andash , page-54

Ok guys, here it is, and remember, you promised not to laugh.

These are my own projections for my own use and I post them because I was asked.
Do not rely on them. Do your own research and if anyone sees fault in my analysis please post.

My analysis includes two different methods to value projects.
The one method I do not use is putting an arbitrary value per ounce of gold. No offence to those that use that method.
I find it way to crude. Some explorers have resources that are too small to be developed while others have projects that will clearly be economic, and perhaps are already funded (Burnakura). How can the two different projects be compared on a per ounce basis?
One deserves a value possibly near zero as it relies on more being found before the current resource is worth anything at all.
The other may have an operating margin of $1000 per ounce. Why value it at $50 even if it's a year from production?
Yet you often see companies use this method to compare themselves to others.

I like to use spreadsheets to calculate expected profits over a wide variety of assumptions.
Then I prefer to value according to the prospective cash flow multiple, with different projects deserving different ratios.
I also use NPV based on my projected cashflows, but prefer the first method as it's easier to compare with current producers and trying to predict commodity prices 10 years out for cash flow analysis is pure guess work. Most gold companies in low risk operations trade with cashflow multiples in the high teens
A gold project in Australia with very low risk, e.g. Burnakura which has an 18 year mine life, significant exploration upside and therefore high probability of expansion, deserves a much higher prospective cash flow ratio than a project in a high risk country with only a six year mine life such as Andash.
I do not mean to imply that Burnakura is worth more than Andash, I am only talking about cash flow multiples, not overall net value.
An open pit operation deserves a higher multiple than an underground operation due to the lower risk.
Once fully commissioned, the ratio should increase with the share price to reflect lower risk, etc.
For Andash, once in production, I would value it at a cash flow ratio of around 5 based on a 6 year mine life which will no doubt be increased through zones 2&3
There is also a high chance Atkash will be purchased if Andash gets up and running because it is too small to be a stand alone project, but I ignore it for now.
Using a ratio of 5 translates to 40c per share based on earnings at $1600 gold and 4.25 copper.
I would then apply a discount according to perceived risks and to allow for the fact that it?s not producing yet.
For now it would be large for Andash, but you guys can apply what you think you should.
As a comparison, I have also done a cashflow model at a 10% discount rate which gives me a valuation of 25c or $272 million.
At a 5% discount rate which others including myself consider more appropriate for gold stocks, I get $340 million or 32c/share.
You don't need to use my cash flow analysis because one was included with the FS results.
The NPV given was $325 million under the same commodity assumptions. It also states the NPV increases by 56% by the addition of 2 years to the mine life or 6mill tonne. Zones 2 and 3 have a mid point target of 7.5mill tonne according to Hellmann and Schofield.
325 mill becomes 507mill or just under 50c/share.
I think they used a 10% discount rate so my numbers are clearly more conservative than the FS (as is usually the case for most of my analysis on any stock).

I like to have my own spreadsheet because I can come up with a valuation within seconds under different assumptions such as if the company changes guidance on cash costs.
I don't need to wait for some broker who I can't trust anyway to tell me what it's worth allowing for the new costs.
For Burnakura, I have a valuation once in production, i.e. a 12 month target of 18c for stage one plus the heap leach operation for a cashflow multiple of 12 based on the 18 year mine life and other advantages listed above and below.
My cashflow model at 10% discount rate gives me a NPV of $136 mill or 13c per share or using a 5% rate, I get 202mill or 19c/share (once in production).
That?s a net present value so no further time discount needs to be applied and in my opinion this is a very low risk operation with almost certain large expansion upside so I am not discounting my 19c valuation at all. The plant on site has already been proven. The mining lease is current. The country risk is low and production should begin in a little under 1 year.

For Jervois, for now I assume only a 1.2 mtpa plant which gives a 7.5 year mine life on the current initial resource with almost certain exploration upside.
Management guidance is that it will be a higher through put.
Intersuisse assumes 2mtpa and a much larger resource base. I will update my assumption when the resource size is increased.
Using my current assumptions I value Jervois at 40c when it is commissioned successfully.
You need to discount that a reasonable amount because production is further out, but the risks are very low again, with low country risk and pretty much no permitting risks and very high grades for an open pit mine when gold and silver credits are taken in to account.
If I increase to 2mtpa which is the consensus (other than my own assumption), then my target doubles to 80c.

So when Burnakura is producing in 1 year, I have a target of 19c, and it will be higher when the company announces expansion plans.
When Jervois is producing, I have a target of 40c on the conservative rate of production and 80c based on 2mtpa.
If 80c looks silly, look at the Intersuisse profit forecasts (average around $75mill/ year) and apply a PE of 10 to those net profits.
They have not allowed for gold credits yet which will boost their profit forecasts strongly once added.
Considering the drill holes not included in the resource, the production rate will very likely be higher than my low case.

If/when Andash gets into production my target is 40c.

My total conservative valuation on Australian assets once in production and based only on current mineable resources is 59c.
Upside based on exploration success on the same assets; over $1.
Upside including Andash $1.40.

For now I will be happy to see the 59c which I believe is easily achievable and likely too low once both Burnakura and Jervois are in production.
In the meantime the current discount to allow for not yet being in production is way over the top.
Even if it?s appropriate, I am happy to wait 3-4 years for a minimum six fold increase and potentially 14 fold.