INVESTMENT COMMENTARY — Gold exploration potential renders First Miss a hit

With its yearly gold production about to double, FirstMiss Gold (FRMG-Q) could have enough cash on hand to mount a major exploration campaign in the Getchell trend of north-central Nevada.

Analyst Geoff Stanley of S.G. Warburg & Co. predicts that production forecasts for the Turquoise Ridge mine will raise FirstMiss’s annual production to 400,000 oz. by 1998 from 173,500 oz. in 1995, and that development of underground workings there will allow exploration of the Getchell fault zone at depth.

FirstMiss Gold was formed in 1987 by parent First Mississippi as a separate gold mining subsidiary. Its first asset was the Getchell mine near Winnemucca, Nev., then a 6,000-ton-per-day open pit. The Getchell pit has since been mined out, and the operation transformed into what is now a 700-ton-per-day underground mine.

FirstMiss Gold was taken public in 1993, with its parent retaining 81% of equity. In 1995, First Mississippi distributed its 81% holding direct to its shareholders as a tax-free dividend, and the parent is no longer a direct shareholder in FirstMiss Gold. The company has announced a name change to Getchell Gold (GGO-T-X) and will be listed on the Toronto and American Stock Exchanges.

In 1993, working on a theory that gold mineralization in the Getchell area occurred where the Getchell fault system crosscut carbonate rocks, FirstMiss discovered the Turquoise Ridge gold deposit. Turquoise Ridge is a replacement deposit in carbonate rocks that are interbedded with basalt and dacite. Gold grades at Getchell and Turquoise Ridge are among the highest found in northern Nevada — around 0.35 oz. per tonne, comparable with Barrick’s Betze-Post and the higher-grade Newmont operations. Most of the ore is pyritic, and is treated by pressure-oxidation milling.

Reserves at the Turquoise Ridge project are 4.1 million tons proven and probable, grading 0.35 oz. gold per ton, and FirstMiss has a total of 13.9 million tons grading 0.24 oz. in all its properties in the area, including Getchell. FirstMiss’s potential resources total another 14 million tons grading 0.33 oz., for a resource base of around 8 million oz.

The company is among the camp’s higher-cost producers. Its cash cost in 1995 was US$338 per oz., but that was down from US$460 in 1994, and expansions at the mine and mill site are expected to bring cash costs down to US$305 in 1996 and to US$268 by 1998. Total costs are expected to decline as well, from US$377 in 1995 to US$319 this year and US$313 by 1998. Earnings have been low — the company posted a loss of US56 cents per share in 1995, and is expected to earn only US19 cents per share in 1996 — but increasing production and lower costs should turn that situation around by 1997.

Central to Stanley’s prediction is the potential for additional reserves on the FirstMiss properties. Stanley sees potential for a total 10-million-oz.

resource. His analysis calculates the company’s market capitalization per ounce of proven and probable reserves at US$225 per oz., in the middle range of gold producers. On the other hand, its capitalization per ounce of resources is US$85, well below the average. Given that the company has been turning resources into reserves steadily and reliably, he considers this a sign that the company is actually undervalued in the market.

Another strong argument for FirstMiss’s potential is the design of the new Turquoise Ridge operation, which could allow annual production of 600,000-800,000 oz. per year at full capacity. With good potential to increase its ore reserves, FirstMiss could shortly find it can use that extra capacity.

Short notes …

McDermid-St. Lawrence Securities analyst Donald Poirier rates Queenston Mining (QMI-T) as a speculative buy — a reflection of the company’s joint exploration venture with Franco-Nevada Mining (FN-T) in the Kirkland Lake gold camp of northeastern Ontario.

Poirier writes, “We are attracted to Queenston for the simple product being offered, a shot toward the deeper exploration potential in a prolific gold terrain.” He also comments that Queenston’s identified gold reserves at the McBean, Anoki and Upper Canada deposits are attractive in themselves, offering a good chance at production in the medium term.

Geomaque Explorations (GEO-T) is rated an attractive selection by David Mallalieu of Nesbitt Burns, who points to expanding reserves at the company’s new San Francisco mine in Sonora state, Mexico. Reserves at San Francisco held 333,280 oz. gold, and the projected reserve figure by the end of 1996 was 653,000 oz.