RE:Merger Key Valuation methodI agree that EV [enterprise value] / ounces produced is a valuable metric for comparison of the valuation of miners.
The only caveat that I would add is that this ratio may be more appropriate when comparing miners with comparable output grades and cash costs / AISC’s. In this scenario, the EV would be expected to be higher for a profitable high grade miner, in contrast to a lower grade miner, which produces the same number of ounces of gold.
With that said, it is interesting to see how the merged KLG group compares with Agnico Eagle. The reason being that the cash and AISC’s of AEM are in the same ball park as KLG / NMI. However, the overall grade of KLG/NMI is far superior to AEM (2.57gt in AEM’s Northern Mines & 2.37 gt in its Southern mines).
US$m
10,000 – current MV per Yahoo
0 – Nil net cash - Net debt per Aug. 18 2016 presentation
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10, 000 – EV
1.6m ounces of annual gold ounces produced
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$6,250 – EV per ounce produced by AEM
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This compares with PM’s US$ calculations for KLG & NMI as follows:-
$2,000 – EV of KLG
$2,142 – EV of NMI
Therefore, although the merged KLG group will be close to 33% of AEM’s production ounces, it has higher graded ounces than AEM. Therefore it is arguable that the EV for KLG should hold a “premium” rating.
In conclusion, the merged KLG could treble its EV, by way of a 3x share price and still have a favourable EV rating in contrast to AEM.
Moreover, AEM’s southern hemisphere mines are situated only in Mexico. Therefore, it may not be a too distant prospect for AEM to consider targeting KLG in order to improve its production grades and also add Australian gold ounces to its southern producers.