Oct 23, 2010

Mining Valuation Part 3 of 5

Before getting into the more advanced valuation techniques, there is one more metric that is similar to what we did in part 1 but gives one a different perspective. It tells you how much you are paying for each proven and probable ounce in the ground.

Industry average: $313

This formula, like the others is rather straightforward as all that is needed is:

  1. Market Cap
  2. 2P Reserves
Formulas: Market Cap/2P Reserves Using Jaguar Mining

Market Cap: 543,000
2P reserves: 4,300

Results ==> 543,000/4,300 = $126.29

Again, it is very cheap on a relative basis according to this metric

Like step 1 you can include a small % of M&I resources as it is likely a portion of it will be converted into 2P reserves at some point in the future. I.e 4m ounces of M&I * 25% = 1m ounces. 

Adjusted 2P reserves = 4,700

Adjusted Result = $102.45

One last metric possibly worth calculating, though not very accurate is running a 1-2 regression of the daily prices of a miner against the daily prices of gold or silver.

Next- Developing a Discounted Cash Flow Model ( which will be broken down into two parts).

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