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Methodology

 

Comparative Valuation

The charts, tables and comments presented in this website are intended for comparative valuation purposes.

For gold (and silver) companies which are already listed, the company value is already set by the market. Figures, tables and charts, such as those presented by GoldVal.com, enable the comparative analysis of gold and silver companies relative to the global gold industry or to a specific sector or peer group.

For an unlisted gold venture, or for an existing listed gold company with growth ambitions, comparative analysis may be a useful aid to valuation – if used correctly (see Use of Statistics below).

Gold company valuation requires comparison with the Market Value of a relevant set of listed gold mining, gold development or gold exploration companies.

 

Inputs

The figures presented in this site are all derived from publicly available information – in the form of gold (or silver) mining, development or exploration company reports and web sites, as well as data provided by the various stock exchanges or other public domain sources. Basic inputs such as share capital, net cash/(debt), gold production, gold production costs, gold reserves and gold resources are taken from reports released by the mining companies. Share prices (which are updated regularly - but not daily) are obtained and used to compute factors which include Market Capitalisation and Enterprise Value and to express these measures relative to various parameters such as annual gold production, gold reserves and gold resources, production costs and profits. (See Definitions page)

 

Figures and Graphs Presented

The most significant measure of value of a listed gold (or silver) company is the value that the market places on that company. There is, however, a high degree of variation in the Market Value of gold companies. GoldVal.com analyses the market value of companies using various different measures and it is clearly evident that there is no single measure by which the value of a gold company can be reasonably determined (other than its actual market value if it is already listed).

Figures and graphs presented in this site or in the GoldVal.com Gold Company Company Review may include the following – for Market Capitalisation (“MC”) and Enterprise Value (“EV”) for different groupings of gold mining companies (see Analysis & Valuation  section ): 

  • MC  and EV ($m)
  • Annual Gold Production (ounces)
  • Gold Reserves (ounces)
  • Gold Resources (ounces)
  • MC or EV per Annual Gold Ounce ($ per Oz)
  • MC or EV per Reserve Ounce ($ per Oz)
  • MC or EV per Resource Ounce ($ per Oz)
  • Gold Reserve Life (years)
  • Gold Resource Life (years)
  • MC or EV compared with Costs ($ per Oz)
  • MC or EV compared with Profit ($ per Oz)
  • EV compared with Estimated Operating Profit at specific gold prices (ratio)
  • EV compared to Gold Reserve Value (ratio)
  • EV compared to Gold Resource Value (ratio)

For explanation of the various terms used here see the Definitions section.

 

Ranking of Companies

For any group of listed gold companies, even among the Senior Gold Producers, it is evident that by using the different measures of comparison (as indicated above), the rankings of gold companies may vary significantly. This will often be quite logical and understandable – but it may still be worth considering the explanation for such differences and to assess whether the measurement is relevant or possibly misleading. For example, a comparison of the Market Value of gold mining companies expressed as an average value per ounce of gold resource shows that the South African gold companies generally have lower value than the global peer group - and especially the North American companies. This measure is quite crude and its use for valuation purposes can be overly simplistic - although it is often attempted. Nevertheless, the rating for the South African companies is probably related to the greater depth and perceived (or real) higher risk associated with those resources and the perceived (or real) lower probability of these resources being turned to account in the foreseeable future.

 

Use of Statistics for Valuation

It may be expected that similar trends and measures of value that are evident in existing listed companies could be applied to currently unlisted gold ventures. This might also be expected to provide a target value for a currently listed company that envisages a significant change of scope of the company. Such companies could include a company that intends or hopes to develop a mining project on an existing gold Reserve or gold Resource - or an exploration company that hopes to upgrade existing resources or to discover new resources.

The comparative analysis provided by GoldVal.com may be useful as a tool for valuation purposes – but only if a broad range of companies is considered (as contained in the GoldVal.com Gold Company Review) and cognisance is taken of all of the relevant factors that may influence a market rating - including the following:

  •  the domicile and listing of the company;
  •  the locality of the gold deposits or gold operations (including any country related risks);
  •  the geology, depth and grade of the gold deposits;
  •  the operating and other costs associated with the mining and processing of the gold deposits;
  •  the capital costs and time required to bring an operation into production;
  •  the sustainability of the production;
  •  the confidence level of the reserves and resources;
  •  the various technical risks.

