DEZ: Price Change % Change Volume Day High / Low 52Wk High / Low 10/14/05 $1.85 -0.05 -2.63% 114,100 1.9 / 1.8 2.12 / 0.99
In order for the warrants to be worth money, the company has to have solid prospects. And so, what are the prospects of the company? At one time it seemed to have little attraction. In the late 1990's the Brazilian real was on a par with the dollar, the mine needed to be upgraded and the mill was suffering from neglect. But then the real started depreciating until it was worth 1/3 of the US$ Since real denominated expenses make up 3/4 of Jacobina's costs, the mine now has an exchange-rate advantage. Also the price of gold is rising. The company is spending US$30 million to renovate the underground mine and refurbish the mill which had suffered from years of neglect. The changes will allow production of 100,000 oz of gold annually for 7 years at a cash cost of US$189/oz according to a feasibility study by SNC Lavalin which assumes a real exchange rate of US$0.33 The Jacobina ore is not difficult to treat. The renovated mill is expected to extract 96% of the gold in the ore by using a simple combination of crushing, grinding, cyanide leaching and electrowinning. However, to make Desert Sun Minning a major company, they would have to extend beyond the projected 7 years of their mine's life. And so, in addition to the present mine, they have drilled three past producing deposits and have come up with an indicated resource of 25 million tons grading 2.5 grams gold per ton. If further drilling confirms this, then the Jacobina mine life will be extended to 13 years and produce gold at US$169/oz. The company has also realized that people have been making basic assumptions that have ended up limiting their ability to locate gold deposits in the area. There is a sweeping generalization that the Jacobian gold district is hosted by deposits similar to the Witswatersrand Basin in South Africa as disseminations of free gold in a matrix of a quartz-pebble conglomerate. And thus people were looking for gold in stratigraphically defined reefs. The Jacobina sediments extend for 75 kilometers (45 miles). Garimpeiros have been mining the length of the area for years and some of their working were not the typical Witswatersand mineralization. There were quartz veins containing gold and there was hydrothermal alteration around the green mica similar to volcanic-hosted gold deposits. Taking this into consideration, the company has been drilling their Pindobacu prospect, near the north end of the belt and has had several gold intersections including a 22 meter section grading 5.5 grams of gold per ton. So there may be more gold deposits for the company to find and develope and thus increase the value of Desert Sun Mining even more because they would have newer deposits to develope in addition to their present mine.
And so the prospects of the company look bright. And that brings me back to the subject of their warrants. I am not the only one that thinks that their warrants may be a better buy than the stock, because they have greater leverage than the stock. Dudley Baker feels that the warrants may be a good investment. Here is his write up: Desert Sun Mining - A Look at the Warrants Dudley Baker PreciousMetalsWarrants August 24, 2005
Desert Sun Mining (TSX: DSM and Amex: DEZ) is an emerging gold mining company focused on the re-development of the 100% owned Jacobina Mine and exploration of their 155 kilometre long Bahia gold Belt property in the state of Bahia in northeastern Brazil.
The Jacobina Mine was commissioned in the first quarter of 2005 and commercial production has been declared effective July 1, 2005. The Company expects to produce at 80% of capacity in the third quarter, reaching its full rate of production of 100,000 ounces per annum by the end of the third quarter of 2005.
The Company had $15.9 million cash on hand at June 30, 2005.
I would encourage you to visit the Desert Sun Mining website, for all the details.
Also, Desert Sun will be represented at the upcoming Gold & Precious Metals Investment Conference in Las Vegas, Sept 7 & 8th at the Mirage Hotel. A perfect time to visit and meet the company representatives.
The decision is always with the investor as to which investments to make but assuming that you like the Desert Sun Mining story and are considering buying the common stock we would like to take this decision one step further.
Since warrants are our business and knowing that Desert Sun has a warrant currently trading on the TSX, we thought we would share our analysis with you.
So, what this means to investors is that we have the right, not the obligation, to purchase the common stock of Desert Sun at C$2.50 until 20-November-2008. Is this a good deal? If investors are expecting a significant rise in the price of the common stock, what will happen to the warrants? Let's take a look using our summary analysis as of Tuesday's close. conclusion:
We would have to conclude that if an investor is considering the purchase of the common share they should take a serious look at the warrant in lieu thereof. There is sufficient time remaining on the life of the warrants (20-Nov-2008) and there is good leverage over the common shares.
Remember, warrants are about leverage and we are trying to increase our return on investment. Also something to remember is that warrants are risky, if the price of the common stock is below the exercise price of the warrant on the expiration date, the warrant will expire worthless.
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