Long term value

Often queries are made as to the long term value of BSR.

the article below may assist.

the size of the reserves have a very significant bearing upon share price.

SummaryAustralian Gold Fund2019 March Quarter Summary The March quarter was a challenging one for many gold mining companies despite the gold price trading in the US$1 280-1 345/oz and a historically strong A$1 790-1 880/oz range. Part of this is caused by the oil price rising 33% from US$45/bbl to US$60/bbl during the quarter, leading to the gold to oil ratio placing some pressure on costs. Since the December 2018 rate rise by the US Federal Reserve that brings the Federal Funds Rate to 2.25-2.5%, the gold price rose to over US$1 300/oz and reached as high as US$1 345/oz in late February. The corresponding rise in the oil price came as a result of higher demand during the northern hemisphere winter as well as increasing geopolitical tension in the Middle East. Furthermore, the oil price rose partly due to reduction in the US inventory. The gold to oil ratio for the March quarter started at a strong 28.3 and gradually fell to 21.5 at the end of the quarter, resulting in an average gold to oil ratio of 23.9 during this period.Since the end of the March quarter, the gold price has further weakened while the oil price has increased. The gold to oil ratio has fallen to the 20-21 mark, but there are signs that the gold price is nearing a bottom while the oil price is falling. The months of April and May tend to be cyclical bear periods for gold, with June and July seeing its price recover. This may be repeated in 2019 as the global stock markets are again approaching a peak.The impact of the high gold price in AUD terms has been offset by a declining gold-oil ratio that resulted in higher operating costs for most mining companies. In particular, mining companies with production at the lower end have reported higher AISC in the $1 400-$1 800/oz range, leading to weaker net operating cash flows and decreasing cash balances.© Copyright 2019. Australian Gold Fund Page 1 of 10https://www.goldfund.com.au The strongest performers this quarter in terms of operational efficiency adjusted for their scope are Kirkland Lake Gold, Resolute Mining, Regis Resources, Alacer Gold and Saracen Mineral Holdings. The companies delivering positive surprises this quarter include Sarcen Mineral Holdings, Westgold Resources, Perseus Mining and Medusa Mining. Several companies delivered disappointing results including Northern Star, Oceanagold Corporation, Aurelia Metals, Dacian Gold, Red 5, Millennium Minerals, Gascoyne Resources and Blackham Resources. Interestingly, companies such as Alacer Gold, Ramelius Resources, Westgold Resources have declared a new stage of operations as their major expansion projects draw to a close.The Big Picture ASX Code CategoryMCap Net Cash Rise/Fall? Net CF Less CapexCumulative Production Resources ReservesAnnual Guidance Change? % Progress On Track?ALKE$108.810$74.200Fall-$0.92137,414437,000126,00044,500Upgraded84.08% YesAMIC$537.540$108.600Rise$15.70094,656770,935364,138122,500Maintained77.27% Yes AQGC$1,181.240-$355.320Fall$42.69189,3548,527,0005,614,917350,000Maintained25.53%YesBLKD$25.340-$4.621Rise$0.25853,3616,715,0001,530,00067,000Downgraded79.64% Yes DCNC$408.540-$58.096Rise-$5.223102,2503,520,0001,389,000155,000Downgraded65.97%NoEVNB$6,058.540-$74.180Fall$107.800558,11514,725,0007,457,000745,000Maintained74.91% Yes GCYD$38.180-$69.841Fall-$18.23541,4132,323,000612,00060,500Downgraded68.45%NoKLAB$10,700.964$586.550Rise$133.642231,87915,417,0005,754,000960,000Maintained24.15% Yes