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(July, 2003) -- Gold shares have done nicely of late, putting in a better performance relative to the gold price itself. Leading the pack have been shares of Bema Gold, which in the last few days has challenged its 52-week high.
The company has been accumulating both financial and exploration successes in recent weeks. Back during its analyst conference call of May 14, the company was hopeful that the second quarter results to come soon would show net earnings for the quarter for the first time in a while. The company has insulated itself nicely from most of the negative effects of a rising South African rand on its income from operations in that country; 85% of its expected production is hedged by puts on the rand. (Keep in mind that gold production expenses in countries outside the U.S. are paid in the local currency, while receipts for gold sold are in U.S. dollars; thus a rise in the local currency versus the dollar can actually hurt the bottom line if not hedged against.)
In addition, the company has chosen recently to hold most of its cash reserves in Canadian dollars; that nations currency has appreciated sharply against our own dollar in 2003.
In Russia, the company has succeeded in bringing down cash costs for its Julietta mine, a 100,000 ounce per year producer. Total cash costs are now down to around $195 per ounce.
The big news from Eastern Russia recently, though, came last week when Bema announced initial drill results from its Kupol project in Chukotka. This is a joint venture between Bema and the local government there; Bema can end up with a 75% interest in the project. So far, a total of 43 holes totaling 5630 meters have been drilled on the property, a part of 26,000 meters of total drilling budgeted for 2003. All but one of the holes intersected a large mineralized epithermal vein system, which now extends over 2 kilometers of strike length and to a depth of at least 250 meters. Assay results received so far for 16 of the holes show very high grades of both gold and silver. Thus far, drilling by both Bema and a local concern have revealed a reserve consisting of 835,000 ounces of gold and 9.3 million ounces of silverand exploration still has a long way to go.
Elsewhere, the company has extended a mineralized zone at the Monument Bay property in northeastern Manitoba. The project was optioned from Wolfden Resources; Bema currently has a 51% interest, and plans on spending a further $3 million on exploration to bring its share up to 70%.
Add to this what will amount to an additional 200,000 ounces of production per year from the previous acquisition of the Petrex Mines in South Africa, and Bema is an impressive growth story that investors finally seem to be warming up to again.
(October, 2003) -- Also in early September, Bema Gold released additional drilling results for the Kupol property in Eastern Russia. So far, 130 holes totaling over 17,000 meters have been drilled, with the latest figures providing additional confirmation that the property hosts a multi-million ounce gold and silver deposit.
Assay results have now been received for 116 of these holes. The results from holes 57 through 116 suggest continuity of the high grades released from the first holes, and also extended the strike length of the highest grade Big Ben Zone by a further 150 meters to the South and to a depth of at least 250 meters.
27 of the holes were drilled on the Central Zone in 50 to 100 meter step outs. Significant intercepts exist to a depth of 200 meters below surface and the zone remains open to depth. The Central Zone is contiguous with, and directly north, of the Big Bend Zone and has been drill tested along a strike length of 800 meters now. Significant new intercepts include hole 71 with 12.9 meters of 45.25 grams/ton (nearly 1.5 ounces) of gold and 346.47 g/t (about 11 ounces) of silver; virtually every hit carried impressive and economical amounts. Bema also reported that a new vein was intercepted in hole 102, 60 meters east of the main vein in the hanging wall, and returned 1.0 meter of 102.94 g/t gold and 636.0 g/t silver. This is significant as it represents the first occurrence of another mineralized vein system that will be followed up with additional drilling.
Weather permitting, the company plans on drilling a further 9,000 meters before the end of 2002. Some of the drilling will be done on possible new parallel vein structures that have been identified in recent surface sampling. In addition, the company will be doing metallurgical test work, engineering, hydrological and environmental studies as it furthers the process of proving up for eventual development one of the largest new ore bodies in the world.
For a broad look at maps, drill results and more, check out www.bema.com.
(November, 2003) -- Last week, Bema Gold held an analyst/investor conference call to discuss its just-released third quarter results. Due chiefly to the acquisition of the Petrex Mine in South Africa, total production increased to 70,217 ounces of gold for the period, up from 32,665 in last year's third quarter. Revenues also more than doubled, coming in at $24.8 million against last year's $11.2 million.
