McAdam is an undervalued play

On the lookout for undervalued gold stocks? One that fits the bill is Toronto-listed McAdam Resources. The combination of its property portfolio, competent technical management and strong financial position led mining analyst Paul Piazza of Merit Investment Corp. to expect the shares to increase in value.

Although the shares are deemed to be speculative, Mr Piazza writes in a recent research report, the company’s proven and probable reserves, economic gold values and aggressive exploration approach point to McAdam as an emerging future gold producer. The shares are recommended as a buy, he says.

One of the more significant properties within the McAdam camp is the Spud Valley property in the Zeballos area of Vancouver Island, B.C. A former gold producer, Spud Valley produced more than 54,000 oz of gold from ore that graded 0.29 oz per ton from 1936 to 1942. McAdam owns 75% of the property.

Gold mineralization at the property consists of a series of east-west trending veins that have not been fully explored in depth and along strike. An exploration program in the last two years has developed preliminary reserves of 429,000 tons grading 0.25 oz, says Mr Piazza.

A drilling program, currently under way on the property, is aimed at following up a very exciting zone where the two holes to date have yielded 0.23 and 2.45 oz over 3 ft, he says.

The first follow-up hole this year has encountered the same zone 260 ft lower and returned 2.5 oz over 4 ft. McWatters property

McAdam also owns 50% of the McWatters gold property near Rouyn, Que., also a former gold producer. McWatters produced gold in the 1936 to 1944 period with production amounting to over 115,000 oz from 368,013 tons of ore grading 0.315 oz.

The host rocks consist of sedimentary and volcanic rocks lying in the vicinity of the major east- west Larder Cadillac Break. Two holes drilled 3,000 ft north and west of the shaft have encountered an extension of a previously known zone. The economic values in the intersections are 0.44 oz over 5 ft and 0.184 oz over 10.2 ft.

The McWatters exploration budget this year will be in the order of $6 million. This program includes surface diamond drilling, dewatering the old mine workings and underground exploration.

Previous reserve estimates range from 304,262 tons grading 0.180 oz to 431,575 tons grading 0.193 oz, says Mr Piazza. Assuming the lower more conservative figure, the property contains a total of 52,028 oz with a 95% recovery.

Much of the immediate and surrounding ground is unexplored and therefore remains potentially favorable for developing additional reserves, he says. Well financed

The company is well financed by contributions from its joint partners and from a MVP commitment of $1 million of flow-through shares of the company.

The company has 150,698 oz of recoverable gold, says Mr Piazza, of which 100,016 oz belongs to McAdam.

Preliminary calculations based on McAdam’s share of recoverable gold, operating profit per oz, shares outstanding and other contingency costs indicate the shares have the potential to trade in excess of $3 per share. This appreciation may occur over the next 12 months, he says.

Adding to Mr Piazza’s report, comes the recent recommendation from Robert Bishop, editor of Penny Mining Stock Report put out from Lafayette, Calif.

Mr Bishop notes that unlike many exploration companies, McAdam has two advanced properties, well funded programs and a management team that is highly regarded in the mining fraternity.

“Despite a capitalization that’s higher than I generally like to see in exploration companies, the advanced stage of both projects and more importantly, a small float (about $1.5 million) mitigates the number of shares outstanding,” he says.

He notes that 2.65 million shares are held by insiders Muscocho Explorations and two gold funds.

“Based on price history and the encouraging progress at both of the company’s properties, I think McAdam is a buy at this time,” says Mr Bishop.

At the time of these two reports, McAdam shares were trading around the $1.35-$1.36 range. Its 52-week high and low is $1.65 and 80 cents , respectively. At press-time the shares were at the $1.50 level.

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