interesting but not pertinentWith the conclusion of feasibility work, capital expenditures should be
well defined. At this juncture, an educated guess places capital costs
(excluding feasibility work) at around $40 million. Once Emgold's project
is bankable, one would expect debt funding, perhaps in the form of a gold
loan, should become available to this company, especially if the economics
of the project are as robust as they appear to be at this juncture.
Management
The management of Emgold appears quite adequate to handle the immediate
tasks of developing the company's Idaho-Maryland Mine. Following are key
management members and the Company's Board of Directors.
Frank A. Lang, is Chairman and President. He is one of the better known
mine finders in Canada, having had a great deal of success in the past. His
greatest claim to fame was his role-played in the discovery of the Golden
Giant Mine at Hemlo Ontario. This mine now produces 310,000 oz./year and as
such is Canada's 4th largest gold producer. Ross Guenther, is project
manager at the Idaho-Maryland Mine. Mr. Guenther is a geologist with in
excess of 30 years of experience. Sargent H. Berner is a partner with a
well known Vancouver law firm. He is also a director of several other
companies, and was formerly a Professor of law at the University of British
Columbia. Ronald M. Lang is a self-employed businessman who received a
business-of-the-year award in recognition of his success. Steven W. Banning
has been President of Golden Queen Mining Co. since 1995. Prior to that he
had been Vice President Operations at Pegasus Gold Inc.
Risks
Although the price of Emgold may appear quite undervalued compared to
historical valuations for mining companies with similar assets, investors
should be aware that a host of hurdles need to be cleared before the
Idaho-Maryland Mine can generate healthy cash flows for Emgold's
shareholders. Following are some of the more obvious risks Emgold investors
face at this time.
1. Financing Risks - At this stage of its development, equity financing
is about the only avenue of funding now available to the Company. But
with the price of its stock at only $0.15, the cost to shareholders
resulting from dilution is prohibitive. Thus, until the price of gold
or some other positive factor results in a higher share price for
Emgold, significant progress toward placing the Company's
Idaho-Maryland Mine into production is not likely to take place.
Financing risk is, in my opinion, the greatest risk currently faced by
shareholders.
2. Timing Risk - Investors who purchase shares of Emgold should be
prepared to tie up their capital for a protracted period of time
because it is impossible to predict when market conditions will result
in higher equity prices and/or a liquid market for the company's
shares may exist. The ability to invest in this Company's shares for a
protracted period of time will significantly reduce your risk of loss.
3. Gold Price Risk - Although important in the immediate future, over the
longer term, and especially if the company becomes a producer, the
value of the shares of Emgold will depend greatly on the price of
gold.
4. Production Risk - Although there appears to be a significant amount of
data available upon which to base a future performance from the
Idaho-Maryland mine, prior to production, the possibility always
exists that some unforeseen operating problems could arise that would
negatively impact performance. Production risks should decrease as
feasibility work is completed but will never be eliminated.
5. Mineable Reserves - At this juncture, an insufficient amount of data
exists to be able to determine what portion of the resource noted
above can be mined at a profit. The level of mineable reserves will be
outlined assuming feasibility work progresses.
6. Environmental/Political Risks - California is known to be one of the
more stringent environmental states in the U.S. In general the Clinton
Administration is at least mildly hostile toward the mining industry.
Mitigating this risk to a great extent so far as Emgold is concerned
is a pro-mining sentiment from the Grass Valley District within
California where Emgold's property exists.
The risks outlined above are typical of virtually all junior mine
exploration companies although, given the Idaho-Maryland Mine's prior
status as a producer and the advanced stage of exploration for this
project, it may be fair to say this company's shares are less risky than
grass roots exploration plays. Investors who are willing and able to assume
risks inherent with Emgold's shares may be rewarded with huge returns. As
pointed out above under the Mine Economics & Possible Valuation section,
investors who buy Emgold at its current price may expect to enjoy a rise in
value of 50 times or more its current share price - even with gold trading
at $300/oz.
Summary & Conclusion
As pointed out near the beginning of this report, the upside potential for
investors who buy this stock at its current price is enormous. We have
suggested that a share price in the $1 to $2 range may be possible with
gold rising modestly to $350/oz., even as the Company moves through the
feasibility stage of development.
Based on past production and exploration information gathered from the
Idaho-Maryland project, operating costs for the Idaho-Maryland project
might be $215/oz. or lower. Accordingly, it is suggested that given a $300
gold price, the project might have the potential to become significantly
profitable. Based on the same set of assumptions, but with gold selling
$350/oz. a highly profitable mining operation appears possible. Given a
heftier price to EBITDA multiples enjoyed during better times, an eventual
share price in the $5 to $10 for Emgold is not out of the question, though
much of the company's future will depend in part on its ability to
efficiently finance its way through feasibility.
FOR ADDITIONAL INFORMATION, CONTACT:
Andrew Hunter, Corporate Development at
Suite 1610 - 777 Dunsmuir Street
Vancouver, B.C. Canada V7Y 1K4, Box 10435
Tel.: (604) 687-4622
Toll Free - 1-888-267-1400
Website: langmining.com
J Taylor's Gold, Resource & Environmental Stocks (formerly J Taylor's Gold
& Gold Stocks) is published monthly as a copyright publication of Taylor
Hard Money Advisors, Inc. (THMA) , Box 770871, Woodside, N.Y. Tel.: (718)
457-1426. Visit our website: miningstocks.com. THMA provides
investment advice on a paid subscription basis and also, from time to time
receives payment from companies who's shares are recommended in this
publication in exchange for the right to reprint articles published herein
and/or provided in the THMA weekly telephone hotline message under the
following two programs: 1) A Blanket Right to Reprint any comments therein
in exchange for a fee of $2,500 annually or 2) $250/page. Under contract,
companies acknowledge that reports appearing in this publication and/or
provided in the weekly telephone messages are intended for the exclusive
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over the content of material published in this letter or spoken in the
weekly hotline messages. Information contained herein is obtained from
sources believed to be reliable, but we do not guarantee its completeness
or its accuracy. The management of Taylor Hard Money Advisors, Inc. may,
from time to time, own shares of the companies recommended herein. However,
no statement or expression of any opinion expressed herein constitutes an
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TAYLOR HARD MONEY ADVISORS, INC.
Box 770871, Woodside, N.Y. 11377
Tel.: (718) 457-1426
Copyright @ 1998 TAYLOR HARD MONEY ADVISORS, INC. ALL RIGHTS RESERVED.
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