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I don't think that jurisdiction explains all of the difference. I agree with Phoebus that it is likely that pricing for quality assets has hardened significantly. I still don't think that gets us from 7% to 42% though...

Is it most likely that there is a difference in the classification of the reserves?

For the Continental transaction, the Reuters article said "The Buritica project has measured and indicated gold reserves of 165.47 tonnes and an inferred reserve of 187.24 tonnes". That's 5.3M and 6M oz respectively.

mercedesman, what is the source for 4.3M oz you've quoted. Does it contain some definition/description of the status (measured?) of those reserves?

Thanks. This sort of comparison can be really instructive.

If GGP has market cap of £1bn based on 1.3M oz that's (1bn/1.3Mx1800) or 42.7% of the in-situ value. That's wildly different to the 7% paid by Zijin for Buritica.

On that basis, the implied SP for OMI at different M oz is:

10M oz = £7.50
20M oz = £15
30M oz = £22.50

I assume the 1.3M oz for GGP is materially advanced along the "proving-up" scale than the OMI project. Is this correct? There must be a fundamental reason behind the 7% vs 42%.

Mulletman - the 7% is what Zijin paid Continental for Buritica. It's not my number as such. It is however within the range Edison used to use.

I don't have the knowledge/confidence to propose a (different) figure of my own for the specific circumstances at Anza, but am happy to take input as always.

That's not quite what I am saying. It would be better phrased as:

"If OMI prove up 10M oz, transactional terms similar to those paid by Zijin for Continental's Buritica project would imply a valuation of £1.25 (market cap £235m)"

Edison used to talk about measured in-situ reserves being valued at 4-8% of spot, with grade being a major factor
If we take your $20b, that's £14.6bn of which 25% to OMI = £3.6bn
4-8% is £144m to £288mm
Anza grade is hoped to be high...

So yes, I'm broadly comfortable with the numbers. Mining companies are only ever worth a small percentage of what they own in the ground, because it takes so damn long to dig it out and the price is so volatile.

As always though I am keen to see other viewpoints, or to receive new/better inputs for any calculations I have performed.

Zijin paid US$1bn for Continental who owned Buritica.

https://www.reuters.com/article/us-china-mining-zijin-idUSKBN1Y617H

“The Buritica project has measured and indicated gold reserves of 165.47 tonnes and an inferred reserve of 187.24 tonnes, Zijin said. Zijin expects its gold reserves to exceed 2,000 tonnes after the purchase, with output eventually increasing by about 20%. It expects the Buritica project to generate robust profit and cash flow after becoming operational in 2020.
Buritica, whose high-grade ore and hearty output estimates make it a rare find, is shaping up as a key test for the future of large-scale underground mining in Colombia, whose mostly unexplored mineral riches have miners rubbing their hands.”

1 tonne = 32,150 t oz, so:
Measured and indicated 165.47t = 5.3M oz
Inferred 187.24t = 6M oz
Assuming these two can be simply added together, that’s 11.3M oz.

2019 gold price $1,278 (per Prof1)
Reserves in-situ were worth 11.3M x $1,278 = $14.4bn
For which Zijin paid $1bn, so about 7%

Applying this 7% metric to Anza, with todays $1800 spot price:

1M oz is worth $1.8bn, 25% to OMI = $0.45bn, 7% realisation = $32m = £23m = £0.125p
10M oz = £1.25
20M oz = £2.50
30M oz = £3.75

Very much back-of-an-envelope / E&OE. I don’t have any understanding of the state of Continental’s operations at the time of the deal. It is a massive assumption to assume that the 7% applied in the Zijin transaction might apply here, not least because the Zijin deal was (as far as I can see) an open market transaction. This is unlikely to be the case for OMI.

If you can see something I’ve interpreted or calculated incorrectly, please show me and I will make any necessary amendments.

Take care to ensure that you are comparing like with like when it comes to resources, reserves etc. It’s not straightforward.

rickee - I’ve just corrected Prof1’s oversight. P/E in this case isn’t really relevant as what he sets out is a valuation of reserves. We are not looking at annual earnings, rather the value underground that can be realised over the life of the mine. Prof1 says that Buritica was sold for 15% of reserves (I haven’t checked this). The £2 corrected figure illustrates what is possible if OMI is able to realise a similar % on reserves proven at 10M oz. If it’s 30M oz, then the same calculation gives £6.

I will do some digging on the Buritica deal and any other relevant comps I can find.

I am 100% confident that there is significant upside potential here, if the reserves can be proved up at the levels frequently discussed.

Barmancy - maybe re-read the calculation, which does show 25% of $2bn as $500m. Also to understand that miners don’t trade at the value of their in-situ. Professor1 suggests that Buritica went for 15% of what it had.

Agree 100% danjo. If we can prove up a big number here, we’ll realise a large chunk of value long before anything is mined. That’s very much what I am looking for.

If we can prove up $20M oz, and the 15% quoted from Zijin/Buritica applies, then an an exit in the £2 - £4 range may be achievable.

That is why I have been invested here for while, and am happy to wait whilst work proceeds.

Thank you. That’s roughly how I see it too.

Professor1’s figures are 4x overstated because they don’t include the 75% seded through the JV agreement. That’s a big number to miss....

