Premier Gold Valuation
| |
 |
By Dennis Boyko
Created on: March 4, 2010
Current version 0.25: April 8, 2010 -- added a chart symbol key.
Metrics have been updated with closing prices available on 2012-Feb-03.
Projected fair market stock price for Premier Gold Mines Ltd. at the close of trading on 2012-Feb-03 was C$5.35. The actual closing stock price was C$5.91.
Since the projected fair market stock price was based on all NI 43-101 resource counts available as of March 5, 2010, and since the estimate was based on optimistic assumptions regarding future capital costs, risk and discount factors, my conclusion is that Premier Gold Mines Ltd. trading is being driven by the expectation of significant future resource updates. Before discussing the market expectations, the assumptions used to generate the expected fair market share price are detailed.
At the close of trading, the current and projected Market Capitalization per ounce of Gold Equivalent for Premier Gold Mines Ltd., were:
current market valuation: US$158.04 per ounce of Au Eq.
projected fair market valuation as a gold producer: US$181.23 per ounce of Au Eq.
Premier Gold Mines Ltd. in situ metal value is 100% from gold. Therefore, the expected fair market valuation for Premier Gold Mines Ltd. should be on the Gold Producer Valuation Line.
The average ore value per tonne was US$239.94.
Projected fair market stock price for Premier Gold Mines Ltd. is derived using the projected fair market valuation at start of production of US$181.23 per ounce of Au Eq (as derived above) and the following assumptions:
Capital Expenditure for mine development: US$100M -- a most optimistic estimate for development costs to bring Hardrock and Rahill-Bonanza deposits into production (Premier Gold's portion).
If higher CapEx expenditures are required, then the fair market stock price would be lowered. Conversely, lower CapEx spending would result in a higher stock price. The CapEx figure to be refined once scoping studies or pre feasibility studies are available.
Risk Premium: 10% applied to the capital expenditure (optimistic),
Discount Factor: 10% -- set to cover a multi year gap between now and a future start of production on the deposit. This is an optimistic value.
The discounting of the future gold metal prices after the start of production are already fully accounted for in the Gold Producer Valuation Line which is derived from current day market prices and company fundamentals.
Gold Mining Stock Valuation Exceptions provides a working check list of valuation factors for determining whether or not the valuation the market is currently assigning to a given company is likely to be an exception.
For Premier Gold, considering just their Rahill-Bonanza deposit, a joint venture with Goldcorp (Goldcorp is the operator) which is less than 2 miles away from Goldcorp's Red Lake mine (9.51M oz of gold in all categories), immediately suggests Land Holdings and Management Team as possible factors behind Premier Gold's elevated valuation given their current resource count and average ore value per tonne.
Hardrock, a second Premier Gold project, has not been fully reported in its current NI 43-101 report. Specifically, quoting from March 4, 2010, Premier Gold Reports Initial NI 43-101 Indicated and Inferred Mineral Resources for Hardrock:
The Kailey Zone discovery, located proximal to the past-producing Little Long Lac Mine some 3 kilometres north of Hardrock, has not been included in the resource estimate outlined below, nor have any of the underground zones currently being delineated by drilling.
Although based on current NI 43-101 reported reserves and resources, Premier Gold appears overvalued, the additional factors around land holdings and joint venture partnership with Goldcorp, suggest that the market is anticipating future gold reserve/resource discoveries as well as a smooth road to future production. Looking at the size of Goldcorp Red Lake mine combined reserves and resources and its proximity to the Rahill-Bonanza deposit, this expectation may well be warranted.
The valuation on Premier Gold in at the end of February reminds me of the valuation of the market had applied to San Gold when San Gold only had a NI 43-101 report on its Rice Lake deposit -- at that time, San Gold's market capitalization per ounce of gold equivalent versus average ore value per tonne was also an outlier appearing well to the right of the Gold Producer Valuation Line. Similarily, prior to the release of the Hardrock NI 43-101, Premier Gold was also an outlier, well to the right of the Gold Producer Valuation Line. Once San Gold reported resources on its 007 Zone and Hinge deposits, its valuation appeared to be too low relative to the Gold Producer Valuation Line -- see San Gold Valuation for more details.
With the Hardrock update, Premier Gold is now to the left of the Gold Producer Valuation Line and is no longer an outlier. However, the current resource counts do not justify Premier Gold's current stock price. Therefore, given the exploration potential of Premier Gold lands and their proximity to established producers, I believe it is reasonable to conclude that the market is trading on the expectation of future resource updates.
Premier Gold web site.
Goldcorp web site.
Message Forums: Agoracom
StockCharts.com for Premier Gold 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.
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, Premier Gold Mines Ltd. has an average ore value per tonne (y axis) of US$239.94 and a Market Capitalization per ounce of Gold Equivalent of US$158.04.
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 Victoria Gold Metal Valuation Report.
The map is centered on the Premier Gold Rahill-Bonanza deposit (Joint Venture with Goldcorp) while the Goldcorp Red Lake mile is located approximately to miles to the east (and slightly north).
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-03.
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 Major Gold Producer Valuation Line is shown to be linear with respect to increasing ore value. From available data, this assumption appears sound for evaluating Premier Gold Mines Ltd..
Although is a joint venture partner in Rahill-Bonanza, Goldcorp does not report any resources from this deposit in its 2009 Resource web page (viewed March 2010) Goldcorp does shown Rahill-Bonanza in Cochenour Exploration (slide 22 of 37) in their BMO CAPITAL MARKETS 2010 GLOBAL METALS & MINING CONFERENCE presentation.
Goldcorp present themselves as holding a "Large, under-explored land position" and as having "large mine development expertise".
I have listed a few links for anyone interested in researching Premier Gold further. If you have a blog or site with like 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.
| Banner ad GoldMinerPulse. |