DCF ValuationsEveryone,
I was intrigued by a question raised earlier on the board about value of SXL shares based on latest discoveries. I remembered seeing valuations of mining company shares by Fundamental Research, so I decided to mimic what they do for Discounted Cash Flow (DCF) valuations. There is surprising quite a lot of information available on the web, including spreadsheets you can download to plug in numbers.
I was conservative with commmodity prices, and based production on the current SLAM National Instrument 43-101 Resource Estimate which would support a 1000 tpd mill for 5 years (press release 10 July 2007). I used Operating Costs and Capital Costs from a similar zinc/lead mining company report from Fundamental Research (assumes an open pit mine).
The values assume a mine operating 5 days per week, 50 weeks per year.
SLAM (CURRENT)
Resource (in tonnes)............. 2,000,000
Grade - Zn (%) ...................... 4.67%
Grade - Pb (%) ...................... 0.80%
Grade - Ag (g/tonne) ................ 27.80
Recovery - Zn (%) ..................... 90%
Recovery - Pb (%) ..................... 90%
Recovery - Ag (%) ..................... 90%
Recovered Metal - Zn (lbs) .... 185,320,577
Recovered Metal - Pb (lbs) ..... 31,746,566
Recovered Metal - Ag (oz) ....... 1,787,582
Production Commencement .............. 2009
Mill Processing (tpd) ................ 1000
Mine Life (years) ....................... 5
Long-Term Zn Price (US$/lb) ......... $1.00
Long-Term Pb Price (US$/lb) ......... $0.75
Long-Term Ag Price (US$/oz) ........ $12.00
Average Operating Costs ($/tonne) .. $50.00
Capital Costs ($) .............. $5,000,000
Discount Rate (%) .................. 10.00%
Net Present Value ............. $51,705,289
No. of Shares (diluted) ....... 110,858,144
Value per Share ..................... $0.47
Increasing the tonnes per day from 1000 to 3000, and mine life from 5 years to 10 years (press release 29 Nov 2007), makes the valuation increase 6 times. That assumes similar grades.
So we should see some action when they release the new resource estimates in 2008. In the meantime, I'm afraid some not-so-nice people are going to try to force you to sell your shares cheap.
Hang in there, our day will come.
Hope this helps,
peewee