KRME$27.010$9.173Fall-$0.38111,345364,000390,21717,000Downgraded66.74%NoMMLD$84.160$17.265RiseN/A77,1561,368,900350,000101,500Upgraded76.02% Yes MOYD$109.170$3.600Rise-$12.70017,3931,159,100375,30095,000Maintained18.31%NoNCMA$20,018.790N/ARiseN/A1,826,324113,380,00058,579,0002,475,000Maintained73.79% Yes NSTB$6,042.840$197.329Rise$14.300606,18320,804,0004,754,000875,000Maintained69.28%NoOGCB$2,624.510-$132.470Fall$54.748125,6818,680,0005,949,500525,000Maintained23.94% YesPNRD$189.370$19.300Rise-$6.92831,707393,000219,00052,500Maintained60.39% No PRUC$554.540$51.102Rise$37.903207,6997,280,0003,464,000281,000Maintained73.91%YesREDD$155.400$4.224Fall-$0.74571,9142,708,000725,750107,500Maintained66.90% No RMSC$557.920$104.700Fall$17.600149,3374,406,5251,333,900200,000Maintained74.67%YesRRLC$2,396.930$186.600Fall$40.000272,4537,859,0004,065,000355,000Maintained76.75% Yes RSGC$879.390-$143.589Fall-$9.600227,30414,810,0005,070,000300,000Maintained75.77%YesSARC$2,616.670$131.800Rise$71.000266,9828,600,0002,500,000355,000Upgraded75.21% Yes SBMC$1,746.280$382.000Rise$52.000276,1509,162,0003,923,000370,000Downgraded74.64%YesSLRC$679.080$123.900RiseN/A123,0994,521,000776,000187,500Maintained65.65% No TRYD$49.300$9.584RiseN/A46,551932,600119,00059,000Downgraded78.90%YesWGXC$540.860$0.172RiseN/A202,58811,268,0003,016,000310,000Maintained65.35% No The table above provides key information relating to the 25 ASX-listed gold mining companies for the March quarter of 2019. Further discussion of each major aspect of interest will be covered in this report.Before proceeding, refer to the Glossary section to better understand the data and also customised definitions used in this report. The data is collected from the quarterly reports and the quarterly cashflow reports, and then interpreted or organised to produce various tables and figures.Stock Price Performance© Copyright 2019. Australian Gold Fund Page 2 of 10https://www.goldfund.com.au ASX Code CategoryPrice - 17th May Price - 1st Jan YTD ReturnsNCMA$26.810$21.80023.0%KLAB$48.550$36.90031.6%NSTB$9.430$9.2402.1%EVNB$3.700$3.6900.3%OGCB$4.220$4.860-13.2%RMSC$0.860$0.47083.0%WGXC$1.510$0.88071.6%AQGC$4.130$2.53063.2%SLRC$0.825$0.55548.6%PRUC$0.470$0.42011.9%SARC$3.240$2.93010.6%RSGC$1.150$1.155-0.4%AMIC$0.650$0.680-4.4%RRLC$4.550$4.830-5.8%DCNC$1.695$2.500-32.2%SBMC$2.910$4.700-38.1%REDD$0.130$0.08946.1%PNRD$0.210$0.2005.0%MMLD$0.410$0.4051.2%TRYD$0.098$0.110-10.9%MOYD$0.120$0.180-33.3%GCYD$0.043$0.135-68.1%BLKD$0.010$0.041-75.6%ALKE$0.22$0.19512.8%KRME$0.040$0.054-25.9% In terms of company stock price performance, the March quarter saw some interesting trends. The companies delivering the strongest growth since the beginning of the year are Ramelius Resources, Westgold Resources, Alacer Gold, Silver Lake Resources and Red 5. These companies are not the top tier companies but their performance is due to re-rating of their stocks. Alacer Gold has cemented its mid-tier status with the second quarter of production exceeding 80 000oz. The other companies were significantly undervalued for the large part of 2018 but have either strong cash reserves that they could deploy for growth and development (Ramelius and Silver Lake with their acquisitions of Explaurum and Doray, respectively) or significant mineral deposits that they are developing (Westgold and Red 5). On the other end, Blackham Resources, Gascoyne Resources, Dacian Gold and St Barbara have experienced sharp declines due to operational problems and raising equity capital.