A View of Vista and Virginia

09/03/2004 12:00 am EST

Focus:

Adrian Day

Chairman and CEO, Adrian Day Asset Management

When it comes to in-depth knowledge of natural resources and mining, there are few as skilled and experienced as Adrian Day. Here, he looks at two small, lesser-known gold issues, both of which are intriguing companies with unusual operating structures.

"Virginia Gold (CA:VIA Toronto) is one of my long-time favorite juniors gold miners. The main attraction is its strategic approach, which provides a risk-averse exposure to the high potential of exploration. Virginia, the largest landowner in mineral-rich Quebec, undertakes initial exploration work and, typically finds a joint-venture partner early on who will usually pay for most of the exploration work in return for part of the property. Partners are both majors (including BHP, Noranda, and Soquem) and juniors, in a diversified range of properties. This enables Virginia to hold several lottery tickets, as it were, while preserving its cash assets (currently CA$17 million).

"This year, over CA$9 million will be spent on Virginia’s properties, including at least five to be drilled before the end of the year, and Virginia’s share will be less than CA$3 million. With a rock-solid balance sheet and risk-averse strategy, Virginia can explore aggressively several properties at once. One of the best managements in the business complete the picture. For investors willing to be patient, but not wanting to lose money, this is our top pick—slow and steady wins the race, and all that—though I suspect we may not have to wait long for attention-grabbing exploration results. Though we’re up over 30% since it was recommended here, it remains a buy.

"Vista Gold (VGZ ASE) is unusual in that it does not mine or even plan to mine. Rather, it has purchased gold resources to hold until the gold price is significantly higher. Thus, it is often seen as a ‘perpetual call on gold’, with over 12 million ounces of gold, in 11 different projects (mostly in Nevada and Mexico), many of them proven ounces and with feasibility projects on three of the projects. Each share is backed by 0.8 ounce of gold in the ground, making it very inexpensive on an asset basis. Vista was jolted by the unexpected death in May of president and CEO Jock McGregor.

"Michael Richings, who was company president and CEO during the 1990s and who stepped in to fill the posts on an interim basis after Mr. McGregor’s death, has had his appointment confirmed. In addition, the company has announced a $6.5 million financing to fund possible acquisitions and ongoing G&A. The company has been looking at some projects for months now; a new property may be added shortly. The strategy initiated by Mr. McGregor is being continued. With adequate funds and a low risk strategy, Vista should continue to grow, and the stock has tremendous leverage to the gold price. The stock is soft now, not only because of gold’s recent uncertainty, but also because of the impending financing. Use this opportunity to buy more; under $3.50 is a great buy. We expect a quick recovery."

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