Investment Comment Bootleg project makes Vista a buy

When Vista International Petroleums created a precious metals exploration wing in 1986 to take advantage of rising gold prices, the new entity was able to give itself a head start

At a price of $612,000, Vista Mines Inc. (TSE) picked up 10 mineral leases near Creighton, Sask., containing two known gold deposits, a 125-ton-per-day mill, an assay laboratory and some mining equipment.

Called the Bootleg property, this golden opportunity presented itself when 60% mill recovery rates forced former operator Flin Flon Mines to shut down operations in late 1984 just three months after commissioning.

After receiver Peat Marwick sold the property to a Calgary liquidation company called Stay Sales, it was turned over to Vista.

While a late 1988 production decision would make the Regina company one of this year’s many new gold producers across North America, the Bootleg Lake project makes Vista unique, according to Davidson Partners’ analyst Paul Esquivel.

Proven reserves on the Rio and Henning-Maloney zones promise a 2-5-year mine life — they stand at 221,479 grading 0.138 oz gold per ton and 14,960 tons of grade 0.450 oz respectively — but the new AJ-1 zone at 215 ft promises to prolong Bootleg’s lifespan.

“The payback period (just over four years) to recoup capital costs is short in comparison to most new projects because Vista acquired the Bootleg assests for an extremely low price,” explains Esquivel. Speculative risk

For that reason, the Davidson analyst is recommending the shares as a speculative risk for greater capital gains potential. They peaked recently on the Toronto Stock Exchange at $3.40, in a 52-week range which included a $1.05 low point.

“The capital costs of placing the mill into production are minimal and Vista has additional tax pools which it can utilize,” said Esquivel.

However, he fails to say that six Bootleg leases (containing the Rio and Henning-Maloney deposits) are subject to a 10% net profits royalty held by Bow Valley Industries.

A 5% net smelter interest on another four leases held by North American Equities is also a factor in the time needed to recoup the cost of bringing the property to production.

Bootleg costs include a $3-million development program financed through a $5.5-million private placement and $750,000 to refurbish the Rio mill. The mill modifications were financed through a public offering underwritten by Davidson Partners.

Since it is still open at depth, Vista will access other parts of the Rio zone by driving a decline ramp to a depth of 400 ft. A bulk sampling program designed to mine and mill 20,000 tons is currently under way. Commercial production

“If results are as favorable as Vista anticipates, Bootleg will likely be placed into commercial production in the latter half of 1988,” Esquivel said.

While the Rio mill is being upgraded to 300 tpd or 105,000 tons annually, a combination of cyanidation and flotation, during metallurgical tests on material from the 225-ft level, returned a 98.4% recovery rate

If Vista and partner Colray Resources (TSE) are successful in bringing the nearby Newcor gold property to production, the availability of an expanded mill would be an obvious boost to the Newcor project.

Under an agreement, Colray can earn a 30% interest by spending about $800,000 on a detailed program including geophysical and geochemical sampling and drilling.

As reported (N.M., July 27/87), previous evaluation reports on the property indicated over 8,000 oz of recoverable gold above the 400-ft level (42,588 tons grading 0.31 oz). Random samples from around the old mine shaft assayed 0.259 oz to 1.08 oz.

Colray will also rehabilitate the Newcor shaft and underground workings in preparation for diamond drilling and bulk sampling. Batty-Graham

Meanwhile, Vista is earning a 50% interest in the Batty-Graham property 25 km west of Flin Flon, Man. in a joint venture with the Saskatchewan Mining Development Corp. (SMDC).

During 1987, SMDC intersected gold mineralization over a 660-ft length in an area near the Batty- Graham No 1 and No 2 gold zones. Vista is also earning a 50% interest from SMDC at the Phantom Lake property which contains several known gold zones. The Phantom Lake property is adjacent to Bootleg’s southeastern boundaries.

Assuming a $425(US) gold price and 12,388 oz of production from Bootleg, at a cash cost of $313 per oz, Esquivel expects Vista’s operating income to be 31 cents per share (before depreciation) in 1989.

“The shares have substantial upside potential, particularly in a good gold enviroment, he said.