Post by TheRock17 on SH
V.CMM
105 million shares
Current production = 90,000 oz/year at a cash cost of about $300/0z.
Reserves of approx 6 million oz plus , including the recent SJ acquisition.....
The original production and cash costs targets for Century Mining in 2006 were based solely on production from the open pit at Sigma/Que.
The forecasted production was approximately 90,000 ounces of gold at a cash cost of approximately $325 (U.S.) an ounce in 2006. Average daily mill throughput is budgeted at 4,700 tonnes with an average head grade of 1.8 grams per tonne gold and recovery of 95 per cent.
Since then, CMM has announced that it has bought out the royalty agreement, thereby saving an estimated $24 in cash costs and bringing cash costs to near $300 US per oz.
Also, since that time, CMM have announced that the Lameque Underground mine, adjacent to Sigma, will be rehabiltated and that production would resume in late 2006, adding another 5000 to 10,000 oz to total 2006 production.
It was stated that the resumption of underground mining would reduce overall cash costs, but no estimates were provided.
In this scenario, I have assumed that Lameque will reduce the overall Sigma/Lameque costs by $10 /oz to $290 /oz.
Finally, CMM announced two acquisitions in Peru, one of which has no producing assets, the other at San Juan currently produces 12,000 oz/year at a cash cost of $265/oz.
This can be expanded to 80,000 oz/year at a capex of $10 million, an option that I shall assume CMM will take.
It will take about 6 months to complete this expansion , so it should be onstream by late 2006, adding about 50,000 oz to CMM's annual production and perhaps another 10000 oz to total 2006 production.
Altogether, total gold production for 2006 should lie in the 105,000 to 110,000 oz, excepting the acquisition of another producing gold mine.
More importantly....as astute investors tend to buy growth in advance..what will be CMM's annual production runrate by late 2006 ?
So, let us examine our probable late 2006 annualized production, from the information available.
First, at Sigma/Lameque that by late 2006 ,I assume that mill capacity will be increased 20 % to 6000 tpd, allocated 4700 tpd to Sigma and 1300 tpd to Lameque underground...
Headgrades at Lameque are estimated at 5.0 gms/ton ( 5.25 X 95 % recovery ) , compared to historical grades of 5.84 gms/ton.Sigma headgrades grades are as stated, 1.8 gms/ton.a
The calculations show that Sigma open pit will be producing 75,000 oz per year and the Lameque underground will be producing 90,000 oz per year.
Total production in Quebec will then be about 165,000 oz per year at a cash cost of $290 /0z.
At $550 POG, the annual cash flow from Sigma/Lameque will be about $50 million.
At San Juan, Peru, CMM's net production will be about 50,000 oz at a cash cost of $265 /oz ( should be less than $265, due to higher efficieny of upgraded mill ).
At $550 POG, the annual cash flow from SJ Mines will be about $16 million.
Total cash flow from both Peru and Quebec by late 2006 will therefore be about $66 million annualized.
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 .
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 in 2005 small cap junior golds traded at 28 times annaul cash flow ,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 ( # of shares times share price ) is over 20 times their projected annual 2006 cash flow.
As the price of gold increases, one might expect that the trading multiples will also increase..a la as was the case with c/f multiples of junior oils over the last year.
From the above production/cash flow statistics, fair value on the estimated 2i5,000 oz of annual production at a POG of $550/oz would be $1.0 billion at the more conservative 15 times cash flow
At the current 20 times cash flow, the 2007 expected fair market cap would be about $1.3 billion .
If the POG averages $600 /oz, the above fair value calculations can be increased by about $200 million to the $1.2 billion to $1.5 billion range .
Will CMM be accorded the average price to cash flow multiple of its peers ?
Almost certainly, given its documented crdentials todate ( reserves/balance sheet/growth prospects/ management quality ).
In adddition, it would appear that there is potential in current assets in Peru to substantially increase production in 2007 and beyond..plus any accretive acquisitions that CMM might make over the next year.
So, in summary, at the more conservative performance assumptions ( POG of $550 and a cash flow multiple of 15 times ) CMM should have a fair market cap of about $1.0 billion on exit 2006, if it meets the above production targets.
Thats about $9.50 per share or about $7.50 per fully diluted share.....or could be as high as high as $11 per fd share at the more optimistic cash flow assumptions ( gold at $600 and cash flow 20 times ).
Additional substantial upside of at least another $10 to $15 per share, should the Grand Champune confirm its 12 million oz potential.
This is why so many of us on this board are so excited about our investment here..............
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