Investment comment Comstock is key to Dragoon success

At a time when takeover rumors and lawsuits have kept the major gold and metal producers in the headlines, it is almost refreshing to read about the prospects for one of the minnows of the mining world.

While other brokerage houses are falling over themselves to place valuations on big companies like Inco Ltd. and Echo Bay, Toronto- based Brault, Guy, O’Brien Inc. is currently recommending Dragoon Resources (VSE).

Known as Chopper Mines before it changed its name late 1984, the Vancouver-based company is hardly a household word in Canadian mining circles.

Equipped with a number of exploration properties in the Nelson, B.C., region, Dragoon was trading recently at $1.10 on the Vancouver Stock Exchange, in a 52- week range of $1.45 and 20 cents .

But analyst David Mason says all that could change if a joint venture project involving Dragoon and Toronto-based Greenstone Resources (TSE) lives up to expectations.

The partners are currently in the tuneup stage at a former high grade silver producer called the Comstock Silver Cup mine in British Columbia’s Slocan mining district where production of silver-lead-zinc concentrates should resume this summer after a 70-year hiatus. Daily capacity With a current daily capacity of 150 tons per day, the property produced about 5,000 tons grading 98 oz silver per ton and 56% lead around the turn of the century.

Facilities include nine adits extending to a depth of 1,400 ft. It also contains a number of old dumps and stopes which are waiting to be processed by the joint venture partners at Dragoon’s 50%- owned silver-lead-zinc mill at Ainsworth, B.C.

Located about 60 miles southeast of Comstock, the mill was acquired in late 1986 after the previous owner (David Minerals) went bankrupt. It has a capacity of about 150 tons per day but with some minor modifications, the facility could be expanded to handle 200 tons (replacement cost would be about $3.6 million).

After a recent visit to the mine site, Mason says any upside potential for the Dragoon stock is directly dependent on exploration successes at Comstock.

Under the terms of an agreement, signed last October, Greenstone attained the right to earn a 50% interest from operator Dragoon by buying 500,000 Dragoon treasury shares at 40 cents per share in two instalments. Working capital

Greenstone also agreed to put up $500,000 in working capital for property development.

As reported (N.M., April 11/88), the partners spent $750,000 this winter on underground diamond drilling, drifting and level rehabilitation before deciding to go ahead with a small operation. If all goes according to plan Dragoon will produce a minimum 425,000 oz silver in 1989.

The key to success is an exploration program designed to increase Comstock’s production rate by developing additional reserves from underground, said Mason.

“If the company can keep 50,000 tons of 30 oz silver ahead of itself, the net cashflow to Dragoon would be about $6.5 million annually,” he said.

“In this regard it is important to note that there is ore in sight on several levels with very little exploration drilling having been done.”

While about 21,000 tons of ore is contained in the stopes and dumps, Bruce Winfield, Greenstone’s vice- president exploration, recently told The Northern Miner that the potential exists for about one million tons of mineralized material.

“About 20% of that would be ore grade material,” said Winfield who was basing his predictions on samples taken from old stopes and a geological setting similar to Dickenson Mines’ (TSE) Silvana operation, six miles further north. New vein

On April 14, Dragoon released the preliminary results of the first drill program which included the discovery of a new vein with a high grade silver intersection over mineable widths.

Drilled to intersect the vein structure on the 9th level, it assayed 155.04 oz silver, 0.03 oz gold, 5.35% lead, and 1.24% zinc, over 3.3 ft.

“Some value should also be attributed to the going concern prospects of an operating mill in a prolific mining district, as well as a number of other exploration projects,” said Mason.

The joint venture partners are scheduled to process about 4,000 tons to 15,000 tons of ore material from the nearby Arlington and Ivanhoe mines operated by Rimrock and Dragoon respectively.

Of Dragoon’s 4.9 million outstanding shares, 2.2 million are owned by Dragoon president Robert McGowan while one million are currently held by Greenstone.

Assuming a summer start-up date, the payback period would be less than a year, Mason says.