     It is therefore important to consider relative value in a several different ways. 

 

Financial Performance and Valuation

While the financial performance of a gold mining company should be all-important, the current financial performance is not necessarily reflected in the current Market Value. There may, at any point in time, be several gold companies that are operating at a loss (or to have negative cash-flow), or not yet in production, that still have a relatively high Market Value. Conversely, there may be gold companies that are currently profitable but such profitability may not necessarily be sustainable. The prevailing price of gold and the cost of gold production by individual companies are obviously key factors and several measures considered by GoldVal.com will use those factors.

 

Net Present Value

If sufficient information is available for the future of gold mining companies, it may be considered appropriate to compile a life of mine plan for all operations and projects and to combine these into a full cash flow model for the gold company which may be discounted to provide the Net Present Value. This would be a very useful tool, and is often attempted by gold mining analysts (possibly with some guidance by the mining company) but it is still subject to a great degree of uncertainty – which uncertainty increases exponentially with time going forward.

If enough information is available to attempt to compute the Net Present Value this will not necessarily equate to the expected or actual market value. It is still necessary to take a view or make an assumption on the future gold price and also to decide the discount rate which should be used to adequately cover the risks associated with the operations, the company and the country in which it operates. In addition, there is the possibility that gold mining companies may trade at a discount or premium to NPV estimates (possibly depending on the domicile or listing of the company). Further, there is the possibility that a gold option value may be applied to gold companies. In the end, it all comes back to Market Value – gold companies should be worth what investors are prepared to pay for such investments. The provision of Net Present Value estimates is beyond the scope of this web site. GoldVal.com does have the capacity to undertake such analysis if sufficient information is available – or can be assumed. See Services section.

 

Gold Equivalents

As described more fully in the Definitions page, several gold companies produce other commodities as well as gold – such as silver and copper. Such companies may report on these products as “Gold Equivalents” and may provide such figures for production and for Reserves and Resources. The Gold Equivalent will usually mean the actual gold plus the other metals expressed as an equivalent value (which will be based on the relative price of the other metals). In some case, where numbers are not provided by the gold companies, GoldVal.com may undertake its own estimate of gold equivalents based on the relative prices of the metals concerned. Such a computaion will be undertaken and updated on the Computation Date.

 

Silver Companies

In addition to primary gold companies that also have some silver production and reserves, there are also a number of primary silver companies that have some gold production or reserves. Gold and silver are often related both geologically and commercially. Silver companies may provide Equivalent values for gold and silver - but generally tend to show the gold production or reserves as equivalent units of silver. The figures for such companies which are analysed by GoldVal.com for comparative purposes are expressed as Gold Equivalents. Where necessary, GoldVal.com may undertake its own estimate of gold equivalents based on the prevailing relative prices of the metals concerned. Such an estimate will be undertaken and updated on the Computation Date.

 

Use of Figures and Graphs

If any figures or charts appear to suggest that a particular gold company, or a group of gold companies, is under-valued relative to other gold companies, there are many reasons to be considered before concluding that such company is actually under-valued. Such reasons may include:

  • numbers used may be incorrect, overstated or unreliable
  • ownership of the assets may be at risk
  • operating performance may not be sustainable
  • reserves and/or resources may be subject to risk
  • technical, country, financial and other risks (or perceived risks) may be high

Conversely, similar assessment needs to be made if any numbers or ratios appear to suggest that a particular gold company, or a group of gold companies, is over-valued relative to other gold companies.  Reasons to explain the higher valuation may include the following:

  • strong track record and/or high confidence in management
  • perceived or real higher quality of assets
  • perceived or real lower levels of risk

In either case, whether it appears that there is a case for over- or under- valuation (as indicated by one or more measures of value) it may well be that the specific reasons that a company has a certain market rating will remain in place.

 

Are the Figures Useful?
The figures and charts presented here are by no means exhaustive. Some figures may be more useful than others, some may give misleading results, some may be abandoned in future as being of little merit and new ideas will be considered – possibly relating to comments received. (Users are encouraged to send comments to comment@goldval.com).

It is believed that the information and comparative analysis of gold companies presented here and in the GoldVal.com Gold Company Review is interesting and useful. If you agree - or disagree - please let us know. Please provide any suggestions you may have to improve the content. Contact us at comment@goldval.com.