How to value junior stocks
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Rock, your post should be reposted every few hours so newbies get the idea how grossly undervalued CMM is at current prices:
"Many investors do not know how to value a producing gold stock.
Price to cash flow is the standard method for valueing precious metal stocks, including gold stocks ( p/earnings is also important as is reserves, debt etc ).
Kitco has provided tables of 2005 and projected 2006 c/f and p/e multiples of gold stocks, including small gold stocks like CMM.
Here is the link.....
kitco.com
Note that small cap junior golds traded at 28 times annaul cash flow in 2005,and those same stocks are projected to trade at 15 ( rounded ) times cash flow in 2006.
I did some fast calculations, and in fact, the average c/f multiple of these same small cap golds is now well over 20 times annual cash flow.
That is, their market cap ( shares times share price ) is over 20 times their estimated annual 2006 cash flow.
With todays acquisition, CMM should produce an annaul cash flow.......based on POG $575 and the documented cash costs of $287 /0z )......of about $50 million at an annual production of 150,000 oz.
At 15 times cash flow, its fair value is estimated to be $750 million ( about $7.35/fd share ) and about $1 billion at the current empirical c/f multiple of 20 ( about $9.50 /fd share ).
Will CMM be accorded the average p/e multiple of its peers ?
Almost certainly, given its documented crdentials todate ( reserves/balance sheet/growth prospects/ management quality ).
Anyway, thats how I guide my buying of gold stocks.."
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stockhouse.ca
AZK / MNG /
CMM.V / IPT.V / MUG.V
PRZFF.PK ( PRZ.V ) / BDRGF.PK ( BGL.V )
RDFVF.PK ( RDV.TO ) / NSM.V |
