Hi Stephen and Frank:
I used to cover BHK as a professional analyst and took this opportunity to run the company through my global comparative valuation model, and do a quick leverage study on the numbers.
First, you both are correct. BHK would rank in the top 5 on a value basis as a cheap proxy to buying gold at the spot price. That's the static view based on production and capital structure, and you are assuming the status quo continues over a number of years (such that BHK fits on the same parameters as the other 22 global gold stocks in the model. Bear in mind, though, that the addition of anything for Manantial Espejo capex will put the comparative valuation through the floor.)
However, problems on the financial side, which bear on why BHK isn't going anywhere. Really, BHK is an exploration company with a small production base that provides cash flow to pay the bills. Figure 25% gross margin (with depreciation added back in), half a million off for admin and exploration, and you're left with 18% pretax profit.
Assume 90koz annually; this year, 40% is capped at US$270/oz through forwards and calls sold; next year, about 55%. This won't give you growth in operating cashflow and you'll be lucky to see 4c earnings. On 141MM shares, that is certainly a plebian return.
I'd advise you to stop buying BHK. Put your money into a more compelling valuation with enough volatility to play the cycles. Of course, if you think that the gold price will hit >$270/oz by the end of next year, then the hedging in place now might work against you.
Regards,
Jim Steel, B.Sc.(Geol.) MBA
Managing Director
Mining Insights Inc.
www.mininginsights.com |
