Evaluating Resources and Reserves

[Gatesy]

Hi.

 

Might seem like a straight forward question at this stage of the game, but I've been looking at a number of miners and wanted to confirm which reserves and resources figs are the right ones to use for valuations estimates. I've made a number of calulations on various co's which I can quickly change should I need to, but wanted to get some views on which figures to use.

 

I found this excerpt from a piece about Kimber on Resource Investor which illustrates one way of looking at things, but is there an industry standard for which figures should be used to arive at "$ per ounce in the ground" valuations such as Jim Puplava frequently quotes on his show ?

 

 

[Gatesy]

For some reason my attachments box has disappeared . I'll attach the image when it reappears !

[1waving]

Not sure there is any blueprint to go by but as an example this was on jsmineset a couple of months ago:--

 

With gold headed to $1650 what do you think your junior with 1,000,000 ounces of 43-101 compliant reserves and a deposit strike length of at least 4 kilometers would be worth? Here's a back-of-the-envelope estimate:

1,000,000 times $1650 minus a $300 total production cost per ounce.

In ground value: $1,650,000,000 (not including recoveries)

Cost of extraction: $ 300,000,000

Amortization of plant and equipment over say a 10 year mine life: $200,000,000

Value:

Value of the asset $1,150,000,000.

Now let's say the deposit goes to 5,000,000 ounces contained. In this case five times $1,150,000,000 is the value - all things being equal.

Does the enterprise plan to produce or will they sell the asset when it matures, say two to four years past initial production?

If they plan to produce for their own account, then the value is a combination of discounted present value times cash flow.

If they plan to sell the property, it is asset value. If the last sale of such an asset was at "x" euros times ounces contained, then the starting negotiation would be a premium above "x" euros times ounces contained plus a value for gold contained within other resource categories.

The hedge funds can play all the games they want but they will fail on valuations as gold goes to and through $1650. My personal money is wagered on my words.

So those that are demoralized should sell and stop the pain.

I am significantly committed and intend to continue my commitment with every cent I have, no margin.

Regards,

Jim

 

 

 

[Gatesy]

Not sure there is any blueprint to go by but as an example this was on jsmineset a couple of months ago:--

 

With gold headed to $1650 what do you think your junior with 1,000,000 ounces of 43-101 compliant reserves and a deposit strike length of at least 4 kilometers would be worth? Here's a back-of-the-envelope estimate:

Thanks Walden. Better check what the 43-101 compliance is.

 

I still can't post this damn attachment on this thread !

[1waving]

Thanks Walden. Better check what the 43-101 compliance is.

 

I still can't post this damn attachment on this thread !

 

NI 43-101 is a Canadian equivalent of JORC.

 

 

 

The late Julius Baring’s investment approach to the mining sector was to invest at or below 10% of in situ value, hold to 40% and then sell, taking no prisoners.

 

[littledavesab]

Not sure there is any blueprint to go by but as an example this was on jsmineset a couple of months ago:--

 

With gold headed to $1650 what do you think your junior with 1,000,000 ounces of 43-101 compliant reserves and a deposit strike length of at least 4 kilometers would be worth? Here's a back-of-the-envelope estimate:

1,000,000 times $1650 minus a $300 total production cost per ounce.

In ground value: $1,650,000,000 (not including recoveries)

Cost of extraction: $ 300,000,000

Amortization of plant and equipment over say a 10 year mine life: $200,000,000

Value:

Value of the asset $1,150,000,000.

Now let's say the deposit goes to 5,000,000 ounces contained. In this case five times $1,150,000,000 is the value - all things being equal.

Does the enterprise plan to produce or will they sell the asset when it matures, say two to four years past initial production?

If they plan to produce for their own account, then the value is a combination of discounted present value times cash flow.

If they plan to sell the property, it is asset value. If the last sale of such an asset was at "x" euros times ounces contained, then the starting negotiation would be a premium above "x" euros times ounces contained plus a value for gold contained within other resource categories.

The hedge funds can play all the games they want but they will fail on valuations as gold goes to and through $1650. My personal money is wagered on my words.

So those that are demoralized should sell and stop the pain.

I am significantly committed and intend to continue my commitment with every cent I have, no margin.

Regards,

Jim

 

Good answer and useful - but given that gold is currently around $865 isnt $1650 getting a little ahead of the game - I know all the arguments but wouldnt it be safer to work on the current value or even a little less?

[1waving]

Good answer and useful - but given that gold is currently around $865 isnt $1650 getting a little ahead of the game - I know all the arguments but wouldnt it be safer to work on the current value or even a little less?

 

 

Would be good to put $1650 in but is intended as an example, choose your own base figures on gold price, extraction costs etc

 

 

Another back of an envelope way for deposits above 1m oz, POG minus extraction cost minus capital cost x resource ounces.

 

Example for 2m oz ------ POG $850 - extraction $300 = $550 - capital cost $150 = $400 x 2,000,000 = $800,000,000

 

.

 

 

 

[frizzers]

There is a calculator somewhere online that values stocks based on their resources.

 

I posted a link to it once upon a time but I can't find it.

[1waving]

There is a calculator somewhere online that values stocks based on their resources.

 

I posted a link to it once upon a time but I can't find it.

 

 

 

Have found a drill result calculator for ounces and a fair value which may prove useful. You just need a few simple figures to get the ounces and fair value. When putting the width and grade in rather than put in the results for every hole, just using an average width and grade for all the holes only needs one entry. Useful as a rough guide.

 

http://www.49west.com/newcalc.html

 

 

 

I think this is the one.