Investment Comment London analysts like American Barrick

Flush with cash and waiting for increased production from some of its key properties, American Barrick Resources is a company which has caught the eye of London, England-based Barclays de Zoete Wedd Research Ltd.

According to analysts Alan C. Richards and Jane MacKelvie, Barrick shares offer outstanding investment potential for a number of reasons.

Topping the list is an annual production rate which is expected to increase from 186,000 oz gold in 1986 to over 400,000 in 1989.

Much of that additional production could come from Barrick’s Goldstrike mine in Nevada which it acquired from Western States Minerals and Pancana Minerals

In December, 1986, Barrick paid Western States $43 million and in January, 1987, Barrick issued 2.1 million shares to former Pancana shareholders.

According to the research report, Barrick’s acquisition of this property provides major expansion opportunities.

The former owners were producing around 40,000 oz annually by heap leaching low grade oxidized surface ore but Barrick expects to increase surface production to an annualized 80,000 oz per year in 1988.

As reported (N.M., May 18/87) exploration below the known oxide reserves of the Post depot on the Goldstrike property, has generated considerable excitement. Several spectacular drill holes, including 620 ft grading 0.3 oz gold per ton, have been released which suggest a large tonnage, high grade deposit exists between 1,000 ft and 2,000 ft.

Unconfirmed reports that these reserves could host more than six million oz gold propelled Barrick’s common shares to a high of $54, up from the $35 range in March, 1987.

However, after a 2-for-1 stock split on June 30, the common shares currently stand at $30.25 on the Toronto Stock Exchange. That’s just below its 52-week high of $31.75 but well above its $7.63 low point.

By 1988, Barrick expects Goldstrike’s surface production to reach an annualized 125,000 oz, rising to over 200,000 oz per year if underground production comes on- stream. A decision on sinking an exploration shaft will be taken in October, 1987.

While Goldstrike looks promising, Richards and MacKelvie also like Barrick’s cash position. The company has $260 million (nearly $10/share) on hand, enabling it to fund the planned development of six producing mines which include Barrick’s 100%-owned Mercur property.

Located at the south end of the Oquirrh Mountains, 35 miles southwest of Salt Lake City, Utah, the Mercur is an open pit operation comprising 13,400 acres of mining claims. Gold production reached a record high in 1986 when 111,007 oz were produced compared with 93,836 oz in 1985.

“With production costs at $199(US), the mine is by far Barrick’s most important source of earnings,” say Richards and MacKelvie in their research report.

In 1986, mill production was 105,327 oz (5,680 oz by leaching) but additional dump leaching capacity will lead to increased production in 1987.

Barrick also has a 100% interest in the Camflo mine located 12 miles west of Val d’Or, Que. In production since 1965, the mine is one of the lowest cost per ton underground gold mining operations in North America. Cost per oz was $219(US) in 1986, up from $214 in 1985.

Since its inception, the mine has produced more than 1.5 million oz of gold from over eight million tons of ore.

In addition to its 100% interest in Camflo, Barrick earns an additional 40% share of operating profits from mining and milling the extension of the main orebody on the adjoining Malartic Hygrade property. Combined with Barrick’s s hare of Malartic Hygrade production, Camflo produced 31,850 oz gold in 1986.

An agreement with Malartic Hygrade Gold Mines requires Barrick to mine and mill 200,000 tons annually from the Malartic property with the balance of mill capacity, approximately 270,000 tons, originating from the Camflo property.

Production from Barrick’s Pinson (60,064 oz in 1986), Renabie (35,007 oz) and Valdez Creek placer (15,772) mines give the company a wide diversity within the North American gold industry, say Richards and MacKelvie.

While their research report was written before the stock split, Based on an average gold price of $430(US) per oz, Richards and MacKelvie see earnings per share of $1.03(C) in 1987 with a price earnings ratio of 45.6.