24c target from Patersons, page-11

Snake,

I bought in a small parcel for some gold exposure a while back and have topped up a bit more along the way. I have had a read of the Paterson's report and found their 75% (!!!) discount on EV/kozpa to peer average interesting. Here is what they say:

"We have incorporated PGO’s new strategy of targeting a large scale gold mining operation into our updated target price of $0.24/sh (Previously $0.10/sh). The valuation is based on our peer analysis of gold producers and developers and our estimated annual production rates. Based on the existing PGO Mineral Resource we see the potential for a 3-4Mtpa plant which we have assumed would process c1.3g/t Au to achieve production rates of 125-170kozpa. We have applied the average of this range (c.150kozpa) to the peer average at a 75% discount (EV/kozpa 0.69) to achieve our valuation for PGO of $0.24/sh. PGO is currently trading on an EV/kozpa of $0.26."


So as a result of taking the 75% discounted peer average (0.69) they seem to be overly conservative with their valuation. The 0.69 is only just above the lowest peer EV/kozpa (0.65 for WPG).


If you take away the 75% discount then the valuation starts indicating that there is a good lot of upside in this company!

Other than being conservative, does anyone have any thoughts as to why Patersons would apply such a big discount (risk? resource life? )

Glad I'm in this one - looks like it could fly. Just got to figure out how to free up some more funds now....