None the less, Bema reported a loss of $3.5 million, or just over a penny per share. The main culprit was the strength of the South African rand, which caused cash costs per ounce of gold mined to rise significantly, to $252.00 per ounce against only $126.00 per ounce in last years third quarter. In addition, the companys general and administrative expenses rose, as the Canadian dollar also has risen significantly against the U.S. dollars with which Bema is paid for its production (remember that the company has its home in Vancouver, B.C.) On top of this, exploration and related costs rose as Bema seeks to move a few projects closer to production, most notablyby farthe Kupol property in Russia.
That country seems to be the key to Bemas future. The Julietta Mine, also in Russia, has recently experienced record production of gold, together with double the amount of silver expected (735,000 ounces during the third quarter.) That brought down total cash operating costs there per gold-equivalent ounce (combining gold and silver values) to just $58.00.
The Kupol project continues to provide strong evidence, though, that it may soon far surpass Julietta. The company announced additional drilling results on October 16, adding to the impressive ones posted twice previously. Some analysts estimate that the Kupol project contains from six to 10 million ounces of gold and as much as 100 million ounces of silver. C.E.O. Clive Johnson reiterated Bemas intention to fast track Kupol as we go into 2004, following what has been an extraordinarily successful year in exploration results there. So far, the company plans to spend another $17 million next year for 60,000 meters of infill drilling and metallurgy work to move toward defining an initial reserve. A similar amount will now also be spent on mine pre-construction work, additional earth-moving equipment and more, as the company moves Kupol along at a faster pace toward the development of a mine.
Lost for many amid the understandable attention being given to Kupol has been the furthering as well of the Monument Bay project in Northeastern Manitoba. There, Bema has already identified a resource of nearly half a million ounces of gold at an average grade of nearly three quarters of an ounce per ton. Bema is working toward earning a 70% stake in the project from Wolfden Resources.
As last week ended, Bemas share price surrendered some of its recent torrid gains. This was not due necessarily, though, to its small operating loss, which had been anticipated. Rather, a few investors decided to lock in some profits, especially as a new cloud has seemingly emerged over Russian investments generally in the wake of Russian President Putins freezing of a substantial stake in energy giant Yukos, together with the jailing of its head (see my comments on this elsewhere in this issue.) Johnson fielded a couple questions on this matter; however, he seemed quite confident that Bema would have no troubles with the governor of Chukotka in Northeastern Russia, with whom relations have been excellent.
Investors and analysts alike have pretty much seemed willing to forgive the disappointments on the earnings front, focusing on the explosive upside potential (now incrementally being realized) for Bemas reserves and likely future production potential. All told, the company expects annualized production to have risen to over 400,000 ounces of gold equivalent by the end of 2004. Looking ahead to the possible inclusion of production from Kupol by 2007, Johnson expressed some confidence that Bema by that time could be producing a million ounces or more annually.
(December, 2003) -- Last but certainly not least, a couple quick updates on some of the gold-related stocks still on our list, following my recommendation to get outat least temporarilyof Meridian, Placer Dome, Wheaton River and Goldcorp. As I indicated on my e-mail and Hotline updates, this should have been done as part of the process to trim your overall portfolio exposure to this sector to around 15%, from recent levels of 30-35%.
Ill start with Bema Gold, one which we might also, in retrospect, have been better trading out of, as its share price has plunged by over 20% from its high. However, the story is just too good here to be out of this stock any more; so this is one that I feel were best riding out.
This company is simply the best growth story in my view among all intermediate gold producers. Its world-class Kupol project, as I reported last month, is being fast-tracked. Gold and silver grades there have been absolutely staggering, rivaling the gold grades at Goldcorps Red Lake mine, but in an ore body that is HUGE in comparison.
On December 4, Bema and Kinross Gold (NYSE-KGC) announced that their respective boards have approved the recommencement of operations at the Refugio heap leach gold mine in Chile. The mineowned equally by BGO and KGChad been on care and maintenance since early 2001 due to low gold prices. During the past year, a 56,000-meter drill program was successful in expanding reserves to justify a greater than 25% expansion of daily throughput compared to historic production levels.
