Investment Comment Greenstone expects cash flow in ’89

As indicated by recent patterns on the Toronto and New York stock exchanges, a mood of caution still permeates the marketplace following the Oct 19 market debacle.

“Since the icy shower of last October, the mood of investors could be best described as intensely fickle,” noted Thomas Komlos in Dean Witter Canada’s recent Canadian Mining Investment guide. “There are plenty of people out there who were burned in October and still haven’t recovered,” added another market observor. A Toronto company called Greenstone Resources is equally uncertain about future market trends, especially the price of gold. That’s why the company has tended to buy into properties capable of producing gold for less than $200(US) per oz.

In a bid to insulate itself from the initial high-risk stage of mineral exploration, Greenstone tends to buy properties with reserves in proven mining camps like Chibougamau, Que.

This novel approach to the business of mining has had a number of important repercussions for the Toronto company. For example, after signing a farm-in agreement with partners Flanagan McAdam Resources and Muscocho Explorations at its Gwillim gold project in Chibougamau, the latter companies got some excellent results from an initial round of drilling. Adjacent property

Canada’s leading experts in the Chibougamau camp, presidents Terry Flanagan and Jack McAdam, were already exploring an adjacent property and knew almost exactly where to place their drill holes.

But such a conservative approach has forced Greenstone to look much further afield — in places like Costa Rica and Colombia — for acquisitions which meet the company’s tight specifications.

Nevertheless, the company expects to have four mines in production by the first quarter of 1989. A fifth producer expected about six months later, will bring Greenstone’s gold output to 63,932 oz by the third quarter of 1989.

That’s largely why Brault, Guy, O’Brien Inc. of Montreal is touting Greenstone as a strong buy for investors prepared to accept the downside risks of the gold market.

Despite the uncertainties of junior mining in the current economic climate, the soon-to-be-in- production company offers exceptional upside potential with a forecast of substantial earnings, says analyst David Mason.

The Greenstone issue was trading recently on the Toronto Stock Exchange at $4.10 in a 52-week range of $4.15 and $3.45. It also closed recently at $4.05 on the Montreal Exchange. Slocan mining

According to Mason, initial output will come from a 50%-owned high grade silver-lead-zinc property in British Columbia’s Slocan mining district where Dragoon Resources holds a 50% interest.

With production expected to begin by July, Greenstone plans to develop at least 45,000 tons of reserves in the near term and since grades of 60 oz silver and 30% combined lead-zinc have been mined in the past, even 5,000 tons milled would return Greenstone’s capital investment.

Initial production from an open pit gold mine in Costa Rica’s Abangares gold fields is expected by the first quarter of 1989.

Leased from El Recio, S.A. of Costa Rica last April, the property hosts four epithermal gold-silver vein systems and offers both near- surface bulk mineable and high grade underground reserves.

Greenstone says the Recio Norte vein open pit zone hosts 103,400 tons (with potential for 1.1 million tons) grading 0.088 oz in probable/ possible reserves. Underground reserves on four known systems stand at 117,580 tons grading 0.39 oz with an inferred potential of up to 660,000 tons of same grade.

Greenstone also holds a 100% working interest in the Oronorte gold mine in Colombia’s Segovia district. With 55,382 tons of drill indicated reserves grading 1.05 oz and inferred reserves of 300,000 tons, production is expected to begin late this year. Oronorte venture

Initial output from Oronorte will be at the rate of 15,000 tons annually but Mason says much higher volumes could ultimately be achieved. “At 15,000 tons annually, Greenstone could earn $2.4 million annually in net after tax cash flow and three times this level should be feasible,” he says.

Around the same time frame, production should get under way at Greenstone’s 50%-owned Tache Lake joint venture with Bitech Energy Resources (50%). Located in the Chibougamau mining area of northwestern Quebec, the property hosts one million tons grading 0.069 oz gold and 4.12% zinc which should be sufficient to support a 1,000 tpd open pit operation.

As reported (N.M., May 11/87), Greenstone’s ownership at Tache Lake is subject to a 5% net profits interest to Sceptre Resources and a 1.875% smelter return to Camchib Mines.

In addition to Tache Lake, Greenstone is currently involved in at least six Chibougamau exploration projects. They include the Gwillim joint venture where Flanagan McAdam and Muscocho are each earning a 25% interest by spending $2 million within three years.

With at least eight gold-bearing systems still waiting to be tested, a partially developed ramp is being extended by 210 ft.

“Given the grades and tonnages of these five projects, 1990 cash flow could be as high as $2 per share at an average $500 per oz gold price,” says Mason.