Presentation Transcript
Exploration Speculation 101: Exploration Speculation 101 May 2006
Presented by John Kaiser
www.KaiserBottomFish.com
www.ExhibitorResearch.com
What is mining all about?: What is mining all about? Cash Flow from a Depleting Resource
Slide3: What are the key inputs for mining cash flow? Revenue Inputs
Tonnage
Grade
Commodity Price
Production Rate Cost Inputs
Operating Cost
Taxes
Capital Cost Annual Gross Revenue
less Operating Costs
= Operating Profit
less Taxes
= After Tax Cash Flow
What is an orebody worth? Discounted Cash Flow Model: What is an orebody worth? Discounted Cash Flow Model Annual Cash Flow
(1 + Discount Rate)n
n = mine life (years of mining) ∑
Examples of Recent Takeover Bids: Examples of Recent Takeover Bids
Diamondfields – Voisey’s Bay - $4 - $160
Arequipa – Pierina - $0.50 - $30
Dia Met – Ekati - $0.60 - $60
Canico – Onca Puma - $1 - $21
Virginia Gold – Eleonore - $1 - $14
Western Silver – Penasquito - $0.50 - $33
Slide9: How do we get to an orebody?
Slide10: How do we get to an orebody?
Slide11: How do we value a project before it reaches the production stage? The Probability Ladder
Rethinking the target outcome at each exploration stage aka Ultimate Project Value (UPV): Rethinking the target outcome at each exploration stage aka Ultimate Project Value (UPV) $100 million
$500 million
$2 billion
Reviewing a Basic Gambling Concept : Reviewing a Basic Gambling Concept Fair Bet – 10:1 odds, pays 10:1
Poor Bet – 10:1 odds, pays 5:1
Good Bet – 5:1 odds, pays 10:1 The probability of an anticipated outcome should match the payout delivered when the outcome is achieved.
Slide14: Applying basic gambling logic to exploration projects Find the fair speculative value corresponding to the target outcome and the exploration stage
Slide15: How is the market pricing a project? Buffalo Gold’s Mt Kare Project Calculating Implied Project Value = Market Price X Fully Diluted Shares
Net Project Interest
= ( $1.05 x 57,300,000)/0.65
= $93,000,000
Implied Values for Flagship Projects: Implied Values for Flagship Projects
Thank You: Thank You