Discovery Silver Corp T.DSV

Fair value of DSV is CAD 28.74 as per SimplyWallSt

[Dutchdoctor]

This is their calculation:

Below are the data sources, inputs and calculation used to determine the intrinsic value for Discovery Silver.

TSXV:DSV Discounted Cash Flow Data Sources

Data Point	Source	Value
Valuation Model		2 Stage Free Cash Flow to Equity
Levered Free Cash Flow	Average of 2 Analyst Estimates (S&P Global)	See below
Discount Rate (Cost of Equity)	See below	6.2%
Perpetual Growth Rate	5-Year Average of CA Long-Term Govt Bond Rate	1.6%

An important part of a discounted cash flow is the discount rate, below we explain how it has been calculated.

Calculation of Discount Rate/ Cost of Equity for TSXV:DSV

Data Point	Calculation/ Source	Result
Risk-Free Rate	5-Year Average of CA Long-Term Govt Bond Rate	1.6%
Equity Risk Premium	S&P Global	4.4%
Metals and Mining Unlevered Beta	Simply Wall St/ S&P Global	1.1
Re-levered Beta	= 0.33 + [(0.66 * Unlevered beta) * (1 + (1 - tax rate) (Debt/Market Equity))] = 0.33 + [(0.66 * 1.102) * (1 + (1 - 26.5%) (0.007%))]	1.068
Levered Beta	Levered Beta limited to 0.8 to 2.0 (practical range for a stable firm)	1.068
Discount Rate/ Cost of Equity	= Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium) = 1.55% + (1.068 * 4.38%)	6.23%

 

Discounted Cash Flow Calculation for TSXV:DSV using 2 Stage Free Cash Flow to Equity

The calculations below outline how an intrinsic value for Discovery Silver is arrived at by discounting future cash flows to their present value using the 2 stage method. We use analyst's estimates of cash flows going forward 10 years for the 1st stage, the 2nd stage assumes the company grows at a stable rate into perpetuity.

TSXV:DSV DCF 1st Stage: Next 10 years cash flow forecast

	Levered FCF (CAD, Millions)	Source	Present Value Discounted (@ 6.23%)
2022	-16	Analyst x1	-15,06
2023	-20	Analyst x1	-17,72
2024	-258	Analyst x1	-215,22
2025	-222,5	Analyst x2	-174,73
2026	282	Analyst x2	208,47
2027	378,2	Est @ 34.11%	263,19
2028	470,28	Est @ 24.35%	308,07
2029	552,61	Est @ 17.51%	340,78
2030	622,9	Est @ 12.72%	361,6
2031	681,26	Est @ 9.37%	372,29
Present value of next 10 years cash flows			CA$1.431

 

TSXV:DSV DCF 2nd Stage: Terminal Value

	Calculation	Result
Terminal Value	FCF2031 × (1 + g) ÷ (Discount Rate – g) = CA$681,256 x (1 + 1.55%) ÷ (6.23% - 1.55% )	CA$14.785,59
Present Value of Terminal Value	= Terminal Value ÷ (1 + r)10 CA$14.786 ÷ (1 + 6.23%)10	CA$8.079,94

 

TSXV:DSV Total Equity Value

	Calculation	Result
Total Equity Value	= Present value of next 10 years cash flows + Terminal Value = CA$1.431 + CA$8.080	CA$9.510,94
Equity Value per Share (CAD)	= Total value / Shares Outstanding = CA$9.511 / 331	CA$28,74

TSXV:DSV Discount to Share Price

	Calculation	Result
Value per share (CAD)	From above.	CA$28.74
Current discount	Discount to share price of CA$2.06 = (CA$28.74 - CA$2.06) / CA$28.74	92.8%

Learn more about our DCF calculations in Simply Wall St’s analysis model.

Interesting, isn't it?

[Heywood_Silvers]

Takes me back to finance class, good write up and I totally agree. How I approach valuations are to take the NPV and knock off 50% as a suitor will never pay 100% of NPV.  This brings us to about $15 CAD or $12 USD. Now, mind you, that $12 is based upon an expected future value of silver, which, trust me, is WAY below where it likely will be. Since we are likely a couple years away from a

[MoneyK]

How do you get to a 4.5B US valuation for this company? Unless they can prove enough resources to build 5-10 similar mines, I don't see how this is possible. Per the PEA, the after-tax NPV (5%) is 1.2B US with silver at $22 US. Currently, someone would need to buy DSV for $XXXM, invest $375M US in capex and expect $1.8B US (after-tax) back in their pockets during the course of the

[cbew]

Welcome to the discussion here MK.  Getting bored with you CUU lately?LOL.  Good question you asked.  How do we get to a 4B market cap with DSV you ask?  Well if you look at First Majestic Silver ( FR ) they are a producing silver mine with a market cap of 3.2B as of right now.  They are producing over 25M oz of silver right now and they are within the top lower costs

