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

To: Claude Cormier who wrote (1889)	2/18/2002 11:21:44 AM
From: tyc:>	Read Replies (1) \| Respond to of 39344

FWIW; I don't think you fellows are allowing sufficient in your considerations for the "option value" of gold miners. This is my understanding from reading (notably a paper issued by cibc world markets); Supposing you had a producer whose net asset value was ZERO! I take that to mean that at current metal prices, discounted future cash flows would just equal liabilities, leaving no value for the common shareholders. What kind of a market price would/should such a stock command ? The answer is, it would/should sell at its option value. Use its cost of production as the strike price, the volatility of gold prices, and the life of its mines (or rather the half-life), etc., and you can actually calculate an option value. It is their "option value" that causes the majors' paper to be so high, for option value is to be added to their net asset value. You may think it is high, but obviously the market thinks otherwise. I use this method to satisfy myself that a market price is reasonable. Time will tell how valid it is, but it sure gives me an answer that I find acceptable.