Gold miner calculations31 Mar 2025 17:03
From Steve Todoruk of Sprott analysts :
On calculation for goldies :
‘Dear Clients.
As you know, gold is currently trading just under $3100 per ounce.
A lot of us still think the gold mining stocks are trading below where they should be to reflect the current high gold price but at least we can take some solace that at least the share prices have moved nicely higher from where they were one year ago.
What will the catalyst(s) be that should move share prices higher in general?
The gold mining companies share price is usually determined by calculating their ounces of gold in reserves (usually meaning tighter/closer drill spacing) and resources (usually meaning drill hole spacing is wider spaced giving less geologic confidence). To do this, among other things, the companies choose a gold price that is lower than the current price to which they multiply the number of ounces of gold in reserves and use a somewhat higher gold price (but, again, still lower than the current price) for lesser defined resources.
The companies apply a host of economic inputs parameters to calculate how many ounces of gold they expect to produce and at what cost so the amount of profit can be estimated and reported to shareholders. At the same time, mining analysts that cover these miners are trying to get the same data from the companies and make their own assumptions to issue their own reports before the miners actually report their financial data.
What the analysts are trying to predict ahead of time is whether companies will be on target to produce what they tell us and from this work, they set target share prices.
We, as investors, rely on this analyst work coverage and reliable mining company disclosure to make investment decisions.
Now this is where it gets interesting. Gold prices have gone up so much in the last 12 months that a peculiar situation is happening.
Most mining analysts are currently using a 3 year trailing average for the price of gold which is about $2300 per ounce.
Newmont is the world’s largest gold miner producing about 6,000,000 ounces of gold a year. For their reserves published on December 31, 2024, they used a gold price of $1700 and $2000 for ounces classified under resources.
The current gold price is just under $3100 an ounce and every day that gold stays at this high gold price, that 3 year trailing average gold price is moving a little bit higher.
If analysts simply used more realistic, but still conservative gold prices, their target prices would be significantly higher potentially prompting market buying and possibly better share prices.
I understand why the big miners like Newmont want to be super conservative but I don't believe they are doing their shareholders any favors by using such a low gold price.
In my view, seeing the mining analysts and miners use higher gold prices could be a very positive catalyst for the share prices of all the gold miners’
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