RE:Are you Soma pumpers insane? 🤡Let's review my sanity on acquisition cost of a producing miner. Previous posters suggested that the fair acquisition price of a producing miner should be in the range of $20 per ounce resource. I decided to see what the market values miners and selected a handful to see if their market cap to gold resource figure is in the $20, $100, $200 ++ per ounce range.
K92 (KNT.TO) has a market cap today of C$2,090 million its resource base is 16.3 million. The market has valued K92 at a value of C$125 / ounce.
Aris Mining (ARIS.TO) [a large part of my portfolio] has market cap of C$572 million and a resource base 27 million of Au eq. The market value is C$21 / ounce. There's a big reason for the disparity to K92. We'll get to that later.
Fortuna Silver Mines (FSM:NYSE). Though it calls itself a silver miner, gold makes up the vast majority of its resources. The market has value Fortuna at C$1,420 million. Total Au eq resources are 6.33 million ounces. The market values this producer at C$224 / ounce.
Gold Resource Corp. (GORO:Nasdaq). Today's market cap is C$204 million. Goro has a resource base of 1.06 million ounces Au-eq. The market values Gold Resource at C$191 / ounce.
Mako Mining (MAKO.V). Market cap is C$115 million. Mako resources are 0.474 million ounces Au eq. The market values Mako at a value of C$243 / ounce.
Is a takeover bid for Soma Gold of C$173 / ounce a little rich? Maybe, but certainly not insane. The Yamana take over by AEM and PAAS is valued at C$176 / resource ounce (C$7,752 market cap and 44 million ounces of resources).
Let's talk why the market is valuing K92 at C$125 and Aris at $21 per ounce of resource. We all know that Aris should be much higher and that's why my investment in Aris is in warrants. I'm looking at the future. However, Aris should not be valued the same as K92.
K92's resources are measured at a producing mine. The premium they are getting for resources in the ground is it recognizes those resources can be readily produced. They don't have to pour in $100's of millions of dollars in capital, years, permitting etc. to be extracted.
Aris has two producing mines. But those producing mines contain only a fraction of its total gold resources. The vast majority of their resources are in the ground with no permitting, mine infrastructure, etc. They are just metal in the ground and it's going to take a half-Billion dollars to get them into the position to extract that metal. Analyst models are going to deeply discount the value of those ounces and are probably valued at well under C$30/ounce.
I highly suspect once Aris gets the underground mining permit at Marmato, the stock will soar and those resources will become valued more at the C$150 / ounce range. The reason is the market re-rates producers handsomely versus exploration companies.
A buyout offer has to recognize the entire value of a mining operation. This means infrastructure, cash flow, gold production, gold resources in the ground, a projection of continued exploration resouce addition etc. Sure, you can buyout an explorer with nothing of value other than the resources in the ground for $40/ounce. Purchasing a cash flow postivie miner with a growing production profile, blue sky exploration potential for under C$120/ounce seems a lot crazy to me.
I used C$ 1.34 to $1 USD for the US miners to compare everything in Canadian Dollars.