Presently, the partners expect to begin mining 75,000 tonnes of ore per day late next year. Life-of-mine annual gold production is projected to be 230,000 to 260,000 ounces per year, at total cash costs of around $225 per ounce.
This is the second project Bema is part of that will be recommissioned thanks to higher metals prices. The other, as I reported in last months issue, is the Cerro Casale mine. Under the existing feasibility study (which is in the process of being updated) done by Placer Dome Technical Services, Ltd. in January, 2000, Cerro Casalein which Bema has a 24% interesthas measured and indicated mineral resources of approximately 25.4 million ounces of gold, and 6.4 billion pounds of copper. According to the study, the mine could produce 975,000 ounces of gold and 130,000 tonnes of copper per year over an 18-year mine life. Cash production costs were projected to be under $100 per ounce of gold, with total costs of $203 per ounce, assuming credits for copper at 95 cents per pound.
With projects like all of these going for it, Bema has become hot fodder recently in the rumor mill. As I mention elsewhere in this months issue in my profile of Northern Orion, large companies looking for takeover targets chiefly want those that are BIG, as well as ones which arent going to take too much trouble to produce. Though were getting a stomach-churning ride out of it right now, I think Bemawhether its taken out down the road or notwill end up over time being one of our most explosive holdings.
(February, 2004) -- Last week, Bema Gold announced that it had compiled the preliminary mineral resource estimate from the high grade Kupol gold and silver property located in the Chukotka province of Northeastern Russia. Nearly 22,000 meters of drilling along a 3.1 kilometer drilled strike length and to a depth of 300 meters has revealed a resource thus far of just over six million ounces of gold, and some 75 million ounces of silver. As the company fast tracks Kupol to the feasibility stage as soon as at the end of 2004, these numbers are bound to increase, as well as be upgraded to the reserve category via additional infill drilling and some initial development. In addition, the ore body remains open to the North, South and at depth.
The company expects to commence the next round of drilling to increase/upgrade these numbers in May. This infill and additional exploration program is forecast to involve 57,000 meters of diamond drilling with 7 drills. BGO management believes that these first resource numbers could as much as double following this next round of drilling.
Metallurgical test work for Kupol commenced back in December. Preliminary results from a series of bottle roll cyanidation tests indicate gold recoveries from 94.5% to 96.5% and silver recoveries ranging between 70% and 80%. Additional test work to determine optimum grind size and reagent mix is continuing. Furthermore, a preliminary economic assessment of the project will be completed in May, 2004.
Following the Kupol update, the company on Monday, February 9 gave investors an overview of the year just past and a look ahead at 2004 expectations:
The Julietta Mine in Russia produced 118,145 ounces of gold at a total cash cost of $148 per ounce; both these numbers were slightly better than forecast and budgeted for. From its acquisition date of February 14 to the end of 2003, the Petrex property in South Africa produced 132,170 ounces of gold, at a total cash cost of $357 per ounce. That cost figure would have been higher still due to the strong rand, were it not for the company covering itself at least somewhat with rand-denominated options that saved nearly $40 per ounce on costs. (The company has hedged about 70% of 2004s expected production with additional rand-denominated put options.)
The company is forecasting a 20% increase in gold production for 2004, to around 300,000 ounces; this will be based on an expected increase in production at Petrex. Beyond this, BGO management believes annual production can breach 400,000 ounces of gold in 2005, once it and partner Kinross Gold get the Refugio Mine in Chile back into production; that is expected to happen by late this year. And eventually, if all goes well with the fast tracking at Kupol and that huge mine comes on line, the company can still meet its goal of being a one million ounce producer within five years.
(March, 2004) -- Bema Gold Once again, my concern over the stocks technical behavior and its recent ho-hum response to the updated reserve figures and related news from Kupol have for now overwhelmed my underlying belief in the company. In addition, my view of the gold market right now is sufficiently murky-to-negative as well to have prompted me to recommend selling BGO as one means of cutting back overall exposure to gold-related shares. (The preceding comments followed my recommendation to SELL Bema, given on 3/11/04.