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Metrics for Comparing Mining Companies -- A Case for Metal Value Leverage
Dennis Boyko, GoldMinerPulse
April 30, 2009 (version 0.2)

P/E Ratios -- Not too useful for comparing mining companies

Traditional stock metrics such as P/E (Price to Earnings ratio) are not very meaningful for gold and silver mininig stocks. Exploration companies such as Orko Silver, Paramount Gold and Silver, and many other mining companies do not have earnings, typically because exploration companies focus almost exclusively on finding new and extending found metal deposits but not converting deposits into mines. For producers, the P/E ratio is at best a poor basis for comparing producers. Consider the following producers/explorers and their P/Es (spot checked on April 27, 2009):

• Goldcorp (GG on NYSE) had a P/E of 13.94.
• Yamana Gold (AUY on NYSE) had a P/E of 13.19.
• Orko Silver (OK on TSX) P/E is NA.
• Paramount Gold and Silver (PZG on AMEX) P/E is NA.

The P/E ratio is without value if you need to compare gold/silver producers and gold/silver explorers. Yet, it is typically the gold/silver producers that buy gold/silver explorers and explorers merge with explorers.

GoldMinerPulse does not track or report P/E ratios since this metric is of limited value for mining companies. Also a surfeit of excellent financial sites providing P/E and like traditional stock metrics already exit. GoldMinerPulse typically provides in context links to Yahoo!Finance (shown as Y), Knobias (shown as K), etc. when displaying a list of mining companies. Click here for more details on the links GoldMinerPulse provides.

Orko Silver, Paramount Gold and Silver, and other explorers use Market Capitalization per Ounce of Silver Equivalent (or Gold Equivalent) for peer group comparisions. For usage examples, please see:

• Slide 15 of 22 in Orko Silver presentation, February 2009.
• Slide 15 of 29 in Paramount Gold and Silver presentation, April 2009.

GoldMinerPulse computes Market Capitalization per Ounce of Gold (and/or Silver) Equivalent in company valuation reports and presents features this metric in gold and silver list views of companies. Click here for more details on the computation. Based on the April 27, 2009 metric updates, the companies listed in the P/E section above showed:

• Goldcorp Market Cap Per Oz of Silver: $2.00 (with 23% of total metal value coming from silver).
• Yamana Gold Market Cap per Oz of Silver: $0.74 (with 4% of total metal value coming from silver).
• Orko Silver Market Cap. per Oz of Silver: $1.38 (with 91% of total metal value coming from silver).
• Paramount Gold and Silver Market Cap. per Oz of Silver: $0.57 (with 48% of total metal value coming from silver).

Click here to view the most recent Market Cap in US$ per oz of Silver for the above companies. If the metric were switched to gold, the list becomes:

• Goldcorp Market Cap Per Oz of Gold: $140.29 (with 54% of total metal value coming from gold).
• Yamana Gold Market Cap per Oz of Gold: $52.34 (with 40% of total metal value coming from gold).
• Orko Silver Market Cap. per Oz of Gold: $96.71 (with 91% of total metal value coming from gold).
• Paramount Gold and Silver Market Cap. per Oz of Gold: $40.30 (with 38% of total metal value coming from gold).

Click here to view the most recent Market Cap in US$ per oz of Gold for the above companies.

The Market Capitalization per Ounce of Silver (or Gold) is an improvement over P/E ratio since it allows for a comparison between explorers who likely don't have earnings and producers.

Metal Value Leverage (MVL) is an alternative metric GoldMinerPulse also computes and presents in Valuation Reports and Gold/Silver list views. The main advantage of the MVL is its that it is independent of the type of metals. Based on the April 27, 2009 metric updates, the companies listed in the P/E section above showed:

• Goldcorp Metal Value Leverage: 6.45.
• Yamana Gold Metal Value Leverage: 17.28.
• Orko Silver Metal Value Leverage: 9.35.
• Paramount Gold and Silver Metal Value Leverage: 22.44.

Click here to view the most recent MVL in a MVL list view GoldMinerPulse in May 2009.

The MVL is computed as the Metal Value per Share (MVpSH) of a company divided by the company's Closing Share Price.

GoldMinerPulse is releasing a MVL list view as an alternative to our original Gold List and Silver List views -- a preview is available here.

We expect to use actual data to further explore the value and predictive nature of the MVL metric. Your comments and suggestions are most welcome.

Comments? Please send them to comments@goldminerpulse.com

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