Investment Comment Promising projects make Noramco a buy

It may be a relatively new listing on the Toronto Stock Exchange, but Noramco Mining Corp. is an experienced player on the Canadian exploration scene.

A public company since April 1987, the Vancouver-based finance house has one gold mine and three probable producers in a portfolio that includes varying interests in more than 20 public exploration companies.

Touted by Yorkton Securities of Toronto as a good buy, Noramco is the brainchild of Bruce McDonald, a Vancouver promoter who successfully financed the Golden Pond and Estrades discoveries in Casa Berardi, Que.

Through a private company called Noramco Capital, McDonald raised $210 million between 1984 and 1987 to fund the Golden Pond and Estrades gold and polymetallic projects.

After amalgamating with Highland-Crow Resources and Emerald Lake Resources on Jan 1, Noramco had $35.7 million in cash to finance its Canadian precious metal interests which include:

* The Golden Rose mine 60 miles northeast of North Bay, Ont., which went into production in October. With reserves in all categories totalling 2.5 million tons grading 0.237 oz gold per ton, the mine is expected to produce around 40,000 oz annually at a cost of $220 per oz. Old workings

* The Pickle Crow project, 250 miles north of Thunder Bay, Ont., where Noramco has targeted 1989 for possible startup. Reserves in all categories stand at 6.3 million tons grading 0.24 oz gold. The company is spending $5 million to dewater the old workings and access the No 1 shaft before releasing an independent engineering report. According to analysts Mike Pickens, Robert Sibthorpe and Eric Zaunscherb, pending a successful program, the company is planning a 3,000-ft exploration shaft.

* The South Trout Lake, Ont. gold/silver property, where Noramco affiliate Zahavy Mines is conducting a $3-million underground exploration program focusing on one of six parallel gold- and silver- bearing shear zones.

When this effort is complete, a bulk sample will be extracted and Zahavy should have sufficient data to conduct a feasibility study.

Based on a Wright Engineering report, probable reserves in Zone 3 alone stand at 711,480 tons grading 0.248 oz gold and 5.32 oz silver, with a possible reserve of 268,400 grading 0.289 oz gold and 5.2 oz silver.

With an annual production rate of 48,000 oz gold, 787,000 oz silver and 6.6 million lb of zinc by 1992, the project could run with an operating profit of $19 million. Zahavy shares

The $5.2-million 1987 exploration program was funded via flow- through issue of one million Zahavy shares at $5.25 per share to Noramco’s wholly-owned subsidiary, Golden Day Explorations.

According to the Yorkton report, since Noramco will hold a 33% interest in Zahavy (which holds a 100% undivided interest at South Trout Lake) after the current phase of exploration is complete, Noramco would earn $5.3 million from the project.

That prediction is based on a $414(us) gold price, Yorkton says.

* The Estrades polymetallic deposit at Casa Berardi, Que. where partners Teck Exploration (option to earn 50%), Golden Hope Resources (40%) and Golden Group Explorations (60%) are conducting a 32,400-ft drill program.

Combined with another 40-hole program, it is designed to upgrade sections of reserves classified as geological mineral inventory.

Mineable reserves already stand at 1.4 million tons grading 0.15 oz gold, 4.15 oz silver, 0.76% copper and 9.58% zinc. But the partners say the mineable reserves are part of a much larger geological inventory of 2.9 million tons grading 0.11 oz gold, 3.73 oz silver, 0.93% copper and 9.16% zinc. Feasibility study

With the majority of those reserves above the 980-ft level, Yorkton says a feasibility study is expected to be completed later this year.

Assuming that Teck Corp. earns 50% by funding the deposit to production, Golden Hope would be left with a 20% interest. Noramco’s 28% equity interest in the latter company would provide earnings of $1.1 million in 1992.

Based on a $414(us)-per-oz gold price, production from the Golden Rose, Pickle-Crow and South Trout mines would increase Noramco’s net earnings to $27 million ($1.28) per share in 1992 from a projected $4 million (25 cents per share) in fiscal 1988 Yorkton says.

According to the report, a $100 increase in the price of gold would increase Noramco’s earnings by 70%.

At press-time, Noramco shares were trading at $4.30 on the tse in a 52-week range of $3.35 and $14.75. Bruce McDonald