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

Comments are welcomed!

Saturday, May 10, 2008

Emerging Jr. Gold Producers Ranked -- Projected Cash Flow Method

ERRATA: The formula for several stocks (Gold Resource, MDN Inc., Western Goldfields, Alamos Gold, Apollo Gold, Aurizon) in the original post were incorrectly reflecting lower 2008 cash flow multiple values. This post has been adjusted to reflect the correcting of those errors. Also, in response to a comment the POG used for 2009 is $925 per ounce and in 2010 is $1,000 per ounce. Apologies for the mistake. 6:23pm Sunday, May 11, 2008.

One of the quantitative techniques I use to evaluate emerging gold producers is the ratio of projected future cash flow price (10x cash flow assumption) to current price.

This technique provides a standard quantitative comparison of company share valuation that serves as a starting point for my assessment of whether or not to invest in an emerging gold producer stock.

Once I have a standard quantitative measure of assessment, I can apply qualitative factors to the investment decision like political risk, currency exchange risk, property rights risk, remote site risk, single mine risk, operational risk, and management competence risk.

The following is my analysis of 15 emerging gold producers using a cash flow multiple ratio for projected 2009 and closing share prices on May 9, 2008. The higher the projected cash flow multiple, the more undervalued the stock.

1) Metanor Res......3.7
2) Gold-Ore Res.....3.5
3) Gold Resource....3.5
4) MDN Inc..........2.9
5) ATW Ventures.....2.5
6) Jaguar Mining....1.9
7) Capital Gold.....1.7
8) W. GoldFields....1.6
9) San Gold Res.....1.5
10) Minefinders......1.5
11) Alamos Gold......1.5
12) Jinshan Gold.....1.5
13) Apollo Gold......1.2
14) Aurizon Mines....1.1
15) Kinbauri Gold...(NA)

The following analysis applies the same technique using 2010 projected cash flow rather than 2009 above. By 2010, Kinbauri Gold jumps up from the bottom, reflecting a sharp increase in projected production from 2009 to 2010.

1) Metanor Res.....5.3
2) Gold-Ore Res....5.3
3) Kinbauri Gold...5.3
4) Gold Resource...4.9
5) ATW Ventures....4.1
6) MDN Inc.........4.1
7) Jaguar Mining...2.8
8) Jinshan Gold....2.4
9) Capital Gold....2.1
10) W. GoldFields...1.9
11) Alamos Gold.....1.8
12) Minefinders.....1.8
13) San Gold Res....1.7
14) Apollo Gold.....1.5
15) Aurizon Mines...1.3

This is a demonstration of how the cash flow price multiple method can aid investors in choosing the most undervalued emerging gold producer stocks. It also demonstrates why my portfolio is weighted towards Metanor Resources and Gold-Ore Resources rather than other emerging gold producers.


Gold Stock Strategist


Full disclosure: I own shares in several of the companies listed above. The information provided in this post is believed to be correct, but not guaranteed. Investing in junior gold miners entails risks. Readers are responsible for their investment decisions. Do your own due diligence.


Anonymous said...

Very nice. What price of gold are you considering?

Guess I'll have to check out Gold Ore.


goldstockstrategist said...

The POG used for 2009 is $925 per ounce and in 2010 is $1,000 per ounce.

Thanks, Monty.

Anonymous said...

You seem to have dropped coverage of EPM/Orsu. Are you out of it, or don't have enough verifiable information? Dan Ross

Anonymous said...

You seem to have found Gold Resource "out of the blue". My initial impression from incomplete DD is positive. Are you going to write it up like the other juniors? Any suggestions on places to find information? Dan Ross

Anonymous said...

MDN which looks good and is highly rated has a `largest shareholder' with problems.
GBS Gold owns 10% and is in liquidation in Bankruptcy court (australia) I hope that they have found a overhang of 10,000,000 shares would hurt the stock.


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