Investment Comment Dickenson Mines good value says Davidson mining

If Pamour Inc. is going to cement its “friendly association” with Dickenson Mines by increasing its stake in the company, now is the time to do it, according to a Toronto-based brokerage firm.

Pamour recently acquired a 9.9% interest in Dickenson and according to the Securities and Exchange Commission in Washington, is looking for a 30% representation on the Dickenson board of directors.

While Pamour President Clifford Frame has refused to speculate on a possible takeover bid, an investment research report by Davidson Institutional, says Dickenson looks like good value. “At a current A share price of $10.25 on the Toronto Stock Exchange, Dickenson is undervalued relative to its industry group and poised to become a more liquid major producer,” said mining analyst Ernie Nutter.

Dickenson has two classes of common stock. The A series is a voting stock with one vote per share, while the B series stock holder is entitled to 10 votes per share.

While the B shares are convertible to A shares on a one-for-one basis anytime, the two series of shares are equal and entitle the holder to the same cash dividend.

“The stock is trading at about a 30% discount to other established producers in its industry group — including many with weaker balance sheets,” Nutter said. Limited production

According to the Davidson report, that stems from the company’s relatively limited annual production (45,000 oz), small share float (12 million shares) and perceived high production costs $250(US) per oz.

However Nutter says recent technical and corporate developments will address these and other perceptions of the company and impact positively as catalysts to close the current price gap.

As reported (N.M., Nov 30/87), Pamour has acquired 507,000 Class B shares of Dickenson during the last three months at prices ranging between $11 and $16.25.

As a result, Pamour has an 8.2% voting interest in Dickenson. Pamour also holds a 9.9% stake in Kam-Kotia Mines which in turn has a 33.7% voting interest in Dickenson. In other developments, Dickenson acquired a 12.4% interest in Calgary-based Wharf Resources which expects to produce 47,000 oz gold from an open pit mine in South Dakota.

Before that acquisition, all Dickenson’s gold production came from it’s 66%-owned Red Lake (Arthur B. White) mine in northwestern Ontario where production amounted to 47,300 oz during the 9-month period ended Sept 30. Wharf ownership

“Although the company has not announced an attempt to gain control of Wharf, it would seem that control or 100% ownership of Wharf is in line with stated corporate policy,” Nutter said.

As reported (N.M., Nov 9/87) discussions have taken place between Dickenson and partner Sullivan Mines (recently amalgamated with a numbered subsidiary of Cambior Inc.) regarding the acquisition of the latter’s 34% interest.

Since Dickenson is involved in a joint venture there with Sullivan, the former company’s share of that output was 30,700 oz during the 9-month period ended Sept 30. However, using contract miners to develop new working faces and accesses, Dickenson hopes to raise production to 93,000 oz annually (61,000 oz net to Dickenson).

Reserves at Arthur White stand at three million tons grading 0.32 oz gold per ton proven and probable but Dickenson plans to increase its output to 900 tons per day with ore from a new high grade zone at level 30. A recently completed drift in this new area returned average gold values of 1.12 oz over a 12-ft width and a 100-ft strike length, Nutter says.

While silver prices have fallen lately, Nutter says Dickenson will report around $1 million in pre-tax earnings from its Silvana polymetallic mine near Castlegar, B.C. Silvana reserves

At a rate of 125 tons per day (24,000 tons annually) this mine produced 466,000 oz silver, 2,336 tons lead and 1,667 tons zinc in 1986. At that point, Silvana reserves stood at 51,000 tons grading 15.6 oz silver 7% lead and 5.2% zinc. But Nutter says recent exploration could sustain the operation for at least three years.

According to Nutter, Dickenson’s wholly-owned Havelock industrial minerals project near Moncton, N.B., will also contribute substantially to the company’s pre- tax profits. It produced 43,000 tons of calcined and hydrated lime and 139,000 tons of agricultural limestone products.

Dickenson has working capital of approximately $57 million and long term liabilities of $23 million ($2 per share). Assuming that Dickenson acquires Sullivan’s 34% interest in Arthur White, Nutter sees earnings of between 70 cents per share in 1988 and $1 per share in 1989 based on a gold price of $450 per oz.

“The stock is a well levered precious metals play with no forward gold sales and as such will reap the benefits of strong or rising bullion prices,” he said.