and allow the company to put that money to work at its other exploration
projects.
With production from Tarkwa beginning next year, you have a rare combination in
the junior mining share market: A company with talented, aggressive
management, a substantial bank account, prime exploration properties and no
need to issue additional shares to finance further exploration expenditures in the
near-term.
So far, the company's exploration budget has been put to very good use, as
drilling programs are bringing back encouraging results at three projects.
Manso Nkwanta
Golden Knight is the operator of a 50-50 joint venture which holds six
concessions and a mining lease totaling 420 square km in the Manso
Nkwanta-Asankrankwa gold belt in Ghana.
At one of these concessions, the Oda River Concession, the joint venture has
outlined an indicated and inferred resource of 600,000 ounces of gold at the Abore
North Zone. At 2.2 km in length, this zone is already large. But extensive gold
soil geochemical anomalies exceeding 5 kilometers in strike length have been
identified, which gives the joint venture an extremely large target zone for further
sampling and drilling
Seguenega, Burkina Faso
Golden Knight holds a 90 percent interest in this 400 square km concession in
Burkina Faso, where the targets are shear-hosted, vein-type gold deposits. Five
mineralized areas have so far been identified in just a small part of this
concession. A reverse circulation drill program begun in June has turned up
high-grade gold mineralization, including intercepts of 16 m of 5.7 gpt, 43 m of 2.2
gpt, 55 m of 2.7 gpt, and 15 m of 2.0 gpt, in a zone that extends 1.1 km. A 4,000
m drilling program has just started.
Night Hawk Lake, Ontario
Not all of Golden Knight's energies have been invested in Africa. The company
holds a 60 percent stake in a 102 square km claim in the Night Hawk Lake are of
the prolific Timmins gold camp in Ontario. Located within three kilometers of
million-ounce gold deposits held by Royal Oak and Echo Bay, Golden Knight's
geophysical testing leads it to believe it may have located up to 14 "disseminated
sulphide and carbonate zones."
So what? In the famous Timmins gold camp, these zones are well known as
"halos" that surround significant gold mineralization. Early results are very
promising, with test drilling in the Cross Lake and Sheraton Lake Zones of the
property showing significant concentrations of base and precious metals.
Golden Knight's Cross Lake zone is within 400m of Cross Lake Mineral's recently
announced high-grade massive sulphide intercepts which created a sensation in
Canadian mining circles. These intercepts included 33 m of 6.7% zinc, 1.7%
lead, over 3.1 gpt silver, and 12.5 m of 1.8% copper. This exploration success
and the potential for additional and precious metal mineralization encouraged
Golden Knight to invest $4.15 million in Cross Lake, and to plan an aggressive
drilling program on its own ground, which has a similar geologic environment.
Rock-Solid Management
The management team at Golden Knight is stacked with expertise and
experience. The Chairman of the Board is R.A. Gordon Davis, P.Eng., a
geological engineer with 40 years of experience at the highest levels of the
resource industry. Also a director and a member of its executive committee is Dr.
N.B. Keevil, P.Eng., one of the top executives in the industry who is serving as
President of Teck Corporation and Chairman of Cominco Ltd., two of the major
resource corporations in the world.
Golden Knight's President is Robert Quartermain, M.A.Sc., P.Geo., who serves
in a similar capacity with Silver Standard. Bob has two decades of experience in
exploration and mining, and was appointed president of Golden Knight in 1995
with a mandate to grow the company through exploration and selective
acquisitions. He has been very successful in that endeavor by many measures,
including the raising of $85 million.
Another key member of the team is Kenneth McNaughton, M.A.Sc., P.Eng. A
geological engineer with 18 years experience from grass roots exploration through
feasibility studies, McNaughton serves as Project Development Manager,
directing the companies efforts in North America and Africa.
A Narrow Window Of Opportunity
Add up the fundamentals of Golden Knight and you paint a picture of a
near-perfect junior mining company. Let's review what you get with GKR at
current prices:
• Upcoming gold production credits from one of the world's top gold projects —
and you get this production today at a discount to ultimate market value.
• This gold production means the company that will not have to go to the market
again in the near future...will not have to dilute shareholder value to advance its
exploration program.
• Gold resources so far of 2.5 million ounces.
• Two projects under development, plus 14 concessions, in West Africa. This
makes GKR one of the most active and prospective resource companies in West
Africa.
• A Canadian project — Night Hawk Lake — which has captured the attention of
many new investors.
• Working capital of $12.2 million (as of August 31), total assets of $116.4 million
and a net asset value/share of $4.25. (This is one company that isn't going to
disappear any time soon.)
• Support from a mining major — Teck Corporation is the company's largest
single shareholder, with a 25.5 percent stake.
• "Free" exploration potential — because the company's market capitalization is
lower than its book value. The market is giving you Golden Knight's proven
resources and assets at a discount, and "paying" you to enjoy its outstanding
exploration potential.
Obviously, this is a window of opportunity. But it is a window that has been
created by the special circumstances of this market, and one that will be
slammed shut when gold production begins at Tarkwa early next year. |
