I believe a little too much pessimism has creeped onto the board however it is always good to look at things objectively and with facts.
Sageyrain brings up a good example why you can never compare two deposits and the insitu value per ounce they command. First no two ore deposits are the same and thus cannot be compared directly to each other. There are differences in grade, size, recoveries, ground conditions, taxation, labour, government regulations and accessibility. These things will all factor into the cost per ounce to produce. Thus deducting the companies desired profit margin and expected operating costs/ounce from the projected spot price of gold/ounce this will give the amount they are willing to pay per insitu ounce.
Now lets apply these facts to compare ARU to Hollister.
First the grade and size of the deposit are not even close.
ARU has an estimated 15,000,000 ounces open in all directions compared to 1,000,000.
The ground conditions are not simular at all. ARU is in volcanics while Hollister is in sedimentary rock. Sedimentary rock is very difficult to mine in due to its weak nature. This type of ground condition requires very expensive time consuming ground support which cuts back on productivity thus increasing cost per ounce. Volcanics are relatively easy to mine through. Nevada type underground deposits are very expensive to mine. Take QueenStake in Nevada for example which has far better fundamentals than Hollister and a production cost of around 450 US per ounce and cannot make any money.
Ecuador has virtually no taxation on mining, low labour costs and very little red tape compared to Nevada as well.
There is a reason thus that Hollister commanded only 65 US per ounce and that is because it will be a high cost marginal mine.
If you want to make a comparision perhaps you should compare Goldcorps Red Lake Mine even though it falls far short of ARU in many area's. They have an aprox cash cost of 90 US per ounce.
If you take gold at 675 US and say they produce for the same cost per ounce 90 US, then what would you be willing to pay per insitu ounce. That leaves 585 US dollars to play with and does not take into account that gold keeps rising.
I do not see it unreasonable to pay 300 US per ounce since that still leaves a 285 US profit without getting into the accounting too heavily.
This would give an approximate share price of 150.00 Can per share even if they do not find any more gold which is extremely unlikely.
This is the simplified process you have to go through in order to put a valuation on an insitu ounce.
How do I know this, well simple, I am a Mining Engineer with 20 years in the industry.
This should answer any questions concerning what kind of premium ARU will command. It will be high.
Regards,
F.F. |
