Simplee Valuation Model for SAMHigh grade ore recently discovered and currently being mined from the west block and the east (upper) block indicate that grades at the San Martin mine will be increasing to the historical mean over the next few years.
OPERATING EARNINGS FROM GOLD MINING
Annual production varies betweem 20,000 to 26,000 oz of gold and about 115,000 oz of silver in recent years.
I choose 22,500 oz of gold as the average and add 1500 of gold equivalent silver, for a total gold equivalent production of 24,000 oz per year.
Cash costs averaged $783 per oz in the latest quarter.
With higher grades, this should continue to decline.
I use $850 US per oz as the cash operating costs.
I use $1350 POG and $20 Silver.
Thence, we have 24,000 X ( $1350 minus $750 ) = $14.4 million US earnings.
Conversion to C$ , operating earnings from gold mining become $18.5 million or about $0.37 per share.
OPERATING EARNINGS FROM GOLD MILLING
SAM can mill 8000 tons per year at its new tolling mill.
I assume 1 0z per ton of recovered gold equivalent yield.
I use 20 % net revenue per oz.
Thence, 8000 oz of gold equivalent will yield about $2.8 million in C$ in operating earnings or about $0.055 per share.
COMBINED OPERATING EARNINGS
These amount to.....$0.37 + $0.055... about $0.42/share per year.
VALIUATION
I use DNG which is a toll milling gold company, as the proxy for valuation.
DNG trades at 8.5 times operating earnings.
Applying this to SAM, results in a fair value of about $3.50 per share.
SAM also has about $0.20 in cash per share and other assets.
Once we resume quarterly financials ( the change in year end should see Q1 released in August ) , we should start to fine tune our valuations .
Unless POG significantly declines.....which I dont think it will...I dont foresee much in the way of input to my valuation model