Investment Comment Unpopular bond a buy?

Institutional investors have largely avoided Bond company stocks fearing high debt and an erratic business strategy.

Bond International Gold (BIG) was 1988’s only major, new-issue gold stock and is described by First Marathon’s John Lydall as “intensely unpopular but a speculative buy.”

Originally expected to come to the market at about $15(US) per share, the shares were finally priced at $63 for a unit which consisted of five shares and one warrant (exercisable at $15.25 per share until July 31, 1991).

Soon after the initial offering, the shares were listed on the New York Stock Exchange where a high of $11.75 was attained. The shares of BIG were recently listed on the Toronto Stock Exchange, and have been trading around $8.50(C).

“It would be hard to imagine a more sorry start for a company, which has intentions of becoming one of the world’s largest and most diversified gold mining companies in the world,” Lydall said.

But the poor reception accorded to BIG should not represent cause for worry, Lydall said. Unpopular stocks have much greater recovery potential than popular ones.

Remember the late 1983 spin-off of Echo Bay Mines by IU International? Echo Bay was almost unknown at that time, and traded at its all-time low during the spin- off. Subsequent to the distribution, Echo Bay moved up to $40 per share (adjusted for the stock split) from about $4 per share.

Another similarly unpopular situation, Lydall said, was American Barrick. Even after Barrick had bought the Mercur mine, the company traded for a full six months below $5 per share, before moving up to $40 per share.

Unquestionably, the major Nevada discoveries made by Echo Bay and American Barrick, helped the performance of these companies, but, Lydall said, they show that it pays to look at any large new company, no matter how unpopular it is.

BIG’s stock is currently unpopular, and according to First Marathon Securities, there is likely to be further selling by shareholders who have lost money since the issue.

BIG currently operates 10 gold mines in Australia, Chile, the United States and Canada and is scheduled to open two new mines in the United States during the next year. The company estimates that its net gold production will rise to 840,000 oz in 1991, from 340,000 oz in 1988.

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