Some Valuation Perspectives for CMM (from a stockhouse post):
SUBJECT: Some Valuation Perspectives for CMM Posted By: TheRock07
Post Time: 1/13/2008 09:08
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Although senior golds market caps have responded to the 50 % gain in the POG over the past year, junior golds have yet to respond to gold's advance.
As a consequence of this response lag, junior golds offer substantial upside leverage to the POG and most experts consider that, as gold advances to the $1000 level, junior golds will have their major bull-run.
As such, valuation perspectives can be helpful in selecting those junior golds with the best chances of the largest upsides, while retaining some risk aversion on the downside.
Typically, most gold stocks are valued on a cash flow basis ( seniors at 30 times and juniors at 15 times ) but the empirical cash flow statistics are a motley crew , with large variations.
Key metrics are always production rate, potential for growth, reserves and quality, cash costs, political risks, management style and investor exposure.
A complex multiplicative model would be needed to extract and weigh these influences on market cap, a task that has yet to be performed and one that you wont see in this post.
Rather, I shall use broadscale proxies of valuations, as an illustration of how CMM might be valued.
First,my analyses assume that CMM will produce 80,000 oz in 2008 ( 40,000 oz at Lamaque at 800 tpd average, 25,000 oz at SJ and 15,000 oz at Rosario ) and at least 120,000 oz in 2009 ( 80,000 at Lamaque at 1800 tpd average, 25,000 at SJ and 15,000 at Rosario ).
These are, imo, reasonable if not conservative estimates.
One broad proxy of valuation is market cap ( MC ) per oz of gold production.I have chosen Canadian-listed junior golds some of which produce entirely in low-risk Canada ( AGI, WES, ARZ ) while others have their gold mines in high risk Africa ( SMF ), mixed ( Canada +( CRU ) and low risk Mexico (AGI ).
KGI ( $12.20/ MC=$700 million ) will produce 67,000 oz in 2008 giving it a MC valuation of $10,500 per oz produced.
AGI ( $6.75/ MC = $675 million ) will produce 150,000 oz in 2008 , giving it a MC per oz of production of $5200
CRU ( $1.86/ MC = $950 million ) will produce 210,000 oz in 2008, giving it a MC valuation of $4500 per oz produced
ARZ ($4.35 / MC = $725 million ) will produce 165,000 oz in 2008, giving it a MC valuation of $4400 per oz produced
SMF ($1.25/ MC= $250 million ) will produce 125,000 oz in 2008, giving it a MC valuation of $3100 per oz produced
WDO ( $1.68 /MC = $175 million ) will produce 70,000 oz in 2008,giving it a MC valuation of $2500 per oz produced.
The valuation range is quite high, with the highest valuations being for those solely producing in Canada and, WES excluded, the Lowest valuation for the higher risked African producers ( SMF ).
The average valuation is a MC of approx $5000 per oz of production....$3900 per oz, excluding KGI.
WDO, ARG and KGI produce solely in Canada and their different MC valuation indices can be explained mostly by differences in 43-101 reserves.
KGI has 1.1 million oz in its 43-101 for a MC valuation of $635 per oz of reserves.
ARZ has 2.7 million oz in its reserves and has a MC valuation of about $270 per oz of reserves.
WES has 606,000 oz in its 43-101 reserves, and has a MC valuation of about $290 per oz of reserves.
We can now see that the difference in the MC valuation of WES and ARZ ( $2500 vs $4400 ) based on production, is eliminated when that MC is expressed in per oz of gold reserves.
KGI remains an outlier, but that is mainly because its grades are so high ( about 0.8 oz/ton ) even though it is having trouble increasing production and its cash costs remain high.
CMM has similarities to WES ( mostly Quebec production ) and ARZ in that their production is mainly canadian-based, their cash costs are similar and all offer potential growth in production ( although CMM would be a premium ).
Peru is a very mining-friendly country, so CMM's risk profile would still be low.
In other words, a MC valuation of about $3500 per oz of production or about $275 per oz of 43-101 reserves would seem to be quite reasonable for CMM.
That is, a market cap of about $275 million for its 2008 production and a MC of about $1.3 billion for its 5 million oz of 43-101 reserves.
Clearly, CMM is very undervalued relative to its similar peers, and that valuation will increase as its large reserves at Lamaque are placed into significant production.
Note also that these valuations are current, and if the junior bull-run takes place, those valuations will also increase, commensurate with the MCs chosen for proxies.
Note also the implications for the putative value of Shashuindo's reserves of 2.1 million oz.
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SUBJECT: RE: Some Valuation Perspectives for CMM Posted By: TheRock07
Post Time: 1/13/2008 10:45
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CMM currently trades at less than $1000 MC per oz of 2008 production.
It needs to keep the Lamaque u/g ramp-up on track, for it to reach its full peer valuation multiples.
Fortunately, nearly all of the infrastructure is in place to enable that to happen.
WDO is an interesting comparison for CMM , as its production/financial performance has been less than exemplary, its 43-101 reserves are quite small , yet it trades over 2.5 times CMM's valuations.
If PK can get CMM out of the penalty box......and we have seen how aggressive she can be in either direction..this will be a big winner in 2008 even without Shahuindo.
With Shahuindo.....and that now appears to be tilting very strongly towards CMM's successful bid..its valuation will jump considerably, as that should ensure early mine development and add another 100,000 oz to annual production.. |
