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By Dennis Boyko
Created on: March 11, 2010
Current version 0.2: April 8, 2010 -- added a chart symbol key.
Metrics have been updated with closing prices available on 2012-Feb-07.
Projected fair market stock price for at the close of trading on 2012-Feb-07 was C$0.00. The actual closing stock price was C$.
This estimate is based on very optimistic cost estimates to bring the White Gold deposit into production. It would appear that the Kinross take over offer is fair (i.e. offers a premium over an estimated current fair market price project) based on what has already been disclosed on the White Gold property.
Unless Kinross is aware of other unexplored potential with UnderWorld Resources properties, this take over, given the apparent premium Kinross is offering, is good news for junior gold and silver explorers.
At the close of trading, the current and projected Market Capitalization per ounce of Gold Equivalent for , were:
current market valuation: US$0.00 per ounce of Au Eq.
projected fair market valuation as a gold producer: US$96.67 per ounce of Au Eq.
in situ metal value is % from gold. Therefore, the expected fair market valuation for should be on the Gold Producer Valuation Line.
The average ore value per tonne was US$. You can use the ore value per tonne with the current market valuation number of US$0.00 per ounce of Au Eq., to place on the Gold Explorer-Producer Valuation chart. After the Kinross bid, clearly falls in the Explorer-Producer Gap.
The projected fair market stock price for is derived using the projected fair market valuation at start of production of US$96.67 per ounce of Au Eq (as derived above) and the following assumptions:
Capital Expenditure for mine development: US$225M -- a very rough lower bound estimate of the capital costs required to bring the Golden Saddle area and Arc area of the White Gold deposit into production. Given the remote location, I believe the actual development costs would likely be much higher.
If higher CapEx expenditures are required 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 for Eagle Gold, Big Springs and Tassawini.
Risk Premium: 15% applied to the capital expenditure. This is an optimistic value.
Discount Factor: 15% -- set to cover a multi year gap between now and a future start of production on the deposit. Again, an optimistic value is assumed.
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.
The supporting model and the calculations used to produce the projected fair market stock price are detailed in Fair Market Price Calculations.
The discounting applied to is consistent with the discounting the current market applies to the producers Kinross Gold and Agnico-Eagle. This is conservative since only holds gold while the reference producers derive approximately 90% of their in ground metal value from gold.
This blog does not assign any value to potential for future discoveries and does not assign any value to the other properties.
The market proven valuation of illustrates the extent to which the fair market value of other gold explorers and gold developers is currently undervalued relative to the valuation the market has assigned to Gold Producers such as Kinross and Agnico-Eagle. Underworld Resources clearly falls in the Explorer-Producer Gap providing a solid data point proving the Explorer-Producer Gap is currently too wide.
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, has an average ore value per tonne (y axis) of US$ and a Market Capitalization per ounce of Gold Equivalent of US$0.00.
Each company on the above chart is represented by its TSX trading symbol. The lower left hand corner of each box on the chart marks the company's Average Ore Value per tonne versus Market Capitalization per ounce of Gold Equivalent.
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 Underworld Resources Metal Valuation Report.
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.
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 .
Underworld Resources web site.
Kinross announces proposed acquisition of Underworld Resources Offer represents a premium of 36%, March 11, 2010 News Release.
Underworld Resources 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
StockHouse for an active Underworld Resources discussion forum.
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 further. If you have a blog or site with 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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