How undervalued etc - cbrit et alRead and Heed!
You (and most of you) need to read and understand my post on this subject. Gone are the days of simply multiplying two numbers together and dividing that by the number of shares and trumpeting about and calling that "Value".
The Corporate "Black Box" that the analyst used at Salman and is used throughout the financial and economic world to estimate/calculate "Value" is the DCF Analysis Model (Discounted Cash Flow) and the concept of NPV (Net Present Value). In that model, everything is thrown in and "Sensitivity" (i.e "What if") cases are run. Typically,"High", "Low" and "Most Likely" cases of all the components are run. If you work with this model enough in simlar projects throughout the world you will probably be able to see patterns emerge that will allow you to develop certain "Rules of Thumb". That is, boiling a deal down to a "$/carat" number.
Just take a look at what Snap Lake went for. And you are making me haul out my thick binder on the subject. Everybody was up in arms when DB's bought out Winspear's 67.76% share of Snap Lake for $301MM CDN. This put the Implied 100% Value of Snap Lake at $444.21MM where there were 41.1 MM carats Indicated and 45.3 MM carats Inferred for a TOTAL Overall of 86.4 MM Carats. So if you don't count the Inferred, DB's paid $444.2/41.1 = $10.80/carat for the INDICATED. AND if you throw in BOTH the Indicated AND the Inferred for a total of 86.4MM carats, DB's paid $444.2/86.4 = $5.14/carat.!!!!!
This, my fine friends is called "a Precedent Setting event"..AND to think you want to get $20/carat on a BUY-OUT!!! I am NOT saying it can't happen. BUT $20/carat is extemely rich when compared to Snap Lake and it will all depend on what goes into that Financial and economic Black Box number cruncher. What has changed? Well price forecasts and the view of the world has changed since the Snap Lake deal. All parties are smarter now (i.e the learning curve).
The ONE thing that kills value on most mining projects is the HUGE UPFRONT capital costs. Operating costs are a close second. The discounting mechanism in the Balck Box will reduce positive effects such as large stones, escalating prices of rough and the like. BUT you have to run the model to see how much these various things effect the Bottmline value.
I have to run...BUT let me leave all of you with this thought...Go down to your local University book store and spend some of your big bucks on a good book on Principles of Corporate Finance and read the Chapters on the merits of Net Present Value, Rixk and better investment decision making. And while you are it, pick up a copy of a Book on Macro Economics. And once you have plowed your way thorugh that, enrol in a course to see how to run those NPV calculations. You'll be doing yourself and everybody else a BIG favour.
My thoughts on the subject,
Excuse any spelling errors as I have to get going. But the main theme should be apparent.
LB