George Frangeskides, Exec-Chair at Alba Mineral Resources, discusses grades at the Clogau Gold Mine. Watch the full video here.
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I totally agree Mr T The market is very unforgiving about under delivering against previous targets , especially where they think there has been dishonesty or incompetence involved.
Everything that I have read about the new CEO although admittedly little suggests that he brings with him a good reputation and also lots of goodwill.
I don't think the market has given him credit for that yet, but hopefully in time it will
Hi Candid,
I'm not disputing the valuations of other companies or your statement that Centamin seems undervalued.
The reason for this is loss of market confidence due to senior management being less than honest in the past about operations at Sukari.
The new CEO Martin Horgan sees restoration of market confidence as a priority!
Gnome, they’re very informative posts especially the comparison of the miners premiums.
I’m heavily into CEY at the moment and am very confident that in a few years time all the mishaps will be behind us.
I have been reading this board for years and we’re lucky to have some very well versed people that know their stuff on mining.
Keep up the good work.
Where’s DASUT not seen him post for a while.?
There is a case in point unwinding in Australia , where an old mine, valued at A$290m, is coming to life again with new owners, new insights of geology etc in a company called 29Metals which now enjoys a Market Cap of A$1.14billion
When EMR (buyers, who then vended it into 29Metals) secured this asset some four years ago it had a mine life of only 3 years, it only had about 3 million tonnes in reserves.
Today it’s got a 10 year mine life, it’s got 13Mt in reserves, it’s got a copper equivalent grade of over 4% because we produce copper, zinc, lead, gold and silver there, and a copper grade of over 4% is just outstanding.
With these systems and it’s a VMS system, they just keep on giving. Golden Grove has been going for over 30 years and whilst we’ve got a 10 year mine life now it’s almost certainly going to go for a lot longer than that.
Peter Albert filled a gap for investors earlier this year when he led a collection of privately held copper assets onto the ASX under the banner of 29Metals, and, based on drilling results from last week, the company is fast filling another important gap.
The 29Metals team drilled six holes into a section of earth positioned between three pods of known resource at the company’s flagship Golden Grove mine in Western Australia.
While it is early days, the mineralisation found in those “Cervantes” holes has raised hopes that the geological system at Golden Grove is larger, richer and more connected than was previously understood.
So who got the value right? Who got the value wrong?
The value of CEY, which is producing, profitably, which has money in the bank, and will expand its ore reserves and ore resources ... etc .... is very undervalued, but do your own calculations and research
best
the Gnome
A measure which I like to use to decide whether or not I feel the market is under or overvaluing the share is to identify what premium, in terms of share price, is the market putting on the net book value of the company's assets .
The results were striking.
I looked at the 3 big players , Glencore, BHP and Rio Tinto, one medium sized which was Polymetal and 3 smaller companies of Centamin , Ferrexpo and Hoschild.
These are the results of the premiums that the market is making of the net assets of these companies .
1. BHP....137 %
2. Rio Tinto ..107 %
3. Glencore...74 %
4. Polymetal ...331 yes 331%
5. Ferrexpo ...73 %
6. Hoschild ..27 %
7. Centamin ?????
The premium that the market is paying on Centamins net assets is just 8 %. That is a staggering statistic demonstrating just how unloved Centamin is ...and I thought I had no friends. ..just think about poor Centamin !
Joking apart ..that is why I have invested in them .
At the current market price a billionaire could buy the company , and then find £215 million of cash in the bank !! Yes I think it's a bargain whichever way you look at it
This is NOT investment advice DYOR there are lots of other methods being used as you can see from other postings
A key warning to be aware of though is that I am assuming all other things are remaining equal. We only know what the company has told us. . . What worries me on that score , and I am a worrier where my wealth is concerned, is that so far we have only had one piece of bad news which was regarding the reduced production levels , the adage goes that bad news comes in threes , so if that is true , what is next ? A collapsing gold price perhaps .. I try not to think about that.
Sorry I didn't finish my post it got cut off :
3. Enterprise Value = Market Value plus overdrafts or in Centamins case minus cash = £1.04bn - £215m in cash = £825 million (£0.72 per share )
Of course in reality a company is only worth what somebody will pay for it and the last time that this was tested was with Endeavour Mining bid of $1.9bn or £1.4bn or £1 .25 per share in Dec 2019, which was a 13% premium on the previous day's share price ..
Endeavour withdrew their bid because of amongst other things a 'lack of information' from the company surrounding the medium term outlook for the company .
The practical and relevant question to ask now though is where does the current share price of 90 pence stand in terms of fair value. .
Again lots of different ways of assessing this , the most credible ones being those acknowledging the cyclical nature of mining earnings .
