Valuing Gold Mining Companies

[drbubb]

VALUING GOLD MINERS and Explorers

 

:: For a Miner already in Production:

 

Take the Gold price - subtract cash cost per ounce = the expected Gold Margin

x Multiply by the Number of Ounces of Reserves

= Expected Maximum Enterprise Value

- Debt Outstanding

= Expected Maximum Market Capitalisation

(note: the actual could be less, because cash cost may rise over time, after higher grade ore is mined,

or the actual could be higher, if the company is expected to find more gold.)

 

:: For a Potential Miner, with a Mine under development:

Take the Gold price - subtract cash cost per ounce = the expected Gold Margin

x Multiply by the Number of Ounces of Reserves

= Expected Maximum Future Enterprise Value

- Debt Outstanding

- Capital needed to raise to build a mine

- maybe 20-50% as a buffer for risk that the mine may not work properly

= Expected Maximum Market Capitalisation

(note: the actual could be more or less, see reasons above.

The buffer tends to fall, market cap rises, as the mine successfully goes into production)

 

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