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Gold/Mining/Energy : Naxos Resources (NAXOF) -- Ignore unavailable to you. Want to Upgrade?

To: mark silvers who wrote (8119)	1/14/1998 2:22:00 PM
From: Henry Volquardsen	Respond to of 20681

Mark, You can think of the long dated reserves much the same as you do deep out of the money options. In options trading you can easily find deep out of the money options that have zero mathematical value. Yet if you ask an options trader to price it they will never show you zero value. There has to be some value just for the risk. So on extreme options prices above theoretical appear and imply higher volatilities. This is why you might hear an option trade use a term like 'volatility smile'. You can apply the same concept here. Despite the fact that the math produces zero value, human nature forces you to put some value on it even if it is minimal. Also this is not a science but an art. Markets tend to overshoot in both directions regardless of what the math says. This is why arbitrage is possible. A JV with a major would not affect reserve calculations just the market's perception of them. And as I indicated in the first paragraph it is unlikely they will be given away for free. But keep this in mind, I used a discount on the production of 50%. Moving that to 51% would have a greater impact than giving all the estimated production from year 20 on the same value as the production in year 20. And it is that number where there is much more room for negotiation. I purposely left platinum out of the equation. The type of increase in production we are talking about here would have a huge impact on the smaller platinum market. Yes the market would grow but it is almost definitional that it would be at lower prices. The future valuations CAN'T account for this kind of sea change. All sorts of factors will come into play and pricing this will be an art not a science. The purpose of my posting those numbers was not to try and lock in a precise mathematically rigid valuation. That cannot be done. My purpose was to give a basis for my believe that the valuations, based on the amount of metal we are talking about, is more likely to be in the range of several hundred dollars as oppossed to several thousand dollars. Henry