Amax lacks reserves but shares touted by London analysts

In a recent appraisal of Amax Gold (TSE), London, England- based Barclays de Zoete Wedd says the company suffers from one major problem — it is very short of reserves.

While Amax’s Sleeper mine in Nevada is one of the world’s lowest cost producers ($74(US) per oz in 1987), reserves there are sufficient to support only six more years of production. Amax’s 47%-owned affiliate Canamax Resources (TSE) has reserves for eight years.

“Clearly much depends on whether or not Amax Gold finds more reserves in its 50-sq-mile claim position in the vicinity of Sleeper,” the Barclays report says.

“Although Sleeper is in Nevada, it is not on the Carlin trend, and its vein-type outcrops are completely different from the Carlin deposits.”

However, Barclays says Amax Gold’s exploration and acquisition program does have the financial and technical backing of parent Amax.

“Amax Gold’s claim that its production costs are the lowest in the industry is true — but only up to a point,” Barclays said. “The company has been mining above the average reserve grade, and so its costs will rise progressively.”

“Amax Gold is on a lower prospective price earnings ratio than most other U.S. gold stocks. The upside speculative potential is considerable,” said the Barclays report which recommends the shares as a speculative buy.

They were trading recently on the Toronto Stock Exchange at $29.50 in a 52-week range of $40.88 and $20.