<Our NAV declines 47% from $5.61 shr to 2.96 shr. Since the recent update provides a higher degree of confidence in the parameters of a potential ining operation at Rosia Montana, we are raising our P/NAV multiple on Gabriel, from 1.0 to 1.5 times. Our revised valuation of $4.43 (2.96 X 1.5) reflects less than a 20% appreciation from current stock level.>
This kind of NAV modeling is almost worthless and quite bogus in my book. A slight change in the variables can move the numbers all over the map. It reminds me of the cap rate formulas (except worse in mining operations) used in apartment building transactions. For example from the GBU release, using $350 POG and 0% discount rate, is the number $970m, maybe ignore the $50m treasury cash (I say add it in as it's built into the cost in the model), and you still have $C12.76. Use a 5% discount rate and it's $C6.35 ($C7.00 with the treasury). Use 5% and $300 POG and it's $3.59 (about where we are now). I don't know what the MER guy is using, but it looks like maybe $320 POG and 5%, or $330 POG, 7% and without the treasury? As you can see this exercise quickly becomes a farce and a game.
Plus there's Frasin, let's see how another 2 or 3 million low cost ounces plugged into those initial years changes the equation. Rather dramatically you can rest assured.
I do think the MER "analyst" says one correct thing: this is too big of a development project for GBU to tackle alone. My prediction, is that we see the district exploration results this spring, and see further resettlement work. If the Frasin results are duds (very promising so far) the deposit goes on the block at about C$7.00. If they start proving the further merits of the district (remember they haven't explored in several years), start tacking on the additional dollar(S). I suspect C$10.00 will be the ultimate number, and within a year. |
