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Gold/Mining/Energy : Crystallex (KRY)
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To: Gary H who wrote (4480)1/25/1998 8:18:00 PM
From: Gutman  Read Replies (1) of 10836
 
Value of gold in the ground is computed by mining anlaysts by the
discounted cash flow method. Annual cash flows are computed and each
year's cash flow is DISCOUNTED by an market rate of return which
reflects the risks of the operation. What return would an investor
expect for an investment in Las Cristinas? IMO, at least 10%. Then,
the cash flow in year 1 of production is divided by 1.10. The cash
flow in year 2 is divided by (1.10)x(1.10), and so on. If production
will not begin for 3 years from the present, then the sum of all
cash flows must be discounted to the present; i.e., divided by
(1.10)x(1.10)x(1.10). The resulting value is then divided by the number of ounces in the deposit to obtain value per ounce.
Remember, that there are also negative cash flows resulting from
debt amortization payments.
It is my personal opinion that the debt amortization payments for
Las Cristinas (based on a borrowing of $600 million USD) will exceed
the postitive cash flow generated by production of 450,000 oz a
year if the gold price remains at $300USD. If the $600 million is
financed in part by equity, then amortization payments will be smaller
but shares outstanding will be greater.
In short, you need to go through a very meticulous financial analysis
to arrive at value of "gold in the ground."

Hope this helps.
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