gold price, page-17

Rowingboat,
I agree with what you say about the grades picking up at depth. You mentioned the 12.6m @ 3.0% copper from 243m and that is excellent news considering the width.
The other hole I mentioned this morning was a narrower but still very healthy 2.25ms but the grade was much higher.
[email protected]%Cu plus 7.9g/t gold and 11.9g/t Ag
That’s a gold equivalent grade of 10.5g/t or a Cu equiv grade of 7.5%Cu.
Excellent news that these high grades are continuing and open at depth.


SB,
In my spreadsheet, for 2014 when Murchison is in full production, I have allowed $780 total cash costs, $22mill/yr exploration, $2.5mill sustaining capex, $4mill admin and a rough guess on depreciation/amortization at $17mill.
By 2014 I allow for a gold price of A$1800 and I have assumed production of 295,000oz of gold (vs. 300,000 guidance).
I get a PE of 3.4.
Mt Monger has a current resource of 1.7milloz at 7.8g/t (66% in the measured and indicated category).
Allowing for 70% of that to be recovered through u/g mining, equates to 1.2milloz.
Mt Monger will operate at 200,000oz/yr so should have 6 years of mine life.
The reality is that resources are consistently being added at a much stronger rate than they are depleted so I would expect a minimum of 8 years is much more likely with 10 years a reasonable target.
Even working on 6-8 years and 10 years (SLR’s base case) on Murchison, a forward PE of 3.4 for a company with no debt, low sovereign risk and plenty of cash in the bank is going to be too cheap.
Considering the still strong exploration potential, a forward PE of 7 must be more appropriate by mid 2013 (6 months prior to full production).
That should give SLR a sp of $5.30.
By then a significant boost in resources (and mine life) at either Mt Monger or Murchison may justify a higher PE so $5.20 seems a base case target for me.
Using A$1600, I would drop that base case target to $4 for the same PE of 7.
A PE of 8 increases the targets to $6.10 at A$1800 gold and $4.70 at A$1600 gold.
These are my 1 year targets depending on the gold price.
The very strong copper and copper/gold/silver grades at Hollandaire suggest to me that Murchison may have lower cash costs than I have allowed for.

Of course the gold price could be much higher by 2014. My expectation is for $2400-2500 but I will wait till I see it before I factor that in.
At $2,400 I would need a sp of $9.10 for a PE of 7 or $10.40 for a PE of 8.

Most of you know I like to trade this stock.
It's certainly back in my buy zone again, but I might sell again if I think I can take a nice profit and expect I can buy cheaper again. No way I know where that will be ahead of time and that does not change my view that this is an excellent long term stock. I simply trade it because it works well for me.
If I see the POG break out, or otherwise by around early to mid next year when the 2014 earnings are less than 12months out, if the sp is still under $3.50, I will likely take a buy and hold approach on top of occassionally trading it.