INVESTNEBT COMMENT Coxheath overlooked, report says

For investors looking around for a junior gold play with plenty of growth potential, Kleinwort Grieveson Securities Ltd. of London, England is recommending Coxheath Gold Holdings as a buy.

While Seabright Resources has hogged most of the ink in Nova Scotia, Kleinwort analysts say this soon-to-be-producing company has been largely overlooked by the investment community.

A junior exploration firm based in Bedford, N.S., Coxheath controls 17 properties in the province as a result of a merger between several Nova-Scotia based companies.

In 1986, Coxheath’s technical advisory committee recommended that it concentrate on the Tangier gold property located just off the main highway along the eastern shore, 85-km northeast of Halifax.

As reported (N.M., Feb 16/87), that decision could pay off this year by putting the company in a position to go into production during the first quarter of 1988.

Selected on the strength of its history, the property is on the site of the first gold mining activity in the province. By 1917, 3,153 oz of gold had been produced from 48,935 tons of ore grading 0.53 oz gold per ton.

In June this year, Coxheath underlined its confidence in the Tangier property by announcing plans to spend $5 million to prove up reserves totalling 1.9 million tons grading 0.276 oz. Underground Development Those reserves were calculated from 244 drill hole in tersections and 179 muck samples taken from underground development work on the 1,400-ac property.

However, drilling has discovered a new gold zone 3,000 ft from those known reserves with gold values of up to 0.4 oz. A diamond drill program will attempt to explore that zone later this month.

Assuming that testing on a 24,000-ton bulk sample proves positive, Kleinwort Grieveson is predicting production from the Tangier property at 15,000 oz in 1988 rising to 28,000 oz in 1989.

“We believe there is excellent potential for increased production at this property as the wholly- owned strike length totals 7 1/2 miles,” the Kleinwort research report says.

While Tangier should be Coxheath’s first producer, the company’s 100%-owned Leipsigate property is potentially more exciting, according to Kleinwort.

Another former gold producer, the property is located 8 km southwest of Bridgewater, in Nova Scotia’s watershed area. Prior to 1908, some 13,000 oz of gold was recovered from 38,000 tons of ore. Initial reserves estimated from previous work are 680,000 tons grading 0.44 to 0.55 oz. Gold Zones

Plans for this year include dewatering an old 300-ft, 3-compartment shaft and evaluation of known gold zones from more than 1,000 ft of underground workings.

Among its other properties, Coxheath also has a 50% interest in some claims adjacent to Seabright Resources’ wholly-owned Beaverdam mine which has reserves of three million tons grading 0.27 oz. According to Kleinwort’s research report, exploration work has confirmed the extension of the Beaverdam gold-bearing zones on to the joint venture property.

Recent drilling has returned values as high as 0.49 oz over 29 ft. With Seabright as operator, the next phase of drilling has just begun. Of its three remaining properties, a 64% interest in the Mile Lake project looks promising, says Kleinwort. It is adjacent to Seabright’s Forest Hill mine in Guysborough Cty., where reserves stand at 400,000 tons grading 0.48 oz. Kleinwort says Seabright’s recent production decision there bodes well for Coxheath since Mile Lake has the western extensions of the same mineralization.

Since these properties are located in areas with excellent geological potential, Kleinwort believes that Coxheath is capable of becoming a substantial gold producer. Stock Undervalued

“We estimate a prospective price- earnings ratio of only 9-4 on earnings per share of 26 cents for 1988 rising to 29 cents in 1989. This underlines our belief that this stock is currently undervalued,” says the Kleinwort report.

“The price-earnings ratio is low for a company with a property like Tangier which is at an advanced stage of development.”

Coxheath shares were trading recently on the Toronto Stock Exchange at $2.18, just below its 52-week high of $2.95 but well above its $1.20 low point.

With 15.45 million shares issued, the company had a cash position of $1.06 million for the 6-month period ended March 31.