Conservative valuation

Hi all,

As you would be aware the SP has been in free fall for almost 3 months now (refer daily log chart below) .


On one hand I am astonished that the SP has surpassed (I would suggest) anyone's worst nightmare. Never in my darkest days would I have predicted (when we were at 27c in October 2015) that the SP would fall below 10c, let alone 5c, let alone to today's incredible low of 2.7c within 3 months. Nor do I recall anyone else at the time suggesting such a bearish target.

On the other hand, Darren Holden and the Board Of Directors have IMO done such a fine job of destroying the future hopes and dreams of shareholders in such a short space of time that sentiment for this company is amongst the worst I have ever seen for any company, period. And believe me I've followed some doozies over the years.

In the words of Yoda... 'fear leads to anger, anger leads to hate, hate leads to suffering....'.
All of these emotions are definitely present with ABU shareholders ATM (as a result of the destruction of value) and when sentiment is this low, it inevitably produces a washout in the SP, otherwise known as a major cycle low.

Respected holders and contributors on HC have recently (knowingly or unknowingly) contributed to what I believe could be the final throws of the free fall with their 2 cent predictions. However they cannot be blamed for aiding poor sentiment because at the end of the day it is 100% the fault of the management of this company (Brett Lambert excluded), their utter incompetence and their failure to adequately communicate and disclose from the outset, and so again I call on current ABU Directors who had a hand in this debacle with DH to resign with immediate effect. This is the only appropriate action for them to take from here on if the company is to completely detach itself from incompetent leaders (IMO).

However the reason for this post is not to rant and make predictions. Instead I would like to use some rational analysis to provide a conservative valuation that other holders might find valuable during these trying times. But before I do that let's try to understand the market's current valuation at 2.7c (or thereabouts).

The current market capitalisation of the company (at 2.7c) is @$9.2m and about one tenth of what it was 3 months ago.

Below is a table that provides a notional breakdown of the company's assets.

This notional breakdown suggests that the company's non cash assets is valued at $2.2 million.
The above breakdown (and please note this is only my take on how the pie of total assets could be sliced) implies that;

1. the company's numerous tenements (>45000 km2 landholding) is valued at $100k.
However given that ABU recently paid $100k to AJM for an additional 2000km2, then a fair valuation for the >45000km2 (Australia's largest collective landholding of prospective tenements using the AJM figure as a value per square kilometre valuation guide) would more likely be somewhere @$2.3million mark IMO.

2. I've assumed the total resource estimate to be 3.2million ozs as per the below tables.



Note the revised assumption that I've made for Old Pirate i.e. using a much lower grade of 6.5g/t which is more or less in line with recent grades reported.

Since the market's notional value of the company's 3.2moz total resource estimate (revised by elpha) is $800k, that implies an in situ value of $0.25 per resource ounce. This figure represents a 98.5% discount to the EV/resource ounce approximate average of Australian gold juniors which includes explorers, developers and junior producers.

Note that ABU's EV/resource oz valuation was considerably higher (than the current $0.40-$0.55 per resource oz valuation) when this slide was compiled for GCY last month.


My view is that a significant discount to the juniors average is definitely warranted given the recent mismanagement and the resulting poor economics of Old Pirate (ending with the impending closure of the mine).

However the scale of the discount (98.5%) vs its peers seems excessive and overdone, particularly given that the resource tables for Buccaneer and Hyperion haven't changed since 2014. Therefore I've applied a (still very significant) 75% discount to produce what I believe is an extremely conservative valuation in the current market and versus some of ABU's closest peers by market cap (table below).




3. I've included the Bumblebee IOCG style discovery as an asset of value as exploration is fully funded by our JV partner IGO (with an option to acquire a significant stake). The market's notional value of ABU's stake in this JV is currently $100k however given the significance of this discovery and the willingness of IGO to commit millions in exploration funding, an extremely conservative 'as is' valuation includes a $1million payment for 70% of the project plus $500k for the remaining 30%, totalling $1.5m.

4. Other property plant and equipment on the most recent available balance sheet has a book value of $6.2m. The market's notional value of this asset is currently $1.2m, an 80% discount to the balance sheet valuation. Again, this seems excessive and overdone. Therefore I've applied a 50% discount which provides an extremely conservative current valuation of $3.1m.

With regards to the current cash and bullion balance, the market's notional value is $7 million based on my split of total assets. However the estimates that I have provided in the below table indicate a cash and bullion balance estimate of @$8million at the end of December.


In lieu of all of the above and as per the table below, a conservative valuation of the company's net assets can be established. I hope this is of some benefit to you all whilst conducting your own research. However please note that my opinion and analysis could be incorrect and therefore should not be relied upon nor considered as advice of any kind.

Cheers
elpha