Estimating Crocodile Gold Fair Market Valuation
By Dennis Boyko
Created on: June 15, 2010
Current version 0.41 : June 16, 2010 -- initial release version
Metrics have been updated with closing prices available on 2012-Feb-07.
Fair Market Valuation Summary - 2012-Feb-07
Projected fair market stock price for Crocodile Gold Corp., based on the Crocodile Gold Mineral Resource Statement -- January 25, 2010 and estimated capital expenditures required to bring all of the listed deposits into production is C$1.28. The actual closing stock price was C$0.57.
Details
At the close of trading on and based on NI 43-101 reports available in June 2010, the current and projected Market Capitalization per ounce of Gold Equivalent for Crocodile Gold Corp., were:
current market valuation: US$34.86 per ounce of Au Eq.
projected fair market valuation as a gold producer: US$132.44 per ounce of Au Eq.
Crocodile Gold Corp. in situ metal value is 93.9% from gold and 3.2% from silver. Crocodile Gold Corp. is being valued at 100% of the Gold Producer Valuation Line. This valuation is reasonable since Kinross and Agnico-Eagle, two of the gold miners used to produced the Gold Producer Valuation line, have similar gold/silver/other metal profiles. Specifically, Kinross gets 93.1% of its in situ metal value from gold and 2.6% from silver while Agnico-Eagle gets 88.9% of its in situ metal value from gold and 7.8% from silver.
The average ore value per tonne for Crocodile Gold Corp. was US$103.25.
Projected fair market stock price for Crocodile Gold Corp. is derived using the projected fair market valuation at start of production of US$132.44 per ounce of Au Eq (as derived above) and the following assumptions:
Capital Expenditure for mine development: US$200M -- a very rough estimate of the potential budget required to bring the current set of deposits into production.
Risk Premium: 10% applied to the capital expenditure.
Discount Factor: 20% -- set to account for the possible lose of in situ metal from mine design, metalurgical recoveries and like factors.
The discounting of the future gold metal prices after the start of production is already fully accounted for in the Gold Producer Valuation Line which is derived from current day market prices and company fundamentals from a number of established gold producers.
Discussion
The supporting model and the calculations used to produce the projected fair market stock price are detailed in Fair Market Price Calculations.
The number of deposits in each project, and the size of the overall land holdings strongly suggests the possibility of Crocodile Gold Corp. identifying more interesting deposits in future. This blog does not assume any factor for the organic growth at the companies current projects and as such is probably so what pessimistic in its valuation of the company's fair market stock price.
The estimate for the capital expenditures required to bring all of the current deposits (27 deposits in total with 3 in production as of June 2010 and with additional mines expected to start Q3/10 to mid-2011) into production is very much a rough guess at this time. These assumption will be replaced with better expenditures figures are these estimates are developed and released by the company. However, readers should note that a quick spot check on June 15th showed that cutting the projected expenditures in half resulted in a roughly 10% increase in the projected fair market stock price. That is, the value of this company's projects are expected to be economically robust.
In this valuation, capital expenditure is used in a very broad sense and includes all aspects of pre-production activities required to bring the remaining deposits into full production, including land payments, permitting related activities, road contruction, site preparation, shaft and pit construction as well as addition to equipment and plant capacity. In short, capital expenditures here assume all costs required to bring deposits into production.
The timing of actual development of the remaining deposits is not assumed. Rather it is implicitly assumed that the deposits within a given project will be developed in a cost effective manner by the company with some parallel and some sequential development. As such the spending profile of the capital expenditures is very likely spread over many years. However, since this valuation blog values all the in situ metals against the Gold Producer Valuation line, the downstream costs of getting to production on these deposits needs to be allocated a cost. Otherwise, the deposit and its in situ metals would have been excluded from the valuation calculations.
The capital expenditure estimates do how ever assume that the incremental costs to bring the 2nd, 3rd, 4th, etc. deposit in a project online will be decreasing since some project infrastructure will be shared across deposits. For example, project mill capacity is expected to cover most or all of the project deposits perhaps with occasional capacity upgrades. Ore hauling equipment move from deposit to deposit, perhaps with periodic increases to capacity.
The following chart, taken from a June 2010 Crocodile Gold presentation provides an excellent overview of the company's projects and mill location.
Gold Explorer-Producer Valuation
Gold Key:
AEM
| AND
| AUQ
| G
| K
| RIO
| TVI
| YRI
Place mouse over each key symbol to read graph values.
If the key symbol is shown in bold, click to view the GoldMinerPulse valuation blog
for that company.
For the chart above, Crocodile Gold Corp. has an average ore value per tonne (y axis) of US$103.25 and a Market Capitalization per ounce of Gold Equivalent of US$34.86.
The Gold Explorer-Producer Valuation Hypothesis is based on the data driven observation that a company's market capitalization per ounce of gold equivalent tends to rise based on the current valuation of the metals contained in an average tonne of ore. For developer/explorers, it is also assumed that the true Explorer-Producer Gap should be large enough (but no larger) to cover the expected future capital expenditures, risk premiums and time discounts.
The original motivation for the Gold Explorer-Producer Valuation Chart was developed in Junior Gold Explorer Valuation Observations. Application steps and the generic factors that need to be considered in applying this valuation method are further described in Gold Explorer-Producer Valuation Exceptions.
This blog is based on the stock fundamentals and current metal prices as documented in the Crocodile Gold Corp. Metal Valuation Report.
Updates
The Gold Explorer-Producer Valuation chart is updated after the close of trading using closing stock prices, closing spot market metal prices, fully diluted share counts, and NI 43-101 resource and reserve disclosures.
Last update was for the market close on 2012-Feb-07.
Caution
This GoldMinerPulse blog is presented for the sole purpose of illustrating how GoldMinerPulse per company metrics may be useful in judging valuation of individual gold and silver mining stocks. This blog should not be considered as investment advise. Anyone using this blog should become familar with the GoldMinerPulse metrics and the underlying assumptions to access their usefulness.
Limitations
The Gold Producer Valuation Line is shown to be linear with respect to increasing ore value.
Crocodile Gold Corp., with an average ore value of US$103.25 per tonne, is believed to be within the upper edge of the linear range of the Gold Producer Valuation Line.
Research Links
Crocodile Gold Corp. web site.
Crocodile Gold Corp. NI 43-101 Metal Valuation Report for the company metrics derived using the last close of trading data.
Canadian Insiders for insider trades on the TSX
StockCharts.com for price charts.
Sedar for all TSX regulator filings. Sorry but you'll have to navigate the Sedar site as they do not allow direct links to company specific lists of document filings.
About Links
I have listed the best of links for anyone interested in researching Crocodile Gold Corp. further. If you have a blog or site with Crocodile Gold Corp. specific pages, please send me the link for review and I will include your work in the link section as appropriate.
Comments?
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