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Gold/Mining/Energy : NORTHGATE EXPL (NGX.TO)
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To: Elizabeth Andrews who wrote (74)7/6/2002 7:00:10 PM
From: tyc:>  Read Replies (2) of 158
 
FWIW;

I have just been reading Mining Web's interview with Pierre Lassonde, as provided on 4fig"s A to Z junior mining thread. One paragraph particularly caught my eye;

"More recently, increasing focus is being placed on calculating the "option value" attributable to a company's reserves. This metric, which is not quite as easy to calculate as those described above, is essentially the value of a long-dated call on higher gold prices owned by the company as a result of having ounces in the ground that can be brought into production. I encourage all readers to review this approach to valuing gold mining equities because it is able to provide one of the most accurate valuation models and best explains the "valuation gap" between traditional discounted cash-flow analysis of gold assets and the premium at which these generally trade. One of the most insightful articles in this regard was authored by Barry Cooper from CIBC World Markets and is titled "Eureka! A Better Valuation Method" (February 1, 2002)."

This is the valuation model that I first alluded to when we started talking about NGX. It says that the value of gold mining companies generally equals the current Net Asset Value discounted at current rates of interest, PLUS an option value whose strike is the cost of production and whose term one half of the life of reserves.

Before the recent financing, I read a report by Griffiths, that calculated the Net Asset Value @ >$2 per share. This may not be a discounted Cash Flow NAV but the financing surely didn't reduce it ! Just think of the option value added to that, especially if the current exploration at North Kemess is successful in extending the "term" of the reserves.

These considerations are surely more significant than the current market price in my eyes.
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