Barry, I have been accumulating at .20. I think Prism is once again poised to take a little run. PRN's Joint Venture partner in the Tonapah property had an interesting post regarding the prospects of these undervalue stocks:
To: don elving (7 )
From: Eastfield Resources Ltd.
Aug 12 1997 9:02PM EST
Reply #8 of 8
I like your thinking Don!
However there are some points that need to be considered.
Proven reserves are more like 200,000 ounces, not 350,000.(Check out the news
release dated December 2, 1996 on our web site). The potential to increase our
reserves at Tonopah does exist however.
There are various methods in which to value 200,000 ounces of gold in the ground.
You can attach a multiple to it. Some companies trade as high as 100 and as low as 10
times proven reserves. At a combined market cap of $4,000,000 we are trading at a
multiple of about 20, probably a bit on the low side.
Another method simply subtracts the cost to produce from the price of gold and
multiplies it by the number of ounces. At this level of reserves our cash cost to produce
will average about US$270/ounce (our cost to produce should decrease to around
US$225/ounce as we increase our proven reserves). That works out to (325-270) x
200,000 = US$11.0 million or CDN$15.0 million or almost 4 times the current market
cap. There are other variables that make this calculation overly simplistic but it is a
common method of valuation.
A more accurate value is probably obtained by performing a net present value (NPV)
calculation. This method incorporates many variables into the calculation, including
expected future prices of gold, capital costs, interest rates, operating costs and so on.
We have performed this calculation on our Tonopah project using various prices for
gold . At the present level of reserves the project becomes profitable at about the
US$350 per ounce level.
There are ways to improve the NPV picture. Firstly, this project is very sensitive to the
price of gold and becomes very profitable at higher gold prices. At $385 (the price of
gold when we first took on this project) the rate of return is about 28%. At
$400/ounce it's hugely profitable. Secondly, as tonnage increases so do revenues.
Costs will also decrease on a per ounce basis improving the overall profit picture.
What are we doing to improve this picture. Well there's nothing we can about the price
of gold but we are continuing to work at increasing our reserves. This will be achieved
through additional exploration (watch for soon to be released news on this summers
program) and acquisitions.
Now to answer the question," are we undervalued?". Yes I think we are. The first and
second methods tell you we are grossly undervalued. These methods are commonly
used when valuing public mining companies. The NPV calculation is often used to
value specific projects or private companies. It is a conservative method and generally
generates a value for public companies far less than their market cap. However, if you
believe in increasing gold values and our ability to find more gold, it too indicates we
are grossly undervalued.
Why we are trading at $0.20 is question I could answer for you another time, if you so
request.
Cheers! |
