How much is Laurion worth?Is it the market cap?
The proven gold equivalent ounces x ??? /oz?
Ultimately I think it will be worth what somebody else will pay for it. In this post I take a look at one potential buyer and try to determine if an acquisition makes sense. I am not a financial advisor and the following represents a couple of hours of googling. I, like many here are interested in learning more about the sector and sparking conversation. The numbers are in USD.
The potential buyer I have chosen is Barrick Gold (GOLD). The information is pulled from their statements of July 2022 and their year end statements and summary of Mining operations 2021.
In Barrick Gold’s summary of operations for the six months ending June 2022, of the 988 million ounces of gold produced in North America, 99% was made from mines in which Barrick has a 65% stake through Nevada Gold Mines, a joint partnership with Newmont. The star of the show is the Carlin Mine, producing 472,000 GEOs in the first six months of 2022.
The following is taken from this article from February 5, 2021
https://www.mining-technology.com/projects/carlin/ The total proven and probable mineral reserves for the Carlin complex, are estimated to be 190Mt grading at 3.32g/t Au, containing 21Moz on a 100% basis as of December 2019. Twenty-one million ounces for Carlin. Without a resource estimation from Laurion everything is speculation. But it still it offers a good comparison to what Laurion may be worth.
On Barrick’s summary of operation for 2021 they list remaining reserves at the Carlin complex as 4.5-6.9 million oz. as their share of the probable 11 million oz left to mine.
For the year 2021, Carlin produced 923 thousand GEO which, when considering the six month activity reported June 2022 indicates a pretty consistent production year round.
So my thought is, if you compare the remaining reserves to Laurion and put the same yearly depreciation on the reserves as is being mined at Clarion you can approximate a valuation of Laurion.
Barrick list the realized gold price at $1790/oz for the year 2021 with net earnings of 2.022 billion.
Net cash provided by operating activities was 4.378 billion.
Claron Mine with its 943 thousand ounces provided 1.671 billion of the net operating activity cash, and as stated in the report had a cost of sales per ounce of $899, so at $1790/oz that is a profit of $891/oz or $840 million of the net earnings.
Barrick has a stock price of $15.51 as I write this. 1.77 billion shares outstanding. The price/earnings ratio is 12.84.
Clarion represents 41% of the revenue. At the price to earnings ratio, Claron Mine has a valuation of about 10 billion dollars. If Laurion has half the GEOs Claron did, is 5 billion outside the realm of possibility?
I am not expecting Barrick to pay that. Their shareholders would riot. I have not considered the costs of opening the mine, fluctuations in the gold price or regulatory and other issues not least of which is the absence of a resource estimate (43-101) for Laurion. Also I have used Claron’s costs per ounce and grading.
With that said, would it make sense for Barrick to buy Laurion at 2.5 – 4 billion? And could they if they wanted to?
The Claron mine at its rate of depletion of 1.5 million ounces mined per year has a lifespan of 5-10 years. Barrick will need to replace it within the short to medium term. I suspect that is why they were in on Great Bear Resources, however the world has changed since then.
Mining companies have been affected by the costs of labour, supply chain issues and the greo-political situation in Russia. This was especially hard on the Kinross Gold Corporation who sold off significant investments in Russia for what little they could get.
The interesting thing about Kinross is that it is trading at almost twice the valuation at Barrick at 24.68 P/E. I expect that misalignment to be corrected at some point and if it is not in Kinross’s favor I can see them being an acquisition target.
Then there is the economy. Debt is expensive and getting more so. If Kinross P/E was the same as Barrick’s the market cap would be 3 billion dollars. For that you could add 1 billion in net income (2021).
Given the choice, in this market and a recession likely, if I was in the position I would look hard at Kinross. Especially if I report to shareholders and considering that Mark Bristow (CEO of Barrick) is fond of saying that he doesn’t believe in huge premiums to the current valuations of junior miners, I think he may be aligned.
I am not down on Laurion. I own no shares in Kinross or Barrick. I’d like to own shares in Barrick, and would not mind a stock/cash deal for Laurion but that isn’t up to me.
I expect Laurion to sell within this gold supercycle. I just think there may be another acquisition before that happens.
Can Barrick afford it?
Possibly, especially with a partner, but not without going into debt, risking their dividend or dilution. None of which will be palpable at this time to their shareholders for a mine ?? years from production (right now). Kinross acquired GBR in February of this year and have stated that it will be 2027-2029 before it goes into production. The assays coming in from GBR (as of the June 28 update) look great
https://www.kinross.com/news-and-investors/news-releases/press-release-details/2022/Kinross-provides-update-on-Great-Bear-project-and-U.S.-projects/default.aspx. Many have speculated that Kinross have overpaid for GBR, but with its potential to become a Tier 1 mine, I think the overpayment may end up being quite justified.
Barrick isn’t the only potential buyer of Laurion and it may end up not be a mining company at all that buys it but I think comparables beyond price per ounce should be considered.
I just find it weird that for all the negativity on Reddit forums I have found some well researched analysis there and would like to see it here.
This is my first attempt.
Feel free to disagree.