Investment Comment Lacana to join ranks of 100,000 oz gold

After reporting a bottom line rebound in 1986 and some sterling acquisitions in 1987, Toronto-based Lacana Mining is preparing to cross an important threshold in 1988.

With subsidiary Mascot Gold’s Nickel Plate mine up and running, Lacana will join the ranks of the 100,000-oz-per-year gold producers by extracting 110,000 oz from a number of North American operations.

A production decision at Lacana’s wholly-owned Santa Fe gold property east of Hawthorne, Nev., would also enhance the company’s status as a gold producer. Heap leach operations at Santa Fe are scheduled to turn out 50,000 oz of the yellow stuff on an annual basis.

Crossing the 100,000-oz barrier is considered an important milestone in the life of any gold producer and it is one of the reasons why Burns Fry of Toronto considers the shares a definite buy.

Trading at $10.38 recently on the Toronto Stock Exchange in a 52- week range of $23.50 and $9.25, the shares offer significant upside potential with a possible target price of $26,” says analyst John-Charles Potvin who bases that prediction on a $500(US)-per-oz gold price.

“The capital gain is also enhanced by the probable development of several new gold mining projects by 1989,” Potvin says. Gold producer

“Given that Lacana is a diversified natural resource company and not strictly a pure gold producer, our stock price target has been adjusted and is based on a 20 x price/earnings multiple.”

With Royex Gold holding 44.6% of Lacana’s 24.8 million issued shares, the latter company is involved in gold mining in Nevada, silver and gold mining in Mexico, oil and gas production and exploration in Canada as well as in industrial minerals (mica) mining, processing and marketing in Quebec.

Through its 50.1% interest in Mascot Gold Mines, (acquired in 1987 for $65 million cash, a $25- million promissory note and $60 million in convertible preferred shares), Lacana has added a British Columbia gold producer to its portfolio of precious metals operations.

Located near Hedley, B.C., Mascot’s Nickel Plate gold mine is expected to produce 130,000-150,000 oz this year at a cash operating cost of $170 per oz.

With proven reserves at 9.9 million tons averaging 0.133 oz gold per ton, continuing adjustments at the open pit operation were expected to average 88% this month.

Lacana’s U.S. operations are carried out through wholly-owned subsidiary Lacana Gold Inc. which owns 29.33% in Dee Gold Mining and a 26.25% interest in Pinson Mining Company. Carlin gold

Dee Gold operates the Dee open pit mine on the Carlin gold trend, near Elko, Nev. By Sept 30, production from open pit operations was 39,034 oz. According to Lacana, the Dee mill had processed an average of 1,254 tpd grading 0.108 oz. Lacana’s share of that amounted to 11,449 oz.

At Pinson Mining’s Pinson and Preble operations 25 miles northeast of Winnemucca, Nev., open pit production during fiscal 1987 reached 55,487 oz with Lacana’s share amounting to 11,556 oz.

Like many of the mines in this region, Preble is a seasonal operation which is open between April and November.

Among its Mexican interests, Lacana holds a 30% interest in one of Mexico’s largest gold and silver producers. Located 250 miles northwest of Mexico City, the 4-mine Torres Mining Complex produced 42,959 oz gold and 2.6 million oz silver during the first nine months of 1987.

Lacana’s share of production from an operation which has produced 459,000 oz gold and over 50 million oz silver since it opened in 1976, was 12,888 oz gold and 780,713 oz silver in 1987. Proven reserves at the Torres operation recently stood at 2.9 million tons grading 0.08 oz gold and 6.6 oz silver. Located in the same complex, the Sireman mine is in the late stages of development with a new hoist being installed. Canadian projects

On the exploration front, Lacana spent $3 million last year on a number of Canadian projects. They include the Sulphurets gold prospect near Stewart, B.C., where Newhawk Gold Mines has acquired Lacana’s 30% interest as part of a reverse acquisition deal.

Under the agreement, Lacana was scheduled to acquire control of Newhawk, while the latter company gets a 60% interest in the Sulphurets project where a $5-million exploration project is under way.

With reserves standing at 1.6 million tons grading 0.34 oz gold and 22.9 oz silver, Newhawk expects to reach the feasibility stage sometime this month. Granduc Mines of Vancouver holds the remaining 40% interest in this project.

When the Musselwhite Syndicate’s (Lacana 17.1% with Placer Dome, Inco Ltd. and Esso Resources), East Bay, Ont., mine is up and running, gold production alone will contribute 75.5% towards Lacana’s pre-tax earnings in 1989 (compared to 41.8% in 1986), according to Potvin.

As long as gold stays at $475(US) per oz, Potvin predicts that Lacana’s per share earnings will rise from 45 cents on Sept 30, 1987, to $1.36 in fiscal 1989.

During the 9-month period ended Sept 30, Lacana reported net earnings of $11.3 million, up $1.8 million from the same period last year. Revenues during the first nine months of 1987 were $36.3 million compared with $37.1 million at the close of fiscal 1986.