Updated valuation multiples for Small-cap goldsThese are updated regularly by Matlock of Kitco and can be viewed here..............
https://www.kitco.com/ind/matlack/dec122011_juniors.html
The derivation of these tables emanates from dividing the share price by the net earnings per share.
For 2011, the average small cap gold producer trades at 21.1 times its net earnings ( the multiple for 2012 can be ignored for the moment, as it is derived from 2011 share price relative to 2012 net earnings which is comparing apples to oranges ).
As cash flows are a better estimate of financial perforance than net earnings, I and many others prefer to use cash flow multiples ( net earnings can be manipulated by various exclusions etc ).
For those who pore thru financials, it is obvious that cash flows of gold small caps are, on average, twice that of net earnings which means that the cash flow multiple will be 1/2 that of net earnings or roughly 10 times annual cash flows.
If goldies estimates of 2012 annual cash flows are accepted ( and they follow from the information available ), one would expect that, as the 2012 production and financials confirm the estimated earnings and cash flows, the market cap will move towards the $1 billion market.
Variance around the average c/f multiple of 10 is caused by balance sheet considerations ( CRK is above average ), political risk ( again, CRK would meet or exceed the norm ), growth outlook ( CRK has an excellent growth profile ), ability to convert gold resources to cash flow ( ie, cash margins.........CRK would be above the average cash cost of about $650 per oz ), exploration potential ( CRK projects has excellent prospectivity ), investor visibility ( CRK would rank below the norm so far, ) management quality ( my review indicates good quality management ).
As can be seen, other than having estimated 2012 cash costs about $200 above the peer average ) and perhaps low investor visibility , CRK meets or exceeds peer norms for most of the variables affecting the c/f multiple of small caps.
But, assuming only a c/f multiple of 5 would forecast a market cap of $500 million ( $1.55 per share ) for CRK, on estimated 2012 production and cash flows.
Which is why we shall get a much higher buyout offer than the low ball offer of 56 cents by Luxor..