Comparison of AOT and PGM at similar development stage July 2020. AOT $1.10.
I will compare Ascot in July 2020 to Pure Gold in August 2019.
PGM
On August 7, 2019, Pure Gold announced construction financing and their construction decision to restart the Madsen mine in Ontario. They were still working on permit amendments at the time (as of July 2020, they are still waiting on some permits). For the six months prior to August 2019, the stock averaged about $0.55 and gold averaged about $1325. For the three months after August 2019, the stock averaged $0.62 and gold about $1500. Pure Gold had 426M shares fully diluted.
At $1325 gold, Pure Gold’s after-tax NPV5% was $280M. For the first half of 2019, when it hadn’t yet announced permit applications, financing, or construction, Pure Gold traded around (0.55 x 426) / 280 = 0.84 P/NAV. At $1500 gold, its after-tax NPV5% was $390M. After August, it traded around (0.62 x 426) / 390 = 0.68 P/NAV. Pure Gold took until December 2019 to catch up to gold’s summer 2019 run, by matching its old 0.80 P/NAV at a share price around $0.73. In July 2020, gold is $1800 and PGM is now around $2.20/share, or about 1.6x P/NAV. It’s being valued like a producer already, with some drilling hope priced in.
AOT
In June 2020, Ascot raised money to purchase new capital equipment necessary to restart the Premier mine in BC. It was a de facto construction decision. Ascot still needs to amend its mine permits. Full capex is not financed. Ascot’s share price traded around $0.80 in the first half of 2020 (ignoring volatility from Covid). Gold averaged about $1650. Ascot has 312M shares fully diluted. At $1650 gold, Ascot’s after-tax NPV5% was $490M. So Ascot was trading around (0.80 x 312) / 490 = 0.51 P/NAV for the first half of 2020.
At $1800 gold, 312M shares, 0.76 USD/CAD, AOT’s after-tax NPV5% is $580M.
0.5 P/NAV = $0.94/share (-15%)
0.58 P/NAV = $1.10/share
0.6 P/NAV = $1.12/share (+2%)
0.7 P/NAV = $1.31/share (+19%)
0.8 P/NAV = $1.50/share (+36%)
0.9 P/NAV = $1.69/share (+54%)
1x P/NAV = $1.87/share (+70%)
1.6x P/NAV = $2.79/share (+154%)
When comparing AOT to PGM, keep in mind that PGM hit 1x P/NAV in May 2020, six months before first pour is scheduled. So it’s possible that AOT hits 1x P/NAV in 2021, well before first pour.
I consider AOT’s fair value to be $1800 gold, 0.76 USDCAD, NPV5% of $580M, 0.7 P/NAV. Fair value is around $1.31 (+19%). But why buy just to get to fair value for a developer? The better idea is to hang on to AOT (among other high-probability plays) for $2000 gold, 0.71 USD/CAD, after-tax NPV5% $700M, 1.5x P/NAV, fully diluted shares 312M. That’s $3.37/share (+189%). If gold hits $2K by 2022 and AOT turns out to be anything like PGM, that $3.37 share price could happen as early as next summer.
A $3.37 share price implies a market cap of $1B. Is a $1B market cap reasonable when the mine is successfully restarted? PGM is only supposed to produce 80Koz/year and it’s market cap is $850M. Victoria Gold is not producing its expected 200Koz/year yet but its market cap is $1B.
Add in two summers (2020 and 2021) of drilling, an updated Feasibility Study including a larger reserve, and beating the conservative FS grade. AOT’s suggestion of 200Koz/year is reasonable. Ignoring these potential improvements, AOT’s expected production of 140Koz/year is exactly halfway between PGM’s and Victoria’s expected production. AOT’s market cap would need to increase 2.5-3x in the next 12 months to catch up.