I like to see if the share is under or over valued using Schillings Cape formula which is to calculate PE ratio using the 5 or ideally 10 year rolling average EPS and marching it against the current share price
Using this formula, Centamin has a PE ratio of about 11..which is low .. in fact the PE ratio of Centamin for the past 5 years has ranged from 9 to 25 with an average of 18.
Likewise EPS has been in the range of 6 and 19 cents ( 4 to 14 pence with an average of 8 pence ..
So if you multiply the average 8 pence per share by the average PE ratio of 18 you get approx £1.45.
What this means is that based on the previous 5 years results £1.45 would be an equilibrium price to pay for the share That doesn't mean it's worth that now , but with an estimated EPS of 10 cents this year (7.25 pence) you might expect a share price of around £1.30, hence me waiting for around £1.35 to exit
The question remains why is the share price so low then and I can't come up with any better explanation than the reluctance of the market to forgive the company for the disappointment of the reduced levels of production
I will write another post highlighting another metric which suggests the level to which the current share price is undervalued ..
During my long career I came across numerous different ways of valuing a company. The main ones , and the corresponding value for Centamin were
1. Net asset value on Balance sheet ..i.e. it's book value , which for Centamin would be £965m (£0.85 per share )
2. It's Market Value ..which for Centamin is £1.04bn or £0.9 per share
The enterprise value of Centamin with all its dollars in the bank, resources priced at $40 an ounce (inferred priced at zero), Reserves after depletion for 2021 at $150$ an ounce as its a fully functional mine equates to just over 89p. Of course the long term free cash flow per ounce Gold price minus AISC is well over $150 after all taxes and profit share. A functional mining operation should be trading greater than in the ground price and what it has as cash in the bank. The FCF model minus decommissioning costs should value Centamin at around 121p at $1800 gold price. The company will update Sukari reserves and resources in Q4 and hopefully this will replace ore mined out over the past two year and increase the in ground enterprise value and the FCF minus decommissions model. A much higher gold price in future does give a higher CEY value. A question for the company for somebody to raise is what gold price does the company regard as economic to mine. It was $1300 per ounce years ago and they could to add to others they are compiling. Tony
Someone asked about valuing a Mining Company....what a subject!, many a good person has been embarassed at doing this. Have a look at the plethora of disasterous acquisitions...Some do it very well
But simply I see it as having a rational component and an emotional/irrational exuberance component.
The RATIONAL side is relatively simple, and here are few linkages.
https://corporatefinanceinstitute.com/resources/knowledge/valuation/mining-asset-valuation-techniques/
https://microcap.co/how-to-value-a-mining-company-part-i-gold/
IN short you calculate all of the future cash flows bought forward by assume a future interest rate(!?), and we have some more interesting assumptions for long life mines like, foreign exchange, metal price, tax stability, costs (etc), but you can load them all into a well structured spreadsheet, and get some degree of comfort?
The IRRATIONAL part, is that value due to exploration success, and market exuberance/emotions. This is where there are wide variations, very poor constraints and lots of emotions, bravado and stupiditiy mixed with incompetence.
Rio buying ALCAN for $38b
Barricks (Gold) takeover of Equinox (Copper) for $8b ?!
Kinross Gold $7b acquistion of Red Back Minng (bought 2010, almost 100% written down 2014!)
and so on, the cupboard is well stocked...
1. Exploration success is a function of
a. endowment of the earth.
b. being able to find the commercial parts of the mineral endowment quickly. This depends on the type of orebody (for example if it is magnetic, then you can use magnetic surveys, and these are fast, cheap, easy to do) and you can get very fast results. An example of this would be Iron Oxide Gold Deposits, like Olympic Dam, in South Australia. Because these deposits have a distinct magnetic and gravity signature, the mining company found 12 deposits in 3 years within 26,000 km2. It also depends on the type of technology, and the ability of the exploration management and team to deploy the exploration technology correctly (right tool in wrong hands syndrome)
Then we have the madness and emotion buried in the market place, the dodgy shorters, the longers, the lemmings and the maddening surge of masses of exuberant rumours, inuendo and exagerated market response to surprise news (good or bad, and maybe some can remember the poseidon nickel boom in Australia...If you cant, here is a quick look
https://en.wikipedia.org/wiki/Poseidon_bubble
Then you also have the "players" like Robert Friedland, and its worth revisiting the Voisey Bay sale, Basically sold for $4.3b without any mine financed and built. ... back in the days when a dollar was worth a lot more than now!!!! (1995 - need $1.80 now to purchse same $1 value)
https://www.visualcapitalist.com/the-story-of-voiseys-bay-the-discovery-1-of-3/?utm_source=Visual+Capitalist+Infographics
prob does not help?
the gnome
https://corporatefinanceinstitute.com/resources/knowledge/valuation/mining-