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By Dennis Boyko
Current version 3.0 : February 7, 2012 -- updated to reflect in anticipation that the start of gold production has been 100% financed with the February 6, 2012
bought deal financing.
Metrics have been updated with closing prices available on 2012-May-17.
The projected fair market stock price for Rubicon Minerals Corporation, based on the current NI 43-101 Resource and Exploration Potential disclosures for the F2 Gold system, is broken down into the following scenarios and timeframes:
Full Production 2013/2014: C$7.17. With the announced February, 2012 financing, this blog anticipates that Rubicon will take the F2 Gold system into production in the 2013/2014 timeframes (timeframes are my estimates).
Acquisition Tomorrow Scenario: C$3.61 to C$4.79. Since the actual closing stock price was C$2.82 the estimated best-case price in the event of an acquisition tomorrow is at an 70% premium over the last close. A more typical price would be C$3.61. Given the size and quality of Rubicon's F2 Gold system, the probability of such a take over offer in the range C$3.61 to C$4.79 tomorrow is small but not insignificant. In the course of weeks and months the cummulative probability of a take over attempt becomes significant in my opinion as the F2 deposit is in the top 50 gold deposits in the world in terms of grade and size (Rubicon June 29, 2011 presentation). The cash on hand is implicitly accounted for in the price premium assumed.
This valuation blog has not assigned any value for the other substantial Red Lake land holdings Rubicon owns (40% of the Red Lake mining camp) Nor has a value been assigned to Rubicon's Nevada/Alaska properties. The Neveda property was recently joint ventured with an aggressive exploration schedule (see June 27, 2011 news release.
The fair market stock price estimate in this blog changes daily with the closing market prices. The estimate assumptions may be revised as further information is available from the company regarding likely scenarios for financing mine development.
At the close of trading on 2012-May-17 and based on NI 43-101 reports available November 29, 2010, current and projected Market Capitalization per ounce of Gold Equivalent for Rubicon Minerals Corporation, were:
current market valuation: US$293.27 per ounce of Au Eq.
projected fair market valuation as a gold producer: US$496.98 per ounce of Au Eq.
For a high grade ore deposit such as F2, the projected Market Capitalization per Ounce of Gold Equivalent as a producer is estimated using the following:
Agnico-Eagle's (AEM) position in a chart of Average Ore Value Per Tonne versus the Market Capitalization per Ounce of Gold Equivalent at the closing market prices each day,
Adjustments for average ore value per tonne on a two for one basis. That is, a US$400 increase in the average ore value per tonne is assumed to result in a US$200 increase in the Market Capitalization per Ounce of Gold Equivalent. This seems a reasonable if conservative model considering following:
AEM mining operations are mostly in politically stable countries similar to Red Lake (Canada). Osisko, located in mining-friendly Quebec (again, Canada), is widely followed and is a fully-financed, emerging producer. An earlier version of the Gold Producer Valuation Line suggested that Osisko was significantly overvalued, a result which, based on the market prices over the past year, does not appear to be the case.
AEM gets approximately 95% of its in situ ore value per tonne from gold and silver while Rubicon is 100% gold. Therefore a case could be made to position the Gold Producer Valuation Line slightly to the right of AEM. (This, however, is not done),
Primary costs in mining are those incurred for extracting and processing tonnes of ore. However, remember that extraction and processing costs are largely independent of the gold content of the ore, so a projected increased value of 50% after a 100% increase in gold content is not extravagant.
Following this logic, the Gold Producer Valuation Line (High Grade Version), shown in the chart on the left, is drawn through AEM's position with a positive slope of 2 (i.e., a US$200 increase (or decrease) in the average ore value per tonne should translate into a US$100 increase (or decrease) in the market capitalization per ounce of gold equivalent, assuming other factors are equivalent).
Note: Although the Gold Producer Valuation Line (High Grade Version) is shown as a linear line, it should be clear that this linear relationship will breakdown as the ore value per tonne approaches the spot market price of gold. That is, an ounce of gold equivalent in normal conditions will never be worth more than the spot market price of gold. I believe that Rubicon's average ore value is on the edge of the linear range of the Gold Producer Valuation Line and as such additional corrections are not required.
