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Gold/Mining/Energy : Winspear Diaminds (Bulls Board) -- Ignore unavailable to you. Want to Upgrade?

To: Tomato who wrote (375)	2/6/1999 1:36:00 PM
From: teevee	Respond to of 1172

Tomato, Try and use a NPV approach with a senior gold mining company or better yet, a high tech company and see what you get!!! I use 10% of in ground value divided by share capitalization (times % interest in the project) as a "rule of thumb". Many resource juniors have been bought out at these kinds of numbers or higher, may times during the last twenty five years. regards, teevee

To: Tomato who wrote (375)	2/6/1999 2:13:00 PM
From: russet	Respond to of 1172

NPV is a quick and dirty way (full of assumptions that can and will change over time) to evaluate what the cashflows from a mine over 10 years, or whatever, would be worth in todays dollars, with adjustments for interest rates and inflation. The evaluation people in acquiring companies use it, and several other methods to determine a fair price for a mine they want to buy..banks use it to make loans, investors use it to decide when to buy and sell 10 years is a reasonable number because most mines peter out over that time, and the values of the minerals you are mining vary over time ,and you can't see into the future much farther than that, so the numbers that went into calculating it become meaningless past that time period if not before. All methods have problems. As you point out, if you could double production, and not cause the price of the mineral you are mining to drop because you saturate the market with it, and your costs stay the same in percentage terms, and all other variables stay constant, the mines NPV would double. Your assumptions dictate what value you end up with. A few years after a mine starts production, new reserves may be found, or efficiencies in production occur, or the price of the commodity you are mining changes, which changes the NPV so going much more than 10 years, doesn't make much sense to the numbers people. The evaluation of a company, is after all, a numbers game. 10 people running NPVs on the same company with the same information on reserves etc. will get 10 different numbers depending on their assumptions on inflation, interest rates, potential new reserves, potential productions cost changes, commodity prices, blah, blah blah. The ultimate decision to buy is done by a gut feeling, and you just use all this number crap to cover your ass. russett