[MoneyK]

First Majestic has 2B worth of assets vs. 100M for DSV. You cant simply compare two companies based on the production and assume they would be worth the same. MoneyK

[cbew]

LOL I am talking about future potential for DSV MK!  They are not the same now true as one is a producer and the other DSV is in the developement stage but you asked a question about potential of DSV to be worth $4B and I am giving you my answer.  Furthermore did you watch their investor presentation?  Taj gives a straightforward presentation of future and possible potential for DSV

[chuck8]

Thanks for the presentation link, cbew, and first time I've seen this and was a great overview of the key potential for DSV. Aside from the current assets and future discovery potential, a key element for any company is superior management and I've always been impressed with DSV....particularly with Taj at the helm. Forbes Gremwell's comments also were very helpful.The point raised

[MoneyK]

All I'm saying is that $12 is not a done deal. Silver will need to spike significantly for this to happen in the next 2-3 years. Even at $30 silver, who would pay 4B and invest $400M to only get back 4B of profit after 12-16 years? The numbers need to make sense. Still some upside here, buy mostly a stock tied to higher silver for big gains. IMO. MoneyK

[cbew]

There are never any guarantees when it comes to investing in juniors or any other stock for that matter but if you believe Ag prices are severely undervalued and will rise significantly in the next few years then DSV is the place to be.  It is like a non expiring call option on Ag prices with all the upside leverage and none of the downside in time decay loss. If you believe we will see new

[MoneyK]

I dont have much knowledge on the silver market, but if First Majestic cant make a decent profit at these level, prices will need to eventually go up. I'm thinking $20 is a floor, with $15 as the basement if ever... MoneyK

[Heywood_Silvers]

$30 silver ain't nothing!  Wait until the manipulation ends and silver prices revert to their true intrinsic values, people will be shaking their heads saying I could've bought DSV back when it was under a buck.  Those would also be the same folk awhile back who were lamenting they could've bought bitcon for under $1,000. You gotta be in the right place at the right time and

[Bigshot123]

Bigshot says your post was one of the most intuitive and well stated and truthful that he has read. WELL DONE !!!!!!!! Bigshot is pleased.

[MoneyK]

Looking for explorer M&A activity in the silver space to compare possible valuation. When comparing with some recent gold M&A activity, seems like many transactions were done in the range of around $200 US per ounce. That would translate to around $2 US to $3 US per ounce of silver. Does that sound about right? MoneyK

[Heywood_Silvers]

Using current valuations, yes, $3 would make sense.  That being said, my rule of thumb for comparing ounces in the ground is that 50 million ounces silver = 1 million ounces of gold because in the future we will revert much closer to the historical 20:1 or thereabouts. In 2011 the silver : gold ratio got into the 30s, so I like my 50:1 as an average. Using my methodology, it would be about

[MoneyK]

I dont think its fair to consider 1B ounces when for now they have 400Moz of silver. A buyer would not attribute the same value for the by products if they are targetting the previous metal. 1.2B US seems plausible. IMO. MoneyK

[spitfire191]

Hey Money K,  I really recommend you check out this interview with Taj a couple weeks ago (https://www.youtube.com/watch?v=cPLrVyqwY8s).  Some hilights for me are how massive this project is (compared with producers like First Quantum) and like Shaft, its only a fraction of the property.  The possibilities in exploration and the leverage that exists with higher silver prices is

[cbew]

Hey Spitfire191, my old friend from the CUU board LOL!  Couldn't of said it better.  I'm one up on you as my earliest buy in Levon (now DSV) was way back at 0.10 cents LOL.   And I did swap all my CUU for Dsv when I told everyone on the CUU board to do it at around 0.25 cents.  smiles.  Not trying to brag but I made the decision to sell all my CUU because it

[MoneyK]

Hey Spit, Not here to discuss or compare with CUU. I see some upside, but for now, not a sale at 10$-12$... unless silver moves permanently to higher levels. MoneyK

[gossamer6]

This post has been removed in accordance with Community Policy

[Clemxb7]

That Simply Wall Street analysis is very interesting. Most people will scoff at DSV being worth $28 / share though there are companies out there with those sorts of metrics. DSV could very well end up a "value trap" - that is worth a lot in intrinsic value yet undiscovered by the larger market. However that value will translate into cash flow at some point. If Silver catches a bid then

[pegasus28]

I can't see silver rising with the ongoing manipultion of the Central banks.Especially JP Morgan.I don't see anything that suggests they will stop rigging the metals market.No government agency,such as the SEC,has shown the slightest interest in stopping their felonious actions.

[itsjustme1]