Note 2: Estimates based on Agnico-Eagle are, as of February, 2012, extremely pessimistic. The market sell-off of over 40% of Agnico-Eagle after the company announced the halt in production at Goldex in Q4, 2011 and subsequently moved 7% of its reserves back to the resource category. My interpretation of the Agnico-Eagle Goldex event is that the current market is valuing reserves and production at a premium over resources. That is, the Goldex event in 2011 did NOT change Agnico's resource count yet the market discounted the stock by an estimated 40%. Therefore I conclude that the market in early 2012 clearly values reserves and production over the potential of resources. In my opinion this is ultimately this bodes very well for Rubicon share price evaluation as the company starts pouring gold.
The projected fair market stock price for Rubicon Minerals Corporation in full production (Full Production Scenario) is derived from the application of the projected fair market valuation at start of production of US$496.98 per ounce of Au Eq (as presented above) and the following estimates (see actual formulas in the right hand column):
Capital Expenditure for mine development: The February, 2012 financing is assumed to cover 100% of the capex needs to start mine production.
Risk Premium: 10% applied to the capex figure (no longer applicable since financing has been completed).
Exploration Potential Factor: 150%: A special factor applied to the Inferred ounces of gold to account for the Exploration Potential (see company's November 29, 2010 news release) and the basic nature of Red Lake type deposits where the reserves/resources consistently understate actual future production. In this blog, the total ounces of gold to be produced is estimated to be 4.2M oz. Based on the Exploration Potential, the well established track record of Red Lake and similar deposits, this seems a fair and reasonable assumption.
Gold Key:
AEM
| AND
| AUQ
| G
| K
| RIO
| 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, Rubicon Minerals Corporation has an average ore value per tonne (y axis) of US$835.61 and a Market Capitalization per ounce of Gold Equivalent of US$293.27.
Please see Fair Market Price Calculations which explains to investors how to apply average ore value per tonne to determine a fair market capitalization per ounce of gold equivalent. However, Rubicon has several unique features, which require special consideration. First, there are significant differences between Rubicon's F2 Gold system and those of a typical gold mining explorer/developer, and GoldMinerPulse, in response to various private valuation contracts on other companies, has recently updated its valuation strategy. What follows are the specific formulas used to complete fair market prices for Rubicon:
Full Production Stock Price Estimate = {
{
{ Projected Market Capitalization per ounce of Gold Equivalent
× Number of Gold Equivalent Ounces
× Exploration Potential Factor
}
- Capital Expenditure
- {Capital Expenditure × Risk Premium }
}
÷ Current Fully Diluted Share Count
}
Note: This formula assumes the most efficient funding of the Capital Expenditure. If the funding of the CapEx were done by a private placement at say $4.00 per share, then the additional factor would need to be added to account for dilution. This assumption will be adjusted as more information is available from Rubicon regarding their development financing plans.
Acquisition Tomorrow Stock Price Estimate = {
Stock Price at Last Close
× (1 + Offer Premium)
}
See Discussion below for examples of gold company acquisition offer premiums in 2010.
Rubicon Minerals web site.
Rubicon Minerals 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
Rubicon discussion forum: Yahoo Members Only Yahoo Discussion Group
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 tried to include the best of these in an effort to assist investors researching the company further. Visitors with a Rubicon Minerals Corporation blog or a Web site with a page or two devoted to Rubicon Minerals Corporation who wish to be included at GoldMinerPulse should submit links and identifying information to Dennis Boyko for consideration.
Each GoldMinerPulse blog is intended to illustrate how the per company metrics we collect might be used by investors to determine the value of individual gold and silver mining stocks. This blog should not be viewed as investment advice. Rather, visitors are advised to study and to test the GoldMinerPulse metrics for themselves as well as the underlying assumptions on which they are based. Any questions or comments may be directed to Dennis Boyko. All queries receive a reply, usually the same day, depending on traffic.
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