Investment Comment Surprise gold makes Battle Mtn. a bet

For investors wishing to add the shares of a low-cost U.S. gold producer to their portfolios, London- based Barclays de Zoete Wedd is recommending Battle Mountain Gold.

Trading on the Toronto Stock Exchange at around $48.63 in a range of between $21.63 and $59, this particular issue may be beyond the scope of the fast buck-type speculator.

Nevertheless, analysts Alan Richards and Jane MacKelvie say properties like the Fortitude gold mine where production costs are $172(US) per equivalent ounce makes this debt-free company a long-term prospect worth considering.

Battle Mountain’s Fortitude gold mine in Nevada is the third largest in the U.S., with an annual production rate of 236,000 oz gold. While there are only about 10 years of reserves, the company is exploring extensively in the Battle Mountain area, where it has a lease of 30 sq mi.

Fortitude was a major contributor to 1986 revenues of $91 million but improving gold prices and continued high levels of operating efficiency were also responsible for $27 million or 63 cents per share in after-tax profits.

With Battle Mountain’s Surprise and Scott Lode projects expected to be on-stream later this year, Mr Richards and Ms MacKelvie are predicting 1987 earnings of $48 million ($1.10 per share) rising to $63 million ($1.44 per share) in 1988. Surprise production

Second quarter after-tax profits of $9.2 million compared with $6.1 million during the same period in 1986, suggest that those predictions could well prove correct.

Located six miles from the Fortitude mine and mill complex, the Surprise is expected to be the first into production at an estimated rate of 20,000 oz annually at $220 per oz.

In its 1986 annual report, Battle Mountain predicted that pre-mining stripping would begin at the Surprise mine by mid-1987 and starting in 1988, 15,000 to 18,000 oz gold would be produced annually using heap leach methods.

A 114-hole drill program has indicated reserves of around 150,000 oz at the Surprise property.

In November, Battle Mountain will start production at a rate of 60,000 oz gold and 200,000 oz silver annually at its Scott Lode deposit in Australia. Located on the Pajingo prospect in Queensland, the open pit operation will also be mined using heap leach techniques. Plant facilities

According to Battle Mountain, the company has received permission to construct plant facilities capable of handling 200,000 tons of ore annually.

“Although only eight years of reserves have been established, the orebody is open at depth. However, the company plans to wait until it has gained actual mining experience on the property before releasing reserve estimates or exploring for extensions of the orebody,” say Mr Richards and Ms MacKelvie in their investment appraisal.

“We estimate total costs at around $170 per oz,” they say. While capital costs are expected to be below the threshold at which Australian Foreign Investment Review Board generally requires a direct sale of equity, the company is planning a listing on the Australian Associated Stock Exchanges.

Mr Richards and Ms MacKelvie expect the Australian issue to be traded in as depository receipts.

Battle Mountain has a 1987 exploration budget of $18 million and rights to some 8,000 sq mi of exploration rights in Australia, Indonesia, Canada and the U.S. The company plans 250,000 ft of drilling this year, of that 150,000 ft will be in the Battle Mountain area.

According to the investment report, three drilling programs are also planned within two miles of Pajingo.