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

Comments are welcomed!

Saturday, June 28, 2008

UPDATED Emerging Gold Producers Ranked -- Projected Cash Flow Method

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.

MAY 9, 2008
2009 PROJECTED 10X CASH FLOW PRICE MULTIPLE TO MAY 9 PRICE
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)

JUNE 27, 2008
2009 PROJECTED 10X CASH FLOW PRICE MULTIPLE TO CURRENT PRICE
1) Metanor..................5.4
2) Gold-Ore................4.2
3) Alexis Minerals.......3.9
4) Timmins Gold........3.4
5) Gold Resource.......2.9
6) MDN Inc.................2.2
7) ATW Ventures........2.2
8) Jaguar Mining.......1.8
9) Minefinders............1.6
10) Capital Gold..........1.6
11) Western GoldField..1.5
12) Jinshan Gold..........1.5
13) Apollo Gold.............1.5
14) Alamos Gold...........1.4
15) Aurizon Mines.........1.1
16) San Gold.................1.0
17) Kinbauri................(NA)

Alexis Minerals and Timmins Gold were brought to my attention by readers of the Gold Stock Strategist. Both companies are significantly undervalued using a cash flow valuation method and coming in at #3 and #4, respectively, in comparison to their peers.

Metanor Resources and Gold-Ore Resources remain even more undervalued using a cash flow valuation method compared to peers as their share prices are down about 10% over the past month.

San Gold is a special case and a case where the cash flow method is inadequate when it comes to valuing emerging gold producers. San Gold has reported significant drill results in their Hinge deposit over the past month. These drill results have helped to drive the share price of San Gold up about 50% during this time period. These drill results do not enhance their production plans for 2009, but do indicate a growing resource for future production. Congrats to San Gold management and shareholders on this wonderful news.

San Gold's share price action on these drill results is good news for emerging gold producers. It suggests that as the other undervalued emerging gold producers begin to report good drill results and prove up their resource, their share price should benefit.

Something seems to be up with MDN Inc. as the share price rose about 35% over the past week or so. Speculation is that Barrick may be considering a buyout of their joint venture at Tulawaka in Tanzania. That would be good news as MDN Inc. has other properties in Tanzania and would provide resources to speed up development at those sites. It has been tough for MDN Inc. shareholders as little information has been forthcoming from Barrick, who is the operator of Tulawaka, on the progress of this project--even though MDN Inc. has been enjoying cash flow in this joint venture.

The price of gold rising this week has given ballast to the junior gold miners despite major market compression. I expect the value in the emerging gold producers will begin to be realized over the next few months and into 2009.

Best,
Gold Stock Strategist

1 comment:

Anonymous said...

Would Vista gold be inclueded in your list of companies? I believe they are planning on starting construction this year and being in production in 2009 in their Mexican property.

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