Cumberland gets nod for exploration upside

Despite considerable exploration success at two gold projects in Nunavut, Cumberland Resources (CBD-V) is trading at a 5-year low of 80, down even from its 52-week high of $1.55. Graeme Currie, analyst with Canaccord Capital, says the lacklustre performance is typical of the junior gold sector, which continues to be battered by low prices and investor indifference. But over the long term, he believes Cumberland offers upside potential based on existing resources and the possibility of a new partner at its most advanced project.

In a research report, Currie rates Cumberland a “speculative buy,” but with the caveat that the company’s deposits need a gold price of US$325 per oz. to be in the money. “Fundamentally, although 2001 will see the smallest budgeted expenditures directed at this company’s portfolio, we remain encouraged for the longer-term prospects of both Meadowbank and Meliadine West.”

The 22%-owned Meliadine West project is the more advanced of the two, hosting a resource of 4.9 million oz. gold (grading 4.7 grams gold per tonne), at a finding cost of about $10 per oz. It is operated by WMC International of Australia, which recently placed its gold assets on the block, including its 66% stake in Meliadine West.

Over the past six years, WMC has spent $50 million to develop a resource within four zones. “Over the past year,” Currie states, “we believe WMC has been examining the open-pit potential of the project with an eye to processing 400,000-plus ounces per annum. This, we believe, is too aggressive for the project, given the location, strip ratio requirements, and overall capital expenses. There is much better economic potential as an underground, higher grade gold mine.”

Currie suggests that the project has some geological similarities to the Con mine in Yellowknife, N.W.T., which extends to more than 1,800 metres in vertical depth. “The project might benefit from a fresh look by any prospective purchaser of the WMC assets, especially if that purchaser has mining experience in the Canadian Shield.”

The wholly owned Meadowbank project, 75 km east of Baker Lake, hosts resources (in all categories) of 7.1 million tonnes grading 5.93 grams, or 2.1 million ounces contained gold, of which 962,400 oz. are classified as proven and probable. Notes Currie: “A [pre-feasibility] study indicated that, on base-case parameters, Meadowbank required an additional 200,000 to 300,000 ounces in order to enhance overall project economics and raise the IRR (internal rate of return) to an acceptable risk/return level.”

Although the existing reserves are viewed as “insufficient” to provide an acceptable return, Currie see potential to expand reserves at the adjacent Vault drilling. Last year’s drilling outlined an inferred resource of 422,000 oz. (grading 3.9 grams), with the prospect still open for expansion. This year’s drilling is aimed at resource expansion and the definition of higher-grade reserves.

On face value, Currie admits, the buy recommendation for Cumberland could be viewed as premature, given that the 2001 exploration budget is small, one of the assets is up for sale and will see only nominal expenditures, and higher gold prices are required to bring the company’s main asset, Meadowbank, to an economic threshold. “However,” he adds, “technically the shares appear to have bottomed and, more importantly, liquidity has diminished, thus accumulation is likely the only approach that will allow larger positions to be built.”

Nor is Cumberland in immediate need of capital, Currie adds. The company is debt-free, and has about $4 million in unallocated working capital. The junior has 27.4 million shares outstanding, or 31.9 million fully diluted.