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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: lbs1989 who wrote (348)	10/27/2001 9:12:54 AM
From: russwinter	Read Replies (3) \| Respond to of 39344

Seems to be confusion about EV? Actually a low enterprise value is what you are looking for. Here is the equation and I've used it for several decades to visualize value on every investment I've ever made: Market Capitalization(MC)- Net Working Capital (WC)= Enterprise Value (EV): I always convert to US$ at the present exchange rate, right now about .635. Example: Solitario has 23.3 million shares out X 50 cents= $ 11.65 CDN X .635= US$ 7.4 million MC. On reports out of Canada you will see this in $C, so make the distinction. Definitions and examples: MC the way I use it here takes the shares outstanding times the current stock price. Then adjust it one more time by taking all warrants and option that are in the money * (selling at or below the present stock price). Multiple those shares by the warrant or option strike (excercise) price. THEN BE SURE TO ADD THE OPTIONS AND WARRANTS CASH PROCEEEDS ON TO THE BALANCE SHEET. I say that because I constantly see analysts just give a fully diluted market cap without the important balance sheet adjustment. Net WC (actually plus long term debt also): Remember that WC does not reflect items like properties, mines, equipment, reserves, resources, etc. Take the current balance sheet assets (add the in the money proceeds mentioned above) and subtract the current liabilities. Then add back any items listed as "investments" on the balance sheet. Do this at the current value of the holdings (example would be a portfolio holder like SWG). Finally, subtract off the long term debt, and that's the "Net WC". sedar.com Enterprise value is essentially what the stock market says the rest of the business (the enterprise) is worth after adjusting for the balance sheet and debt structure. Then it's up to you to judge if the stock market (what I call the "public market" ) is correct. In the example of SLR, is an EV of $1.7 million an accurate appraisal of it's exploration holdings? My general theory (as yet unproven given the dearth of transactions) is that most of these companies have "private market" *** valuations that are far in excess of the enterprise values now placed by the public stock market. * Don't just totally ignore out of the money warrants and options though. Make a mental note especially if you see a lot of them. They would come into play as shares an acquirer would need to purchase. Take note of items such as large receivables, creditor notes or inventories. Those signal the need for a little bit more leg work, before you just add them in without question. In our SLR example, I am going to discount a million bucks that they appear to be loaning to their principal shareholder CRWN. Maybe it's the deal of the decade to Chris Herald, but I call these deals "Tom Cruises" (as in "show me the money!"). Fortunately, most juniors are pretty clean in this respect. * Public Market or the Stock Market: the great task of investors is gauging the accuracy and efficiency of this market. **** Private Market is what an operator is actually willing to pay (the deal) for a company or asset, and may be strikingly higher than the current public market. The junior market badly needs one or two of these to throw a major curve ball at hyperdepressed public market valuations. Hereis one analyst's evaluation of this spread in the case of Great Basin:http://www.wsrn.com/apps/news/art.xpl?id=3149274&f=NEWS&s=GBGLF