Hi, Brian.
The more I think about it and the more it seems that, at current prices, Golden eagle is valued properly... at the moment.
Just think about it that way. Let us say that proven reserves can be established at 130M ounces, which is not as high as the most optimistic predictions but still very large. Now, let us say that operation costs are indeed at around $170 per ounce recovered. Let us also assume that the price of gold continues to hover around $300/ounce in the long run, assuming low inflation and no major economic crisis to throw anything off. Then, net revenues would be roughly $130/ounce. Now, if they are correct in estimating $2.5M per month in net revenue, that translates into $30M per year, meaning that they would extract 231 000 ounces a year. At that rate, they would mine for 562 years.
The meaning of this is that the size of the deposit becomes meaningless for investors, since the time horizon for its complete depletion is so long. It leaves only the revenue stream to value the stock. The revenue stream per share would be at best $0.34 (for 88M shares) and at worst $0.12 for three times that number of shares in circulation. Now, the Bolivian company is, I believe, 100% owned by golden eagle. That leaves us, after taxes paid on profits by the subsidiary and by Golden Eagle, (assuming total taxes of 33%, but they could be higher) a profit per share for Golden Eagle investors of $0.23 per year in the best case scenario (88M shares) and $0.08 in the worst case scenario (264M shares). Assuming a conservative but reasonable P/E ratio of 12 in the long run, that would place the long term value at $2.76 for the best case scenario and $0.96 for the worst case scenario. That does not take into account what percentage of profits are sunk into all kinds of stuff that does not interest shareholders, but rather assumes that all after tax profit goes to shareholders.
That was for the potential. Now, if you add the fact that, at present, proven reserves are at 0, and that, if you err on the pessimistic side, they could remain at that; if you add that this is Bolivia; if you add all the things that could upset the figures, such as a higher average operation cost than anticipated, the POG getting lower, etc... the current price seems like a fair assessment.
What do you think? Does it make any sense?
Michel |
