RE: RE: Gross Value of HRG = C$930,000,000Hi hrgopp,
The gold price used (by the technical people / company) in calculating resource ounces for the various locations are a follows:
*Zun-Holda – US$550
*Irokinda – US$550
*Berezitovy – US$400
*Taparko-Bouroun – US$800
*Bissa – US$910
*Prognoz – unknown, but likely a lowball silver price due to being located in Russia
It seems like Russian rules require resources to be calculated using a substantially conservative gold/silver price. With the current gold price being US$925, it means that 43-101 resource ounces for Zun-Holda, Irokinda, Berezitovy and Prognoz area all grossly understated.
With regards to the analysis, I want everyone to be clear, the C$930,067,789 Gross Value is not the market cap level that HRG should be trading at. HRG should be trading at substantially above C$930,067,789. The C$930,067,789 Gross Value represents strictly 43-101 ounces in the ground and the costs of bring those ounces into production, similar to what booked asset value in a balance sheet would show (mainly). However, if we want to expand the analysis and take it to the level of a realistic market cap value then there are 2 very important components we need to build in:
1) Significant premium for assets in production (generating cash flow) – those premiums are even greater for assets that are very profitable (HRG has 4 of those assets)
2) Blue sky exploration potential (HRG has 2 major exploration projects with limitless potential)
Firstly, here is the breakdown you requested between Russia and West Africa, for the original figures:
*Russia – C$588,295,910
*West Africa – C$308,771,879
*Canada (mainly) – C$33,000,000
Total = C$930,067,789
Original figures consolidated by site:
*Zun-Holba (84.5%) - C$110,315,683
* Ironkina (84.5%) – C$102,759,736
* Berezitovy (99%) – C$304,492,551
* Taparko-Bouroun (90%) – C$246,247,457
Total for producing sites = C$763,815,427
*Bissa - C$62,524,422
*Prognoz - C$70,727,940
*Strategic Investments – C$33,000,000
Total = C$930,067,789
Now, let’s add in the components I highlighted above, in order to move the analysis to a market capitalization level:
1) Our 4 producing sites each receive a 50% premium for being both a gold producer (while the gold price is US$925) and for being significantly profitable (55% operating profit on average – US$925 gold price vs US$414 avg cash operating cost)
2) The 2 exploration properties receives one increase for high certainty of advancing current lower valued resources into higher categories (i.e. P&P Reserves) and a second increase for having solid significant blue sky.
*Bissa – 1) plenty of Inferred ounces to move into both M&I and P&P Reserves, and plenty of M&I to move into P&P; 2) Blue Sky: solid potential to increase 43-101 resource count from 1.8M ounces to 5.0M ounces within a short period of time
*Prognoz - 1) plenty of Inferred ounces to move into both M&I and P&P Reserves, and plenty of M&I to move into P&P; 2) Blue Sky is limitless for Progoz: 205M ounces of silver from only 2 veins so far, and over 28 more mineralized veins to go, never mind lots of potential still remaining in the original 2 veins
Here are the market cap figures - where HRG share price should be trading at right now:
(producing sites get the 50% premium mark up and exploration sites get a 200% mark up to reflect items identified above, similar to companies with major exploration projects)
*Zun-Holba (84.5%) - C$165,473,525
* Ironkina (84.5%) – C$154,139,603
* Berezitovy (99%) – C$456,738,826
* Taparko-Bouroun (90%) – C$369,371,186
Total for producing sites = C$1,145,723,140
*Bissa - C$187,573,266
*Prognoz - C$212,183,820
*Strategic Investments – C$33,000,000
Total (what HRG’s market cap should be) = C$1,578,480,226
Outstanding shares = 649,000,000
HRG’s share price should be = $2.43 (C$1,578,480,226 / 649,000,000)
By the way, this C$1.6B market cap for HRG would still be no where near Eldorado Gold’s $3.7B market cap (a company with similar production ounces as HRG).
Again, this is excluding all of the missing ounces (especially the highly valued US$100 per oz reserves) from having to use completely unrealistic gold prices for the Russian properties.
Here is the updated Russian versus West African split for you:
*Russia – C$988,535,774
*West Africa – C$556,944,452
*Canada (mainly) – C$33,000,000
Total = C$1,578,480,226