Investment Comment Cambior keeps on growing

Cambior Inc. (TSE) dramatically entered the ranks of Canadian gold producers with the largest-ever initial public offering made in Quebec. The $150-million issue was warmly received late in the summer of 1986 (of the 15 million units priced at $10 each, 10 million were sold in Canada). At the time of its public debut, Cambior was rather richly endowed thanks to Soquem, the Quebec crown corporation whose assets were publicly spun off through Cambior. It had a 50% interest in the Doyon mine (LAC Minerals 50%), half ownership in the Niobec niobium mine, complete ownership of the Pascalis property, a 31.4% interest in Sullivan Mines, a 22.4% interest in Aiguebelle Resources and a fat exploration portfolio of more than 40 properties.

It now owns outright the Vezina mine and mill after acquiring 100% of Aiguebelle. And, since the initial offering, it has sold an interest in the Arthur White mine in the Red Lake area of Ontario and brought on-stream the Pierre Beauchemin mine (formerly Eldrich- Flavel property).

Cambior also can boast senior exploration plays that seem to be marching steadily towards production. Silidor (Cambior 25%), for example, has established reserves of 5.4 million tons grading 0.18 oz gold per ton. And Pascalis (Cambior 100%, subject to a 20% net profit interest), looks like it will come on-stream this year.

In terms of total annual production, Doyon is the company’s most important asset. In 1988, the mine produced roughly 261,000 ounces, 130,600 of which were credited to Cambior’s account. The former open pit producer, Canada’s third biggest gold mine in terms of annual output, has gone underground to mine two separate zones. Production costs run at about $250(C) per ounce of gold produced.

The Niobec mine near Chicoutimi, Que., is the free world’s second largest producer of niobium, a metal that strengthens steel. Niobium production and the earnings from it should continue for Cambior for some time yet.

The Vezina mine, however, is essentially closed. Some ore has been stockpiled from previous years and this material will be run through the mill this year.

Beauchemin is a different story. The mine should yield about 40,000 ounces this year and it will produce at least until 1995. The ore is being milled at the Vezina site at the rate of about 800 tons per day.

Financial analyst Electa Aust of Alfred Bunting & Co. noted in a favorable report on the company published late last year that gold production should rise to 266,013 ounces by 1990. That’s about 100,000 more ounces than Cambior mined in 1988. Financially, the company is sound. It has a debt: equity ratio of 0.2:1 and a healthy working capital position, the report said.

She recommended the shares be bought at the $12 level, based on an earnings-per-share estimate of $1.15 in fiscal 1989. “The shares offer very high earnings leverage to changes in the gold price,” the report noted. The stock was recently trading at the low end of its 52-week high/low range of $18.87/$11.37.