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Sunday, August 14, 2016

What’s a Company’s Gold Worth?



January 31, 2010 by · Leave a Comment 

Louis James & Andrey Dashkov, GoldSeek

At any given time, there’s a single international spot price for an ounce of refined gold. Gold is priced in U.S. dollars: $1,076.50 per ounce as we go to press. But what about the gold an exploration or mining company has in the ground – how do we value that?

Given sufficient data, you can estimate a reasonable net present value (NPV) for a project and deduce what each of the company’s ounces should be worth. To do this, you need to know annual output of the proposed mine, proposed capital expenditures, energy and other costs, and many more things. For most deposits held by the junior companies we tend to follow, there’s just not enough data available.

Another approach is to compare the value the market is giving a company per ounce of gold in hand against the average value the market gives companies with similar ounces.

The most obvious way to define “similar” ounces in the ground is to use the three resource and two mining reserve categories defined by Canada’s National Instrument NI43-101 regulations – the industry standard. We combine these into three broad groups, as we believe the market tends to do as well:

  • Inferred: the lowest-confidence category, based on just enough drilling to outline the mineralization.
  • Measured & Indicated (M&I): these higher-confidence categories have been drilled enough to establish their geometry and continuity reasonably well.
  • Proven & Probable (P&P): These are bankable mining reserves – basically Measure and Indicated resources with established value.

Read more….

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