Here’s How to Value a Junior Miner’s Gold in the Ground
At any given time, we know the international spot price for an ounce of refined gold but what about the gold an exploration or mining company has in the ground – how do we value that? [We have the answer. Read on.]
So say
Louis James and Andrey Dashkov (www.CaseyResearch.com) in further edited excerpts from the original article* which Lorimer Wilson, editor of
www.munKNEE.com http://www.munknee.com/favicon.ico(It’s all about Money!), has further edited ([ ]), abridged (…) and reformatted below for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement. The authors go on to say:
There are several different ways to value a junior miner’s gold in the ground:
1. Given sufficient data, you can estimate a reasonable net present value (NPV) for a project and deduce what each of the company’s ounces should be worth. To do this, you need to know annual output of the proposed mine, proposed capital expenditures, energy and other costs, and many more things. Unfortunately, for most deposits held by the junior companies we tend to follow, there is just not enough data available.
2. Another approach is to compare the value the market is giving a company per ounce of gold in hand against the average value the market gives companies with similar ounces. The most obvious way to define “similar” ounces in the ground is to use the three resource and two mining reserve categories defined by Canada’s National Instrument NI43-101 regulations – the industry standard. These are combine these into three broad groups:
a) Inferred:
The lowest-confidence category, based on just enough drilling to outline the mineralization.
b) Measured & Indicated (M&I):
These higher-confidence categories have been drilled enough to establish their geometry and continuity reasonably well.
c) Proven & Probable (P&P):
These are bankable mining reserves – basically Measure and Indicated resources with established value.
So, what does the market give a company, on average, for an Inferred ounce of gold? M&I? P&P? To answer this, we combed through every company listed on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSX-V) and pulled out the ones with 43-101-compliant gold resource estimates (or mostly gold) – no silver, copper, etc. Of these, we kept only those with resources that fall almost entirely into only one of our three broad groups: Inferred, M&I, and P&P leaving us with about 90 companies to calculate some averages on and we got these numbers:
•
US$20 per ounce Inferred
• US$30 per ounce for M&I
• US$160 per ounce for P&P