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Discount rates a whole topic in itself! There is something of a convention around using 10% for simple illustrative models, with the output often referred to just as NPV10. But - as you say @TakingMyTime - when greater sophistication is brought it is usual to see different rates for different phases of projects. I have always found it most helpful just to study the sensitivity of model output to discount rate changes, as @ProfQuatermass outlines for Cannacord. The key point is that there is a time value to cash flows, especially for the long lifecycle projects we see in mining.

There’s a very smart analyst called Charlie Gibson at Edison who has researched and written a couple of seminal research reports on the topic of mining valuations. These reports include discussion on discount rates etc. He/Edison built a model of a mythical mining company “Nonsuch” and examined how it might be valued at different stages in its lifecycle. For those interested:

https://www.edisoninvestmentresearch.com/?ACT=19&ID=19909&dir=sectorreports&field=19
https://www.edisoninvestmentresearch.com/?ACT=19&ID=8916&dir=sectorreports&field=19

Edison also note that NPV doesn’t typically translate into EV without some further form of discount. The later paper contains good discussion on why this is.

Are models like this useful? I think they are, but only to a degree. And only when they incorporate the major variables. For a back-of-an-envelope valuation of a mining project these are the amount of gold to be mined, the costs of extraction, the timeframe and the impact of royalties/taxation. You might add financing costs. Models composed of simple building blocks like this are quick and easy to build, and are helpful in framing the range in which valuations might sit.

Jerryspaniel - disclosed tax losses amount to less than £20m. Using Hydrogen's production profile assumption they will be used up by the profits generated from the first TWO DAYS of production...

For the last time, it's not my model and I haven't put forward my own assumptions.

Investors wishing to use RobbyBobbyLovell's model to inform their view on potential valuations for GGP might wish to consider that taxes will be levied and that the gold won't all be mined on day 1. I have illustrated the impact that correcting these oversights might have.

If you are reacting negatively to the fact that the SP's modelled are lower then no worries. You can continue to assume that no taxes will be paid and that all the gold will be mined on day one.

If you think that a corporation tax rate of 30% and a mine life of 10 years are better assumptions, then I have shown you the impact these assumptions have on the output of RobbyBobbyLovell's model.

I've made my point and set out my reasoning. It really is up to you to decide whether taxes and the time taken to mine the gold will matter or not. I'll leave it there.

FWIW, this is RobbyBobbyLovell's model not mine! He has overlooked a couple of massive points - taxes and the time taken to mine. All I have done is make adjustments for these two items. The output of the model is better (as in more credible) as a result.

Hydrogen - combining your requested profile over 30 years and Bertiesboys figures of $1900 POG and $375 AISC gives an indicated SP of £1.31

10% discount rate may be too high for some - it is truly a matter of personal preference. For illustration:

@7.5% discount rate, SP = £1.72
@5.0% discount rate, SP = £2.35

BertiesBoy. At 15MOz, $1900 POG, $375 AISC the revised model (incorporating taxes at 30% and output spaced evenly over 10 years) suggests an SP of 54p.

The model as posted is materially deficient. It doesn't allow for the fact that taxes will be levied, or that it will take time to mine the gold. I'm not pointing this out because I want to make anything look bad. I am pointing it out because the output of the model is materially misleading.

Do you prefer the incorrect model because it gives a higher SP? There are plenty of posters here who are operating with slightly more sophistication than that...!

As I said, give me your preferred set of assumptions and I'll post the output here.

A note of caution for those looking at this link: https://mobile.twitter.com/Robbiebobby1/status/1413167025644580869

The SP values modelled embed two implicit assumptions:
1. That all the mining is completed on day 1
2. That no corporate taxes are levied on the profits generated (note corporate taxes aren't included in AISC)

In the model presented, the 4.2MOz / $1,000 AISC / $1,800 POG intersection is equated to an SP of 18p

If a mine life of 10 years, a 10% discount rate and corporate taxes at 30% are included, the SP derived would be 8p.

If I've misunderstood the model (and corporate taxes and the time-value of money are somehow included already) then please let me know and I will amend the above accordingly.

