Peak Gold – The Company & the Warrants 
 

September 25, 2007
Dudley Pierce Baker
Precious Metals Warrants

Back in mid-2001, a 50 cent gold mining company called Wheaton River Minerals was taken over by the principals of one of the most powerful mining finance groups, Endeavour Financial.

Wheaton River had $30 million cash, but their lone mine was closing. This new management group said they would revitalize the company and the stock.  And they sure did, making acquisition after acquisition and taking that 50 cent stock to $5 in four years and merging it with Goldcorp.

One of the reasons their stock attracted a lot of attention – besides the great corporate growth – was they instituted a tradable five year warrant on their first financing back in 2002.  At the time it was a novel idea; most warrants were one or two years.  It was a great call on gold and the stock.  And it was a huge success – it was a very liquid stock and the warrants traded well too.

The Endeavour group has done many such five year warrants, and I have profiled many of them – Endeavour Mining Capital, European Minerals, Geovic Mining Corp., etc.

Now, in 2007, the core management group from Wheaton River have re-united at Peak Gold (PIK-TSXv) – financed it, and have a five year tradable warrant – PIK.WT-TSXv.  Wheaton River had Frank Giustra and Ian Telfer on the board – as does Peak.  Former Newmont Mining CEO Pierre Lassonde was on the advisory board for Wheaton, as he is now for Peak.

Peak’s story is very similar to Wheaton – except Peak is at the start of its life.  While Wheaton had a mine closing, Peak has growing cash flow from two operations that will continue to operate for many years – a great platform for growth.

Here is a quick synopsis:

Peak Gold was formed in April 2007 when it bought two operating assets, the Amapari Mine in Brazil and Peak Mines in Australia, from Goldcorp. Both operations are steady producers, forecasting a combined 220,000 ounces of gold production in 2007 at a cash cost of US$340 per ounce, resulting in strong operating cash flow. The company has US$77 million cash (June 2007), no exposure to sub-prime paper and is completely unhedged.  The company expects cash flow of more than US$70 million this year.

The Peak mine is the low cost producer at US$220/oz cash cost.  It’s an underground operation that has successfully replaced reserves for the last 15 years – and should still have 15 years of mine life left.  They keep finding new ore extensions, or entirely new mineralized zones.

The Amapari mine is an open pit, heap leach operation that just began producing in 2006. Operational costs have been higher than expected – about $450 per ounce this year.  But management has a plan that will potentially cut those costs in half. Part of that process is just fixing the inevitable glitches that happen with a new mine to get it optimized, but there is also an iron ore deposit on their property. And one of the largest private Brazilian mining companies, MMX, is in negotiations to mine it – which would not only give Peak some extra cash flow, it would basically pre-strip some of their gold deposit, as the iron is right on top of the gold – lowering their mining costs.

Being a heap leach mine, Amapari only processes the oxide ore, not the significant and growing amount of sulphide ores that exist there. (Peak did not pay for the sulphide resources when it purchased the assets from Goldcorp.)   A new resource calculation underway – and widely expected by the market – will increase resources, and possibly give the company an idea on whether they could build a mill to process these ores. A new mill would process both ores, and with a larger resource will lower cash cost per ounce.  Management’s goal is to cut the cash cost per ounce at Amapari in half.

Both assets missed their recent quarterly production targets, which along with a bad market in August, caused the stock to go from 70 to 42 cents, now trading back at 60 cents. Amapari had a record rainfall in the Brazilian rainforest in which it’s located – not good for heap leach recoveries - and Peak had 8 days of downtime.  

I believe the real upside for investors is the management and board of directors.  Like I said, this is the old Wheaton River Minerals team – Giustra, Telfer and Lassonde.  They are very public about wanting to make acquisitions.  What made Wheaton so successful is that they were willing to pay for assets knowing that the price of gold was going higher – so assets worth $100 today would be worth $150 a year from now.  Their confidence in the commodity market gave them the ability to pay for good assets.

And while they haven’t made acquisition yet, the price of gold has already broken out – above $700 per ounce. So their model is valid; they just have to execute. 

With 700 million shares outstanding, the stock is very liquid – it trades over one million shares a day.  And these mid- to high-cost intermediate gold producers do have the best beta to gold – as gold rises, these companies’ shares rise the fastest. We are believers in gold, especially with the new inflationary liquidity being injected by the global central banks, and the US Fed in particular. The US dollar will weaken further and all this is good for gold.

While we are greatly attracted to the opportunity of owning the shares of Peak Gold we are even more excited about the fact that Peak has warrants trading as well.

Since warrants are our business, we would like to share our thoughts on the Peak Gold warrants which give investors even more leverage with a minimum amount of risk in this case. Check out the particulars of the warrants below:

Investors should ask themselves a few questions; are we in a bull market in the precious metals? Do we like the story for Peak Gold?  Does Peak Gold have long term warrants trading?

Answering the above questions, we conclude, based upon many analysts who we personally follow, that we are in a long term bull market in the commodity and natural resource sector.  The Peak Gold story outlined above speaks for itself and we look for the possibility of great upside in the shares.  And thirdly, yes Peak has long term warrants with a remaining life of approximately 4 ½ years. 

In our opinion, Peak Gold and the long term warrants are a buy at these levels with incredible upside potential in the coming 12 – 24 months.

For those readers desiring more information on warrants you may wish to visit www.PreciousMetalsWarrants.com where you will find much more information and education on warrants in our new Learning Center.  You may also signup for our free weekly email, The Warrant Report.

Dudley Pierce Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges.  As new warrants are listed for trading we alert you via an e-mail blast.  You are provided with links to the companies’ websites, links to quotes and charts, tips for placing orders and much, much more.  We do not make any specific recommendations in our service.  We do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.

Disclaimer/Disclosure Statement:

PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof.  The opinions expressed herein are the express personal opinions of Dudley Baker.  Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service.  Examples given are only intended to make investors aware of the potential rewards of investing in Warrants.  Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.