Corrected gives:

1) Gold price in Jan 2021 = $1,800
2) AISC = $800 (Assumed same as in Continental Gold)
3) Margin = $1,800 less $800 = $1,000 per ounce
4) Profit over life of mine = 2,000,000 oz X $1,000 = $2,000,000,000
5) 25% due to OMI = $500m
5) Outstanding shares = 187,000,000
6) Market value % as per Continental Gold = 15% X Profit of $500m = $75m
7) Therefore Share Price = $75m / 187,000,000 shares = $0.40 per share
8) Share Price pounds = $0.40 / 1.37 = £0.30

IF ASIC = 480 FOR SHALLOW MINING, the changes would be:

3) Margin = $1,320
4) Profit over life = $2,640,000,000
5) 25% to OMI = $660m
6) Market value % (ASSUMED) as per continental gold = 15% x $660m = $99m
7) Share price = $99M / 187M shares = $0.53
8) Share price in pounds = $0.53 / 1.37 = £0.40

So, for 10M oz = £2.00

From the company’s investor presentation, regarding Newmont:

“Three phase earn-in of up to 75% in Anzá by spending a minimum US$30.0 million over 12 years, completing an NI 43-101 feasibility study & making cash payments to Orosur equaling US$4.0 million
• Phase 1, earning 51% interest by spending US$10.0 million over 4 years & making cash payments equaling US$2.0 million during the first 2 years. After Phase 1, Newmont may elect to form a JV
• In Phase 2, earning additional 14% interest by sole-funding US$20.0 million within 4 years, completing an NI 43-101 pre- feasibility study & making cash payments to Orosur equaling a total of US$2.0 million.
• In Phase 3, earning an additional 10% interest by completing an NI 43-101 compliant feasibility study within four years”

Whilst we may have 100% at the moment, we won’t have 100% when any gold is produced. Valuations / expectations should reflect this properly. They will still be very high compared to present SP!

If I have misunderstood then please help me to understand where/how.

Thanks Professor1. Can you show me where you adjust for the 51% / 65% / 75% interest due to Newmont via the JV agreement? OMI shareholders aren’t entitled to 100% of the mine profits as - I think - your calculations imply.

If I have misunderstood, could you clarify please?

This is just a tired old LSE-myth, and should be disregarded. None of the major/reputable UK retail platforms lend investors shares. This is clearly stated in their t&c’s.

To pick a few examples in the hope that this oft-repeated fallacy will go away:

Hargreaves A25: “Investments will not be lent to a third party and we will not borrow money against your investments.”
Halifax 10.10: “ 10.10 We will not lend or deposit by way of collateral any investments in your account to a third party”
Barclays 13.1: “ We will not engage in stock lending for any Asset in your Account.”

There is absolutely no need for anyone to try to set a sell order as is suggested by the OP.

Kieron Harbinson has worked for Omega since 2002. I suspect this is the first time he’s realised material share option gains. From his perspective the share price has risen six-fold in the last year. I think he’s likely earned whatever he has realised. I’m doubt he’s sorry that the timing of announcements wasn’t optimised for you to execute your short-term trading strategy...

Jester - that’s nonsense. I see only employees who’ve been partly paid in share options realising some profit from the six-fold rise in the SP during the last year. I remember - as a young man - waiting to be “allowed” to do the same. I used the money to pay off a mortgage my struggling parents could no longer properly afford, and for a deposit on my first family house. When people have worked hard for a company, they are entitled to realise some of the value that has been delivered.

To suggest it is some form of manipulation is just malicious and unfounded drivel.

You have got to be kidding. The share price is up 6 times in the last twelve months!

This is likely the first time in their lives they have had the opportunity to realise material gains, and doing so is likely the right decision for them and their families. Share options have probably been a considerable component of their compensation for an extended period, and they are fully entitled to realise what they have earned. I wouldn’t criticise them in any way all, or see this as a negative for holders. This is 100% normal for a growing business, and we should just be pleased that the growth in the share price over the last twelve months has created the opportunity for it to occur here.

The ZH article is (although I hate to say it...) interesting. It is a non-trivial matter to change the prospectus of an ETF in the way outlined in the ZH article. This is partly because purchasers prior to the change have effectively bought something different. It’s a little like buying an iPhone 12, and Apple then turning it into an iPhone 11 a few days later. Fraught with risk for the issuer, who must have made the judgement that the risk of NOT changing it was greater. The main effect of the change is that SLV won’t create new shares if it is not confident that it can acquire the assets required to back them. Frankly I’m amazed that provision wasn’t in there from the very beginning.

The article is very much couched from the popular perspective that SLV could trigger a short-squeeze, but the reverse is also true. The “doomsday” risk for an ETF is (somewhat simplistically) that everyone wants out, and the fund doesn’t have the assets to pay them. If the market formed a view that this was possible, then the ensuing rush for the exit could place significant DOWNWARD pressure on the price of physical.

I see the situation as more complex than many commentators suggest. Someone may get hurt here by a price dislocation. It is not a foregone conclusion that such a dislocation would be positive for the underlying, at least in the short term. If you’re involved, buckle up.

mEM - are your figures just for OMI’s retained interest, ie after attributing 51% / 65% / 75% to Newmont as appropriate per the JV agreement?

https://www.gov.uk/guidance/testing-on-day-2-and-day-8-for-international-arrivals

Is there something (anything?) that links this document to ODX?

My guess is that English isn’t his first language; that’s fine with me.

The consistent assertion of ill-informed drivel, less so.