Investment Comment Track record makes Minnova a bet

With three new high grade mines coming onstream by 1989, greater cash flow and clean balance sheet, Minnova Inc. looks like a worthwhile bet to a couple of Toronto brokerage houses.

In a report titled, The Way it Should be Done Andras Research Capital Inc. analyst Paul Roberts praises the company for its “unparalleled exploration track record and unique cash position.”

In a 5-page research report, Wood Gundy Inc. analyst George Brack calls Minnova “An honest- to-goodness cheap base metal stock, capable of attaining substantial earnings leverage to four major metals: copper, zinc, gold and silver.”

Praise indeed for an issue which recently reached a new high of $29 on the Toronto Stock Exchange, but both analysts maintain that there is potential for more growth in the stock.

Formerly Corporation Falconbridge Copper, the company was bought by Kerr Addison in August 1986 from Falconbridge Ltd. for $120 million.

“We’ve been following Minnova closely as the company has been developing the Winston Lake zinc and Ansil copper deposits,” says Mr Brack.

While the company produced 64,031 oz gold from its Lac Shortt property in Chibougamau, Que., last year, most of the attention has been directed towards Minnova’s 70%-owned high grade Samatosum deposit at Adams Lake B.C.

The silver deposit is held under option from Vancouver-listed Rea Gold Corp. which can earn a 30% working interest by feasibility stage. It recently acquired an additional 5% net smelter interest from the property vendor.

As reported (N.M., June 15/87) the massive sulphide discovery is close to surface and a large portion could be mined by open pit methods.

The discovery has been traced for approximately 400 m along strike and widths vary from 0.4 to 7.5 m. Results from the latest three holes include 10.2 ft of 407.2 oz silver per ton and 0.34 oz gold in hole No 108.

While the primary minerals are galena, tetrahedrite and sphalerite, base metal values include 19.5% zinc, 9.4% lead and 6.3% copper.

The deposits proximity to both Kamloops, B.C. and infrastructure is expected to have a favorable effect on feasibility. “Average annual silver pr oduction could be about 6.4 million oz and average production in the first three years could exceed 8.9 million oz,” said Mr Brack. “We believe that revenues from other metals will cover the cost of production.” Ansil deposit

Although the Adams Lake project has grabbed most of the headlines lately, attention could soon focus on Minnova’s Ansil copper deposit in the Lac Dufault camp near Rouyn-Noranda, Que.

With drill-indicated reserves standing at 2.1 million tonnes grading 7% copper, 0.5% zinc, 24 g silver and 1.7 g gold per ton, production could start later this year.

According to Mr Brack’s report Ansil will produce 68 million lb of copper annually at an average cost of 46 cents (US) per lb.

Timing will depend on the results of a 13,000-m underground diamond drilling program which started in May, 1987. When production begins, it will be at a rate of 450,000 tons per year and ore will be sent to the company’s nearby Norbec mill for concentration.

However, since Noranda Inc. holds a 49.4% direct and indirect interest in Kerr Addison, the betting is that Ansil concentrate could be shipped to Noranda’s Horne copper smelter at Rouyn Noranda.

Production is expected at Minnova’s Winston Lake high grade zinc deposit by in 1988. Located near Schreiber, Ont., the deposit hosts probable and possible reserves of 3.4 million tons grading 1% copper, 16% zinc, 0.96 oz silver and 0.03 oz gold. In the mine’s first full year of production in 1989, it will produce about 140 million lb of zinc at an average cost of 25 cents (US) per lb.

While the company has spent $27 million on the project, an estimated $45 million is still needed to place the mine into production.

However, Mr Brack thinks that finding the necessary funding shouldn’t be a problem for Minnova. While other base metal mining companies increased expenditures and took on new debt in the late 1970s and early l980s, Minnova accumulated cash.

As a result, says Mr Brack, Minnova enjoys one of the strongest financial positions in the industry. On March 31, the company had a cash position of $67.4 million and no long-term debt.

“Currently, Minnova shares are trading at eight times our 1989 earnings-per-share estimate and only 3.7 times our 1989 cash-flow- per-share estimate,” said Mr Brack. He sees per share earnings of 65 cents in 1988, rising to $3.10 in 1989.