Investment Comment Junior gold producers evaluation

The Canadian gold mining industry today offers investors a broad spectrum of choices from senior gold producers to emerging junior gold producing companies

Emerging junior gold companies are companies which are expected to be in production within the next 2-3 years.

Dean Witter Canada suggests that the emerging junior gold companies are trading at a lower market capitalization per ounce of gold in reserves than current gold producers. That reflects investor concerns whether these companies possess the necessary financial and operational capabilities to develop their prospects into mines.

Market capitalization is calculated on the basis of share price multiplied by the number of outstanding shares. This is then divided by anticipated future annual gold production to get the market capitalization per ounce of gold output.

Dean Witter Canada speculates on the potential of some of the junior producers. Using market capitalization per ounce allows some objective comparisons. Share prices are as of close on Nov 3.

Cheni Gold (TSE), whose Lawyers project north of Smithers, B.C., is almost complete, is expected to reach full production of 52,000 oz in 1989 at current prices. This gives Cheni a capitalization multiple of $1,095 per ounce. The company has 11.1 million shares outstanding at $5.13 per share.

In comparison, Skyline Exploration (VSE), the 100% owner of a gold property in the Iskut River region in northwestern British Columbia, is expected to reach full production of 50,000 oz which gives Skyline a capitalization multiple of $1,656 per ounce. The company has 8.6 million outstanding shares at $9.63 per share.

MSV Resources (ME), which has a key property near Eastmain in northern Quebec, has nine million outstanding shares at a price of $2.28. At full production of 40,000 oz in 1990, MSV’s capitalization multiple is $513 per ounce.

On the other end of the financial spectrum, Delaware Resources (VSE), which recently made an offer to take over Prime Capital, is expected to reach full production of 36,000 oz in 1990. The company’s capitalization multiple is calculated at $3,233 per oz, with 24 million shares outstanding at $4.85 per share.