Investment Comment Goldenbell gets the nod of Gardiner Watson

On the news that Goldenbell Resources has given the nod to production at its Pine Tree gold project in Mariposa Cty., Calif., its share price broke through the $4 level on the Vancouver Stock Exchange to close at $4.15. (N.M., Dec 8/86) At press-time it was trading around the $4.25 level.

The company says the mine will start as an open pit operation at a milling rate of 8,000 tons per day to produce about 130,000 oz of gold per year. Capital costs are estimated to come in at $51.8 million(US) with production slated for mid- 1988.

Even before the announcement of the positive decision, shares of this Vancouver-based company were recommended for purchase by Gordon F. Bub of Gardiner Watson Institutional. At that time, shares of Goldenbell were trading at the $3.85 level.

In addition to the anticipation of the above-mentioned decision, Mr Bub lists several other reasons behind his recommendation. He forecasts earnings-per-share in 1989 to amount to 70 cents and a price- earnings ratio for that year of 5.5 times at a gold price of $375 per oz.

On the basis of this EPS forecast, Goldenbell’s shares are trading at about one-half of other emerging gold producers’s price- earnings, all without an operating track-record, he writes. Also, in comparison with a number of similar-sized established producers, Goldenbell’s shares are trading at about one-quarter of their average P/E based on a gold price of $375 per oz.

Expressed in terms of annual production per $1,000 of fully diluted market capitalization, Goldenbell has more than triple the gold leverage of emerging gold producers and over four times of established producers with a similar size.

The company has 50 million shares authorized, of which 8.1 million have been issued. About 32% is owned by management. Options are currently outstanding on 470,000 shares at prices ranging from 23 cents to $1.10 per share.

The company currently has no debt and a working capital of about $1.5 million.

San Francisco-based Pathfinder Gold Corp. has an option to acquire a 30% interest in the project. Pathfinder is a wholly-owned subsidiary of Cogema Inc., which in turn is owned by the French government. It currently ranks among the top three uranium-producers in North America, says Mr Bub.

Cogema is expected to exercise its option to purchase the 30% interest in the Pine Tree project, he says. If this happens, then Goldenbell may issue another two million shares, at perhaps $5 per share, to raise its share of the capital costs.

But should the option not be exercised, then the Pine Tree project would likely be financed by a combination of debt and equity with Goldenbell retaining a 100% interest in the property.

Pathfinder is expected to come out with its decision by the end of this January, says Goldenbell.

Looking at the Pine Tree property, Mr Bub says there are four large nearly contiguous gold zones striking northwesterly through the centre of the 3,351-acre tract for a distance of 13,500 ft, ranging in width between 200 nad 400 ft.

Goldenbell has spent close to $4 million on the project. In excess of 140 reverse circulation holes have been drilled on 100 ft centres for a total of 63,000 ft.

Indicated drill proven and probable reserves amount to 17.5 million tons of 0.058 oz gold per ton in the Pine Tree-Josephine zone. In the Queen Speciman-Succedo zone and the Chicken Gulch zone there are 6.9 million tons of drill indicated reserves grading 0.058 oz. Another 15 million tons of geologically inferred underground reserves may be mineable.

The company says operating costs are expected to be in the order of $229(US) per oz.

Goldenbell is part of the ABM Mining Group of companies, which also includes Sonora Gold Corp. Goldenbell trades on the VSE with a 52-week high and low of $4.90 and $2.10, respectively.