arpeggio1) re the discount rate...started out using the 10yr...

arpeggio

1) re the discount rate...
started out using the 10yr bond rate plus 5% - then WACC - but it's a trade off with detail, and I don't think the detail actually matters all that much, provided you are consistent with your numbers. I know my OGC val is about right because a) it's about the same number as the broker val's (I know people bag analyst valuations but they are experts and it is the right way to value a mining company) and b) the same 12.5% discount rate and operational cashflow npv gets me pretty darn close current valuations with a host of other mining stocks.

2) why stop at operational cashflow...
again it's a detail trade off. look at any analyst valuation break down and you see: project npvs + cash - corporate expense + exploration value.
for me, actually getting to an earnings number is too hard and there's no point trying to forecast tax etc. fine for one company, but try keeping it current for 50 companies, too hard. Or on the balance sheet side, how do you put a credible figure on 'exploration value', and it's not the accumulated exploration expense on the balance sheet, I have no idea?

so yes, my valuations lack a lot of detail and any real analyst would turn up his nose, but to be practical I only need to come up with credible approximates

and, NPV pre-tax operational cashflows at 12.5%, using spot prices gets me valuations that are within 10-20% of current market capitalisations for MML, PRU, KCN, RRL, BDR and WSA, PNA, SFR. OGC (and SAR) are the outlyers and have valuations well above current market caps

the model can't be too wrong if all those are right. more likely, I have got the numbers right and OGC is just a great opportunity at the moment.

mal

I agree with you and you make good point, I try to get to a cost per tonne processed figure. this number will be consistent, and should be similar across similar mine types in similar locations. per ounce cash costs are grade dependent and jump around far too much.

too be really clear -
OGC has been trading at the value of the NZ operations only.
The market had written off Didipio because of the govt problems (look at Tampakan and the value in IRN). Now that construction has restarted, investors will start to believe it's really going ahead, and will value it accordingly. The only reason there is such a mismatch in valuation and therefore great buying opportunity for OGC is because Didpio stalled for so long and the market considered the project dead.

If you think Didipio is a dead project, OGC current price is about right.

If you think Didipio is going ahead and will start production in 2013 OGC is a steal at this price