INVESTMENT COMMENTARY — Cumberland viewed as having ‘rock-solid fundamentals’

The grass is not always greener on the other side of the globe: Junior explorer Cumberland Resources (CBD-T) has been making a name for itself as one of the better Canadian exploration companies, owing to its high-quality gold projects in Nunavut, writes a Canadian investment analyst.

Mining analyst Don Poirier of Goepel McDermid recently issued a “buy” recommendation for Cumberland, citing its “rock solid fundamentals,” which include good properties, professional management and a strong balance sheet.

The junior has 26.2 million shares outstanding, of which 21% are held by management. In his research report, Poirier set a 12-month target price of $3.50 for the company’s shares, which currently trade at about $2.20 within a 52-week range of $3.50 to $1.60.

Cumberland has interests in two advanced exploration projects, Meliadine West and East, and an earlier-stage project, Meadowbank, all of which are in eastern Nunavut.

“The two advanced-stage exploration projects contain in situ gold resources of approximately 8.6 million ounces of gold and represent some of the largest undeveloped gold deposits in Canada,” Poirier noted. “Results from Cumberland’s exploration activities in 1999 point to another successful year, including a new gold discovery within the large Meliadine project area. In addition, the company is in the final stages of completing a prefeasibility study on its Meadowbank project.”

Meliadine West and East are 20 km north of Rankin Inlet, a small town on the western shores of Hudson Bay. They cover a gold trend extending more than 70 km in an east-westerly direction.

Meliadine West is by far the more advanced project, with an inferred, uncut resource of 23.6 million tonnes grading 8.5 grams gold per tonne, or 6.5 million oz. in four closely-spaced deposits.

WMC International of Australia has a 56% vested interest in Meliadine West, whereas Cumberland and Comaplex Minerals (CMF-T) each hold 22%. Cumberland’s obligations are fully funded by WMC. “We believe this option agreement rates as one of the more favourable exploration deals completed by a junior through the 1990s,” Poirier noted.

WMC has spent more than $40 million at Meliadine West over the past five years, including $7 million this past year. Poirier said WMC’s objective this year was to define a gold resource minable by open-pit methods.

“Good results have been reported from the first part of the program and it is our impression that the configuration and integrity of the main mineralized body, referred to as the Tiriruniak deposit, is meeting expectations,” he wrote in his report. “The current conceptual plan is to upgrade the resource to reserve status and, subject to a favourable study, develop a mine and centrally located milling facility.”

The current plan calls for open-pit mining in the early years, followed by an underground phase.

“The Tiriruniak deposit and other deposits within Meliadine West have the potential to produce 300,000 oz. to 400,000 oz. gold per year over a mine life of 12-15 years,” Poirier stated. “Taken together, the gold deposits within the Meliadine project area represent some of the best undeveloped deposits in Canada, and we feel there is still exceptional exploration potential remaining at the property.”

Next year, WMC is expected to announce plans for a program that will include infill drilling, as well as ongoing engineering and technical work. “We are optimistic that Meliadine West will soon move into final feasibility and into construction and development with a projected startup for late 2003,” Poirier added.

He also believes the Meliadine East project is gaining momentum following work by equal owners Cumberland and Comaplex. Work to date has focused on the Discovery zone, 12 km east of the Tiriruniak zone. More than $6.5 million has been spent outlining a resource of 400,000 oz. gold (2 million tonnes grading 6.7 grams).

A highlight of this year’s work at Meliadine East was the discovery of the J2 zone, which hosts several sub-parallel quartz veins along a weak magnetic corrider.

The discovery was tested by six holes, all of which intersected gold mineralization along a 300-metre strike length. Poirier noted that although exploration is still in the early stage, it is still early days, “we are highly encouraged and draw upon past experiences with the Tiriruniak deposit, which grew very quickly in size from a few initial drill intersections.”

Cumberland’s other key asset is the wholly owned Meadowbank project, about 250 km northwest of the Meliadine projects. It hosts a resource containing 1.7 million oz. gold (8.76 million tonnes grading 6.15 grams), of which about three-quarters is minable by open-pit methods. The waste-to-ore stripping ratio for the open-pit resource is estimated at 7-to-1.

A prefeasibility study, due at the end of the year, is incorporating results from this year’s program, which included trenching and 6,000 metres of drilling.

Despite all this exploration success, Poirier sees plenty of upside for Cumberland, making the junior “one of the best gold-in-the-ground stories in the junior marketplace.”