If you'd like to see the SP output for different combinations of
-total production
-life of mine
-POG
-AISC
-CT rate
-discount rate

then please let me know and I will post here.

When using AISC to estimate earnings (and/or SP’s by extension) investors shouldn’t forget to allow for the impact of taxes that are not included in AISC, for example corporation taxes.

In accounting terms, earnings (as used in P/E multiples etc) are declared AFTER tax.

In Australia the corporation tax rate is 30%.

To characterise Agnico and Newmont as giving OMI a “free carry” is fundamentally mistaken or misleading. Or both.

It’s anything other than free. OMI will ultimately sede 75% of their interest in exchange for the funding the two majors are providing.

I’m not suggesting it’s a bad deal, just pointing out that it is far from “free”.

Increase in traffic mainly attributable to those looking to exit positions acquired hastily in the last few days I think.

Missing a transient top is less of a worry if your investment timeframe isn't measured in hours...

Bigdownunder - I think that the Brad the former Broker is susceptible to the lure of a deal. The mining world is FULL of characters hawking "ideas", and doing deals is always more exciting than managing your day to day. This one may or may not be worthwhile, but he's 100% played around with the sequencing/timing of the announcement to avoid the presentation. Not a good look.

That said, I don't think it takes much away from the main story here so it won't stop me holding what I have. Comments on timing / late 2022 look right to me. JV partners won't go early on what they can acquire cheaper under the terms of the deal. Mining is a long-term game and the likes of NEM understand this properly.

Thanks for the chart Bonker. I can see the case for the red/blue descending diagonal drawn on the highs, and also for the green/blue ascending on the lows. The solid-red and dotted-red rising diagonals look like they could have been drawn anywhere; what is your logic for putting them where they are?

100% agreed Luckybob23. Not to mention some of the notorious names observable plying their dirty trade on this board yesterday and today…

Slightly different crew from last time when we were treated to a bravura performance by …, well those who were here then will know the names I’ll refrain from shaming.

Thank you Extrader.

Hold on Degsyalmomasksnewnormolumbus, I thought you said said it was just a "cheeky shake" not a 50% retracement....

I don't agree jwoz. It's way too much of a stretch to argue that the apparent discovery of a VMS system turns a company into a multi-metal explorer. It has the welcome potential to substantially reduce AISC for the main project, that's all.

This is an interesting development. It's hard (impossible?) to assess whether or not the prospective JV has intrinsic merit. The cash commitment outlined looks to be supported by the OMI's existing/foreseeable resources, so I think the posts earlier suggesting that a raise would be needed can be disregarded.Could it be that someone on the OMI team has experience/knowledge of the Ariquemes project, so the connection is a personal one? The RNS says only that "The Company has substantial experience of operating in Brazil with several of its board and technical staff having spent many years managing exploration projects and exploration companies across the country."

Without such a connection it is hard to rationalise why a company which states is vision as "Orosur's ambition is to be a premier gold mining company with a diversified South American asset base of high quality gold assets at varying stages in their life cycle" would take on a tin mining JV.

Orosur has benefitted from an appealing simplicity by offering exposure to a well-defined asset with significant development potential, with development costs fully funded by partners with deep pockets.

If the company is now looking to take on new projects - perhaps especially if those projects aren't obviously aligned with its stated vision - then it becomes a different type of investment where investors are essentially backing a management team to source and execute accretive transactions. The investment cases for businesses like this (there are quite a few explorers with diversified portfolios of projects on AIM) are different. I can see the appeal from management's point of view, as they are potentially out of a job if NEM wishes to accelerate, but I'm not so sure that I see it as investor. If I'd wanted exposure to the economics of tin mining, I could have achieved this through other routes.

I don't know whether the proposed Ariquemes transaction will be good for shareholders in OMI or not. It does mark something of a change in the nature of OMI as an investment proposition though.

Not sure the RNS this morning will be well received. The obvious criticisms are that it looks a bit random, will need cash and may be a distraction. We’ll see.