Investment Comment Kerr Addison on recommended list

Long associated with the old gold mine at Virginiatown, Ont., which it sold last year to Golden Shield Resources (TSE), Kerr Addison Mines (TSE) has emerged on the recommended list of Toronto- based Moss Lawson and Co. Ltd.

The subject of a bullish report, Kerr Addison has varying interests in four mines which produced a combined total of 81,000 oz gold and 110,000 oz silver in 1987.

With a first-quarter cash position of $171.6 million, the company is in a position to fulfill its financial obligations at a number of zinc, copper and polymetallic projects.

Held through the Lac Shortt and Opemiska Divisions of 50.3%-owned subsidiary Minnova Inc., they include the Winston Lake zinc mine, the Ansil copper mine and the Samatosum polymetallic project. As a 49.5%-owned subsidiary of Noranda Inc., Kerr Addison also has the financial strength to finance some junior resource projects at Lac Frotet, Que. and Pickle Lake, Ont.

As a result, the shares should appeal to the investor looking for a combination of solid asset value and good upside potential, said Moss Lawson’s senior analyst, Ivar Liepins. Market price

In addition to $171 million cash, the company owns 7.4 million Noranda shares, worth $115 million at current market prices, seven million Minnova shares, worth $140 million and investments in two oil and gas producers, conservatively valued at $130 million.

Kerr Addison reported net liabilities of $130 million at year-end.

In other words, Liepins says each share of Kerr Addison is backed by 0.42 shares of Noranda, 0.40 shares of Minnova, and 1 1/2 barrels of proven petroleum reserves.

In spite of Noranda’s excellent earnings in 1987 of $328 million or $2.02 per share, its best results in seven years and a greatly improved balance sheet, its shares are now selling at only 11% above their low and at 44% below their high over the last 52 weeks, said Liepins.

“The long-term potential of Noranda with its interest in metals, energy, forest products and manufacturing is considerable,” he said.

Minnova, formerly Corporation Falconbridge Copper, enjoys a strong financial position with nearly $90 million cash at year-end. After spending $68 million so far to develope the Winston Lake zinc copper mine near Schreiber, Ont., Minnova earmarked $4 million during the first quarter to bring the project to full comercial production. Ansil copper

As reported (N.M., May 23/88), Minnova is planning to extract 300 tonnes of zinc and 27 tonnes of copper concentrates per day from the property.

The Ansil copper mine near Rouyn-Noranda, Que., is also scheduled to be in production in early 1989. With probable reserves of 1.6 million tons grading 7.2% copper, 0.8% zinc, 0.05 oz gold and 0.759 oz silver per ton in place, production should begin at a rate of 500,000 tons annually.

A couple of additional properties — the Samatosum in south central B.C. and the Donalda No 1 at Rouyn-Noranda — are in an advanced stage of exploration.

Reserves established by partners Minnova (70%) and Rea Gold (TSE) (30%) at Samatosum stand at 660,000 tons of grade 1.2% copper, 3.5% zinc 0.053 oz gold and 1,100 grams silver.

According to Liepins, by mid- 1989, at average 1987 metal prices, Minnova could generate sales at an annual rate of $230 million compared to $62 million last year. Share earnings could exceed $2, equivalent to 80 cents per share of Kerr Addison, he predicts.

While Kerr Addison sold its Virginiatown gold mine in 1987, it remains an active explorer for minerals in Canada and maintains two regional offices in Sudbury, Ont., and Vancouver. Capital gains

Reported 1987 earnings of $22.8 million or $1.31 per share, included a large element of capital gains. In the absence of these gains, 1988 results should be approximately 60 cents per share, Liepins said. A tentative forecast for 1989 reflecting mainly a greater contribution from Minnova and using current commodity prices, is $25 million or $140 per share.

“In any event, the shares should be valued on assets and longer-term prospects rather than on current earnings, according to the Moss Lawson analyst.

Kerr Addison has an unbroken dividend record since 1940, the present annual rate is 60 cents which adds up to a yield of 2.7% since 1981. Noranda owns 50.1% of the company’s 17.5 million outstanding shares which traded recently on the Toronto Stock Exchange at $22.50 in a 52-week range of $30.75 and $15.