Nexus, you know I like these debates <ggg> !
<<It may be but when gold prices are falling like they are right now, the property's value also declines. >>
No doubt you are right here. That is why FGX had a market cap of $420 millions ($35/share) when gold was $400 and now has a much smaller market cap. But the last economic study on El Sauzal was done with gold at $300 and produce these numbers:
Gold production: 300,000/year
Average cost per ounce US$85.
Payback: 1.8 years
IRR: 42%
NPV at 5% Discount: US$158.0 Millions ($C16/share of FGX)
With gold at $270, I guess we can lower these numbers somewhat, but they still make of EL Sauzal one of the top projects on this planet in terms of return on investment and market discount to NPV. If you have been studying the mining sector, you know that such numbers are rare. Projects IRR usually fall in the 15%-30% range. The odds are that Luchio will not match this.
<<It is simple economics and I think you fail to understand that.>>
I certainly understand that. But I also recognized what is value.
<< On top of it, it is a depleting asset so the more it takes time to put into production, the more it loses it's value.>>
My friend, this is not true, the discounting mechanism of future cash flows start working only once the operations start. The reason being that, assuming stable gold prices, the property can always be sold for the same millions already discounted over the LOM (Life-of-mine) of the property.
If what you said was true, PFG/Luchio would be worth next to nothing as they are at least 5-7 years away from production, if ever. IOW, the current market cap of $120 millions would make no sense at all.
<<Not even close. Marlin has potential but that is all so far.>>
Have you study the work done at Marlin and FGX's other newly acquired properties? Have you compared the size of the mineralized zone at Marlin with Luchio ? Have you compared grades, trenches, infrastructure ??
<<If they just invest it at 5% interest, I can get the same return in a CD>>
Not what I meant. FGX has $36M that is available to spend on its newly acquired properties. By doing so, it will likely discover more gold and create value without dilluting. Such cash is worth a lot more these days when financing for exploration is hard to get. If gold falls to $200, FGX will still have the cash to develop Marlin.
OTOH, PFG has little cash and must diluted. Will PFG be able to finance with gold at $200? It already has 65% more shares outstanding f.d. than FGX. This means it must find with a lot more gold to be worth more.
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