<<Maybe we can call on Claude for a better
analysis>>
It may not be a better analysis, but here is my take on it.
Well first I would be very surprised if total costs would be that low! $150 is really low. When operating, admin and other costs are in, the best you get is near $200..there are exceptions like the El Sauzal future mine (Francisco Gold)...but not to many make it belwo $200.
But lets use $150 for the fun of it and use the P/E of 4. You then get some $37 per share. But oops!....what about taxes and royalties. The terms of MINE agreement with UCGMC calls for a gross royalty of 18%, If I remember. I don't know about taxes but I don't think that taking 40% off the $37 figure would be too much. So lets take $22 instead of $37.
Not, keep in mind that this is what you would get if the 6.4M ounces would be produced in year one. Such a deposit cannot be mined in 1 year. Lets asume a reasonable production rate of 400,000 ounces per year during 16 years. This means we must discount future earnings as a dollar earned in 16 yeasr from now is not worth $1 today. A 10% discount factor is often used these days even if inflation is low.
Discounted at 10%, this $22/share comes to $4.07, if we use a 5% discount factor than the shares are worth some $9.68.
Another way to estimate the net present value is to assign a value to each minable ounces. When the price of gold was $380, the average $$ per minable ounce was roughly US$140 for producers (with Barrick Gold in the $200+ and some juniors in the $100-) On the basis of 6.4M ounces minable, this comes up to $8.46 per share. However, because of the 18% royalty, we should take this figure down by an equivalent % giving us $6.93.
Last but not least, one must take into account future dillution fo the stock that will occur when/if MINE tries to finance the development of the property. They will have to issue shares...how much will depend on where the stock is... They may (I should say will) go into a JV, and the dillution here could be larger...perhaps 50% or 70%..who knows.
The final answer is that the stock will probably end up somewhere between $3 and $7, base on 6.4M ounces of gold. BTW, we should not start with a stock price using a P/E. the real method is to compute future cash flows, then discount them and finally divide by the number of shares out. The results would be more accurate.
Now, the question is, how much gold does MINE really has ? We will know more in a few weeks/months, I guess.
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