NPVUsing the following assumptions, I calculated the NPV of Serra Pelada. I first tried to adjust the assumed values to try and see what values the market might be using to get the current CSI price:
1. Production of 100,000 oz AuEq in 2012, followed by 200,000 in each year until 2021. This would produce 2.5m ounces of AuEq
2. Cash cost of production starts out at
/oz, but I added $25/oz each year to account for declining grades
3. Price of $750 / oz
4. CSI ownership 75%
5. Discount rate of 5% (i.e CSI's share of the $90m profits in 2012 would be $67.5m in 2012. In today's dollars, that is worth $62.7m)
6. US$:CDN$ = 1:1
7. CSI shares o/s 96m
8. Capital cost covered by cash on hand, thus no need to issue more share and no debt servicing costs
This gives a value of $8.38 per share, close to our current price. Notice that the price of gold is roughly half the current price
Now, if I add change some of the assumptions,
1. Production of 150,000 in 2012, and 300,000 each year until 2021 (3.75m oz total)
2. Cash cost of production =
/oz
3. Price of $1200 / oz (still low)
The value becomes $24.75/share
Further, changing the price of gold gives these values/share (keeping the higher level of production and the
cash cost):
| $1,000 | /oz | $20.61 | /share |
| $1,100 | | $22.67 | |
| $1,200 | | $24.75 | |
| $1,300 | | $26.80 | |
| $1,400 | | $28.86 | |
| $1,500 | | $30.91 | |
So, if you think the original assumptions are correct, then the stock is fully valued. However, if you think that some of the assumptions are off, then it looks like we should be valued in the $20 - $30 range.
Comments?
R.