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The Gold Stock Strategist analyzes leading junior gold producers and major gold mining companies.

Comments are welcomed!

Monday, March 31, 2008

Jaguar Update

I read Jaguar Mining's 3/24/08 release with Q407 production costs ($405 per oz.)--up considerably from what I used in my model for 2008 and 2009 ($306 per oz. for 2009 as indicated in JAG's February 2008 presentation). Here is a link to the press release.

March 24 Jaguar Mining Press Release

I have updated my short-run cash flow model tonight and have new price targets for JAG.

Here is what I get out of my model after reading the press release more carefully. Refinements and constructive critiques are welcome.

I get $0.95 cash flow per share in 2008; $1.96 per share in 2009. At 10x-13x cash flow, that translates into a range of $9.55 to $12.42 per share valuation in 2008; and $19.60 to $25.53 per share in 2009.

I use 10x to 13x cash flow metric to value junior gold miners. These are appropriately conservative valuation multiples in my opinion. Blackmont uses 15x in their March 13 analysis of Jaguar Mining and have a $18.25 per share 12 month price target.

My G&A projections are $14 million in 2008 and $16 million in 2009. 4Q07 G&A was $3.5 million. $3.5m x 4 equals $14m.

Jaguar did have some so called "one time" G&A having to do with listing on the NYSE and other. My sense is that they will continue to have G&A equal to 4Q07 in 2008.

Price of gold assumptions are $925 in 2008 and $1000 in 2009.

Production costs per ounce are assumed to be $410 in 2008 and $420 in 2009.

I remember Jaguar management mentioning that production costs are in US$, so it didn't surprise me that a falling dollar in Q4 was partially responsible for increasing cash costs per ounce. A declining value of the US$ would increase production costs in 2008 as well though I haven't accounted for that.

Total cash cost used to estimate production costs per ounce is equal to cash operating costs plus royalties (if any) and production taxes.

Total cash cost does not include capital expenditures for exploration (projected to be $90 million in 2008 and $98 million in 2009 by Jaguar management).

Good luck to us all!

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