I've seen the number 25% of the difference between POG and cash cost used for advanced prospects and reserves: for example POG 270-150 cash cost= $125 X 25%= $30/oz. Resources would be less.
The days of $100/oz exploration deposits are long over, and the last deals at those levels are referred to as "the winner's curse". The market is really valuing deposits with cash costs over $200 as worthless, and over $175 nearly so. In fact, what intrigues me are that the ones between 150-175 (below which are considered top quartile)are also valued nominally. Once you get down below 100, you start to see some double digit per ounce values. In CBD's case, we need to bet on the numbers being tweaked lower, as right now they are over 175. It's a pretty good bet, given what we are paying today. If you want an example of a value (less than buck an ounce on EV basis)put on an excellent deposit (PNG: difficult country?), with huge upside expansion potential look at MNP.
This little formula is probably too simple, as a bunch of other variables (political risk, capex/quick start, expansion likelihood, synergies, etc.) also need to be evaluated, but is a start and also allows investors to picture leverage to POG. |
