Investment Comment: Projects prove capital gains opportunities are

** in Canada gold shares ** Investors looking for capital gain opportunities in Canadian gold shares should consider some of the numerous promising high quality gold exploration and development projects in this country.

These projects are the result of the several years of intense activity by the Canadian mining and exploration industry which were fueled by the introduction of flow-through financing and the continuing solid profitability of gold mining in North America.

In a recent research report from Yorkton Securities, mines and metals analysts Mike Pickens and Robert Sibthorpe have drawn up a portfolio of nine stocks which they believe represent excellent value for investors looking for a long-term exposure to gold at the advanced exploration and development stage.

While the two analysts admit that not all their picks will develop world class orebodies over the next few years, the probability of most of them making the transition to gold producers is very high.

Four of Messrs Pickens and Sibthorpe’s candidates for superior capital gain performance will be looked at in the order of preference in this column. The next time this column appears, the balance of the portfolio will be presented. Watch for a charging Knight

With a major gold deposit already established, shares of Golden Knight Resources are recommended at current levels which at the time of the report stood at $9. Upside potential exists for these shares should further improvements in grade, tonnage or gold price occur, write Messrs Pickens and Stibthorpe.

This major gold deposit is the Golden Pond find in Casa Berardi Twp. in Quebec where Golden Knight is in joint venture with Inco Ltd. So far over $8 million on surface exploration and an additional $3.5 million on underground exploration has been spent by the joint venture.

Four zones of potentially economic mineralization have been identified on the Golden Pond trend. There are no proven reserves in these zones at present as the mineralized zones have not been tested by closely-spaced drilling and underground workings. Probable and possible geological reserves have been calculated from drill results to date and the property hosts a drill-indicated geological resource of 8 million tons grading 0.23 oz gold per ton.

A production feasibility study is under way. The ramp is being extended and as part of the ongoing surface exploration, a $2.8-million diamond drilling program has recently started. Active north and south of border

The second candidate for superior capital gain performance is Pioneer Metals which trades on the VSE with a high and low this year of $4.20 and $1.40, respectively. At the time of the report shares were trading at $3.60.

Operator with a 50% interest in the Stibnite mine, a seasonal heap leaching gold property in central Idaho and completing a feasibility study on its Puffy Lake gold deposit, Pioneer Metals has emerged as a junior gold producer with excellent potential for future growth, say Messrs Pickens and Stibthorpe.

Current reserves at the Stibnite mine, in which MFC Mining Finance Corp. holds the remaining 50% interest, in three separate zones are approximately 2 million tons of 0.08 oz gold per ton gold and gold recovery is excellent at 90%.

The operation is profitable with cash breakeven costs of $200(US) per oz. Production is forecast to be 28,000 oz this year, 33,000 next year and 42,000 oz in 1988.

Pioneer is expected to make a production decision on its Puffy Lake deposit in the Flin Flon area of Manitoba by year-end, write Messrs Pickens and Stibthorpe. Here Pioneer holds a 100% interest after a recent merger with Maverick Mountain Resources, subject to a 20% net profit interest after payback held by Granges Exploration.

Current reserves total 1.3 million tons of drill-indicated reserves grading 0.203 oz gold per ton. This year’s underground program suggests an upgrading of reserves based on sampling of development headings. A review of all data is under way. Production could begin by the end of 1987 at about 500 tons per day producing 40,000 oz per year. Capital costs to bring Puffy into production are estimated at $14-$16 million.

Pioneer Metals has a working capital in excess of $3.8 million with cash flow from Stibnite expected to be $5-$6 million by year-end, say the analysts. King of Castle Mountain

Viceroy Resources has put major emphasis on the further exploration and development of the Castle Mountain venture, located in San Bernadino Cty., Calif. Viceroy holds a 100% interest in the project through a wholly-owned subsidiary, B & B Mining. The project is subject only to a 1% net smelter return on three Oro Belle claims and a maximum $1 million net smelter return on the Mountain Top claims.

Three gold bearing zones (the Oro Belle, Jumbo and Jumbo South) have been explored to date. In the Jumbo South area alone, Viceroy has outlined in excess of 10 million tons with an average grade of 0.051 oz gold per ton. A preliminary economic analysis suggests on-site production costs to produce an oz of gold should be less than $210(US) per oz.

The high grade nature of the deposit should make an early production decision possible, note the analysts.

The currently outlined open pit mineable reserves in the Oro Belle zone are 4.5 million tons with an average grade of 0.043 oz gold per ton using a 0.02 oz cut-off, a 10% mining dilution and a stripping ratio of 1.29:1. This figure does not include calculations for newly- discovered mineralization at depth. The Oro Belle is open in all directions and at depth.

About 1,000 ft to the southwest of the Oro Belle, a deposit in the Jumbo area has been identified through widely spaced drilling. Initial results have identified an area about the same grade and size as the Oro Belle, say the analysts, but further drilling is required.

At the time of the report, Viceroy was trading on the TSE and VSE at the $6 level with a yearly high and low of $7.25 and $1.22 respectively. Golden Rose smells sweet

Vancouver-based Emerald Lake Resources acquired the Golden Rose property, located in Scholes Twp., Ont. in 1984. A gold producer between 1936 and 1941, the Golden Rose produced more than 46,000 oz of gold from about 145,000 tons of ore with a reported mill head grade of 0.4 oz gold per ton.

Due to a premature shutdown in 1941, only a small percentage of indicated reserves was produced. Work to date has been enough to allow ore reserve calculations and a technical and economic feasibility study to be completed.

Gold mineralization has been recognized to occur in five geological environments in the Golden Rose deposit, to date. The Main Zone, South Flat Veins and North Iron Formation vertical veins host the primary reserves. The fourth environment has the potential for large tonnages. However, the grade for the majority of this environment is sub-economic at the present time, say the analysts. The fifth environment is essentially untested and remains as an area with potential. Quartz-carbonate-pyrite veins and vein stockworks host the bulk of the gold mineralization in the deposit. Individual veins va ry in width from 1.5 ft to 40 ft.

Results of a recent study show the feasibility of placing the Golden Rose into production at a daily rate of 400 tons at the estimated capital cost of $8.8 million and estimated production costs of $55.91 per ton mill.

Proven reserves are currently 377,000 tons at 0.225 oz gold per ton gold and are sufficient to provide mill feed at 400 tons per day with an average grade of 0.247 oz gold per ton for about three years.

Probable reserves are 286,300 tons at 0.186 oz. Possible reserves stand at 1.8 million tons of 0.247 oz.

Messrs Pickens and Sibthorpe report the mine is now developed by a vertical shaft 750 ft deep with five levels. An adit provides access to the shaft. Work has started to drive a decline ramp to the third level. The company has recently bought a 400-ton-per-day mill which is slated to be on site in early 1987.

Shares of Emerald Lake were trading on the TSE and VSE at the $5
level at the time of the report with a yearly high and low of $5.38 and $2.10, respectively.

The next investment comment will feature Messrs Pickens and Stibthorpe’s views on Ican, Canu, Trader, Aur, and Claude.