I use a very basic model with 15 assumptions:Resource...

I use a very basic model with 15 assumptions:
Resource size,Grade,Production p.a.,production cost,mine life,capital cost,gearing rate,interest rate,commodity price (normally in US$),inflation rate,discount rate (use 10% to cover risk factor on project), exchange rate, exploration rate p.a.,administration rate p.a., company tax rate,no. of shares on issue (fully diluted).
Then run different scenarios with different production rates,mine life,& commodity prices,
Key vertical columns on spreadsheet:
year,production,price,total revenue,capital cost,interest cost,exploration cost, amin. cost, FCFBT (free cashflow before tax), tax, FCF (free cashflow), NPV rate, NPV.
The sum of all NPV's for each year of production divided by the fully diluted no. of shares then gives a value per share.
Unfortunately, difficult to explain & my model very basis but plugging in some numbers does give you an an idea of whether a stock is under or overvalued. This type of model also assumes management are capable of achieving required results. Predicting resource & commodity prices into the future also has its difficulties also. Most major brokers analysts only run model out for 7 years so a project like Olympic Dam most times is not fully modelled by analysts. If all valuation was so simple then only analysts would make all the money, but as we know most only work for wages & aren't that great with their forecasts.
I only use these type models as a guide but plugging in all figures is a hard job if you are trying to do a good estimate.
AAR at the moment requires lots of best guesses to even get some idea of its value. Personally I believe it is far too early on the gold side, but could probably run a rough model on Koongie Project as it stands now.
Coming up with the resource is probably the easy part, as none of us know how many more shares will be issued or placed & what level of borrowings the directors are prepared to run against their projects.
Sorry to be so long winded about DCF models, but referring to P/E ratios on a mining stock is a real turn off for me. If your mind set operates at this level the end of the resources boom is surely going to dent your bank balance.
All shares (industrial & mining) & their valuation requires serious work not just follow the leader stuff. None of us should ever stop adding to our knowledge bank on investing. After 40 years plus investing, I am still learning, at least now computers/spreadsheets now make it easier to develop different template models.
Regards
Buffett