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By Dennis Boyko
Created on: March 10, 2010
Current version: 2.2.1: November 5, 2010 -- removed comments.
Metrics have been updated with closing prices available on 2012-Feb-07.
Projected fair market stock price for Orko Silver Corp., based on the current NI 43-101 resource disclosures, is C$1.45. The actual closing stock price was C$1.8.
Based on the close of trading on 2012-Feb-07, the current and projected Market Capitalization per ounce of Silver Equivalent for Orko Silver Corp., considering Orko Silver's share of the La Preciosa property, were:
current market valuation: US$3.25 per ounce of Ag Eq.
projected valuation as junior silver producer: US$2.91 per ounce of Ag Eq.
estimated valuation at start of production: US$2.91 per ounce of Ag Eq.
The projected fair market valuation of Orko Silver Corp., in production, is expected to lie somewhere between a point on the Junior Silver Producer Valuation Line and a point on the Major Gold Producer Valuation Line based on the fact that:
the deposit size and the deposit silver grades are well beyond those typically associated with junior silver producers,
the deposit joint venture operator is a major silver producer with an excellent track record of mine development.
the deposit's in ground metal value includes 8.9% from in ground gold.
Projected fair market stock price for Orko Silver Corp. is derived using the estimated valuation at start of production of US$2.91 per ounce of Ag Eq (as derived above) and the following assumptions:
Capital Expenditure to reach production: US$0M -- the Pan American joint venture agreement carries Orko Silver into production,
Risk Premium: 0% -- 0% applied to the estimated capital expenditure,
Discount Factor: 10% -- discount between present and start of production. This value may be somewhat optimisitic since 29% of the in ground metal value is in the Inferred category.
The discounting of the future gold and silver metal prices after the start of production are already fully accounted for in the Junior Silver Producer Valuation Line and the Major Gold Producer Valuation Line which are both derived from current day market prices and company fundamentals.
The supporting model and the calculations used to produce the projected fair market stock price are detailed in Fair Market Price Calculations.
The working assumption in this blog is that Pan American will complete its joint venture agreement and complete the development of La Preciosa. Given the quality of the La Preciosa deposit this is a reasonable assumption.
This estimate does not assign any value to potential resource count increases from the exploratory drilling Pan American is committed to completing. Quoting from the April 14, 2009 Pan American Silver And Orko Silver To Jointly Develop The "La Preciosa" Silver Project:
Pan American has agreed to spend a minimum of US$5.0 million in the first 12 months of the development program to maintain its interest in the Joint Venture, of which a minimum of US$2.5 million will be spent to continue to explore the highly prospective land package that Orko is contributing to the Joint Venture.
The timeframe for Pan American to complete this exploratory drilling is almost complete. Given the past outlooks from Orko Silver geologists, some optimism of future finds are probably not unreasonable. Quoting from the January 07, 2009 Orko Silver Provides 2008 Year End Summary:
The Martha Vein oriented drilling program has extended the mineralization in a SSE
direction, toward the La Preciosa/ Santa Monica Property boundary. The Company's
geologists have noted a drop in the silver values to the southeast, where drilling has
taken place on the periphery of a small Quaternary basaltic volcano. Here Martha vein
thickness remains strong.
A similar depletion in grade is also noted along the southern boundary of a second
basaltic volcano along the northern boundary of Martha drilling. Our technical team now
believes that heat from the emplacement of the northern volcano may have remobilized
and caused the pooling of silver-bearing fluids into large mineralized zones, as seen in
the vicinity of hole BP07-71ext (20m of 460 g/t Ag Eq) and hole BP07-75ext (40m of 260
g/t Ag Eq) as well as a number of other thick intercepts where our best portion of the
current resource estimate lies. A similar scenario may be in place in the southeast in the
vicinity of the second volcano. Orko geologists plan to test this theory in 2009 by drilling
wider spaced holes south and southeast of the southern volcano, toward definition of
richer areas of silver concentration.
[Emphasis added]
The risk factors, as discussed in general terms in Gold Explorer-Producer Valuation Exceptions, appear to be neutral for Orko Silver.
This blog has generated a few negative responses from Orko Silver followers at Stockhouse. For example, A bit misleading really to give a fair market value to an as of yet STILL exploring...well...explorer! is perhaps the best criticism which warrants a closer look.
The obvious response is that junior explorers do trade on the basis of both what is well known about them (i.e. their current NI 43-101 disclosures) and also on the basis of future expectation. Ignoring what is known or ignoring the future expectations would be a mistake. However, the degree to which a given stock is trading on future expectataions is hard to quantity. One strategy to get a handle on the degree to which a stock is trading on future expectation is to first understand what the fair market value is for what is known about existing NI 43-101 disclosures.
My metrics, which are all grounded in fundamental data that can be easily verified by any interested reader, suggests that Orko Silver is currently trading slightly beyond its fair market value based on the NI 43-101 reported resources today. It is therefore reasonable to conclude that Orko Silver current stock price is partially based on the hope or expectation of future resource count increases. The basis for such a hope is quite clear. Pan American is spending at least $2.5M on exploratory drilling by April 2010. Orko Silver geologists had identified interesting future exploration plans. Drill results from 2010 exploratory drilling have yet to be reported.
So, it is reasonable that Orko Silver could trade above its current fair market price estimate. How much future expectation is warranted for a given stock is difficult to guage without the aid of professional geologists and mining engineers with full access to drill results and like data.
Trading on the basis of future expectations is relatively common and is therefore important for individual investors to understand. That is, if an individual investor is aware of the fact that a stock is trading above its current fair market stock price (i.e. partly on the basis of future hopes), then that investor will be better prepared to respond to future news releases when they arrive.
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Reasonable rates and excellent value.
For the chart above, Orko Silver Corp. has an average ore value per tonne (y axis) of US$150.41 and a Market Capitalization per ounce of Silver Equivalent of US$3.25.
The Silver Explorer-Producer Valuation Hypothesis is based on the data driven observation that a company's market capitalization per ounce of silver (or gold) equivalent tends to rise based on the current valuation of the metals contained in an average tonne of ore.
The Silver 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.
Please see Silver Explorer-Producer Valuation for a discussion of the Junior Silver Producer Valuatoin Line. The Major Gold Producer Valuation Line is based on the Gold Producer Valuation Line as derived in the Gold Explorer-Producer Valuation blog.
This blog is based on the stock fundamentals and current metal prices as documented in the MAG Silver Corp Metal Valuation Report.
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.
The Junior Silver Producer Valuation Line and the Major Gold Producer Valaution Line are both shown to be linear with respect to increasing ore value. This assumption appears to be valid given the average ore value involved in this case.
Orko Silver Corp. web site.
Orko Silver 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 (Orko Silver on the TSXV)
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.
I have listed the best of links for anyone interested in researching Orko Silver further. If you have a blog or site with Orko Silver specific pages, please send me the link for review and I will include your work in the link section as appropriate.
Got comments? Questions? Please Talk Back.
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