Investment Comment Trader Resource Corp. is in the transition stage

Investors looking for exposure in a company which is making the transition from exploration and development to the producer stage might consider Vancouver-listed Trader Resource Corp.

Trading at presstime around the $2.80 level, the company is involved in the Yellow Giant project on west central Bank’s Island, about 650 km northwest of Vancouver, B.C.

In a recent research report, Mike Pickens and Robert Sibthorpe, anal ysts with Yorkton Securities, note that Trader, through its exploration programs, has expanded ore reserves for the Tel portion of its Bank’s Island property. It has thereby established this as a potential new gold producing area.

The two analysts regard the purchase of Trader shares below $3 as representing excellent value. They recommend the shares for accumulations at the current share price, which at the time of the report stood at $2.50, does not adequately reflect the in-place financing, profit projections and potential for additional reserves. Elders joint venture

The latest news from the company is a joint-venture agreement with Elders Resources, the resource and mining arm of Elders ixl of Melbourne, Australia, whereby Elders will provide up to $10 million developing the Tel deposit to production to earn a 50% interest. The agreement also provides for Elders to arrange funding of trading 50% share of expenditures required in excess of $10 million.

Trader has also granted Elders an option to substitute the agreement with a private placement of shares in Trader. Elders would acquire three million shares of Trader at $1.50 per share with three million warrants to purchase shares at $1.75 per share.

The two companies have also entered into a letter of agreement under which Elders will participate in the exploration and development of other portions of the Yellow Giant property.

The current reserve picture in four deposits at the property sees the Kim deposit with 1.1 million tons grading 0.072 oz gold per ton; the Bob with 50,000 tons of 1.17 oz; the Discovery with 100,000 of 0.46 oz; and the Tel with 173,200 tons grading 0.78 oz. Tel reserves

Diamond drilling on the Tel deposit to date totals 33,679 ft in 91 drill holes. Drill proven reserves at the Tel are 173,320 tons of 0.78 oz and drill probable reserves are 64,820 tons of 0.79 oz gold per ton. Inferred reserves amount to 85,800 tons of 0.45 oz, for total reserves in all categories of 323,940 tons of 0.69 oz.

The gold cut-off used was 0.2 oz with an allowance for a minimum 20% mining dilution. Gold recovery was calculated at 84% with silver recovery at 75%. These initial reserves are sufficient for three years’ production at 200 tons per day and the potential for developing additional reserves is excellent, says Messrs Pickens and Sibthorpe.

A feasibility study on the Tel is expected before year-end.

The two analysts’ preliminary financial appraisal of the Tel deposit is based on the estimated costs to develop and operate a 200-ton-per- day underground mine and a three year mine life. They note, however, the mine life is likely to be be considerably extended before the project reaches production as the potential for developing additional reserves are excellent. An operating mine of three years would recover about 130,000 oz of gold, give a one-year payback and a rate of return in excess of 70%. Ultimate value

To arrive at an estimate of the project’s ultimate value, the two analysts assume the Tel ore reserves to stand at 323,940 tons of 0.69 oz gold per ton. Recovery is 84% for contained recoverable gold of 187,756 oz. Operating costs per oz are estimated at $180(C) with a capital cost estimate nil to Trader. With these parameters and an assumed gold price of $420(US), the Tel deposit has an estimated value of some $31 million to Trader shareholders. While this is a pre- tax future value figure, no credit has been given for the contained silver or the company’s other gold deposits on Bank’s Island, say the analysts.

At current market prices, Trader has a market capitalization of some $12 million. While there can be no assurance that the market capitalization of Trader will reflect its estimated value of $31 million, Messrs Pickens and Sibthorpe say their analysis indicates that a share price on the order of $4 to $5 would more accurately reflect the value of this company’s assets.