© Copyright 2019. Australian Gold Fund Page 3 of 10https://www.goldfund.com.au Valuation ASX Code CategoryEV/AISC-Adjusted Production ValuationEV/Production EV/Resources EV/ReservesALKE$685.582Fair Value$693.79$79.199$274.68AMIC$3,125.763Fair Value$3,398.675$556.389$1,177.960AQGC$4,351.292Fair Value$4,299.079$180.199$273.657BLKD$691.823Fair Value$421.108$4.462$19.582DCNC$5,093.064Overvalued$3,422.758$132.567$335.951EVNB$7,640.046Fair Value$8,241.205$416.484$822.411GCYD$4,414.277Overvalued$1,956.288$46.501$176.505KLAB$8,572.645Fair Value$10,904.840$656.056$1,757.806KRME$2,644.114Overvalued$1,179.176$49.003$45.711MMLD$981.508Undervalued$650.260$48.868$191.129MOYD$2,391.455Overvalued$1,517.421$91.079$281.295NCMA$9,069.332Fair Value$8,780.345$188.578$364.994NSTB$9,547.191Overvalued$7,232.359$280.980$1,229.598OGCB$7,898.759Fair Value$5,484.083$317.624$463.397PNRD$6,343.209Overvalued$4,022.850$432.748$776.575PRUC$2,488.846Undervalued$1,817.914$69.154$145.334REDD$2,620.374Overvalued$1,576.633$55.826$208.303RMSC$2,770.014Undervalued$2,276.161$102.852$339.771RRLC$5,936.589Overvalued$6,084.527$281.248$543.747RSGC$4,289.772Fair Value$3,375.365$69.074$201.771SARC$7,201.518Overvalued$6,980.443$288.938$993.948SBMC$3,841.611Fair Value$3,705.269$148.906$347.764SLRC$4,775.780Overvalued$3,382.521$122.800$715.438TRYD$310.923Undervalued$213.293$42.586$333.748WGXC$2,873.721Undervalued$2,001.678$47.984$179.273 The valuation figures and table above provide a comparison of the various gold mining producers grouped by their category. In the valuation table, the EV/AISC-Adjusted Production and EV/Production are also placed side by side, but ordered by EV/AISC- Adjusted Production, our preferred metric. The Valuation column that states whether the companies are overvalued or not should be taken with caution. These ratings are based on the numerical EV/AISC-Adjusted Production rather than a considered evaluation after taking into© Copyright 2019. Australian Gold Fund Page 4 of 10https://www.goldfund.com.au account operational, financial performances and growth opportunities. For a more detailed discussion, refer to the company reports that are released on a regular basis on our website.This quarter has seen the larger mining companies approach more overvalued levels relative to their production and AISC. For certain mid-tier companies, the higher quality companies such as Saracen Mineral Holdings, Regis Resources and St Barbara Mines are somewhat mixed, with the first two being slightly overvalued while St Barbara Mines have fallen to fair value, bordering on being undervalued as a result of their price decline arising from the Gwalia mine development plans and the somewhat overpriced acquisition of Atlantic Gold. Despite rising sharply over the quarter, Westgold Resources and Ramelius Resources still remain in the undervalued region. Perseus Mining is also undervalued, although their stock price did not rise sharply over the quarter. Aurelia Metals rose to almost $1 over the quarter and then declined as much as 45% as a result of their disappointing March quarter and the resignation of their highly competent CEO, Jim Simpson. Resolute Mining is at fair value, having delivered strong production, albeit from their Syama oxide operations when their Syama sulfide operations that is their major development project delivered disappointing results.The junior mining companies category have seen a number of disappointing operating results leading to their stocks being deemed overvalued. Gascoyne Resources and Millennium Minerals reported disappointing production results and despite the stock price falling after they were released, prices have not declined sufficiently to bring them to fair value territory. While Red 5 is classified as overvalued, this is taking into account the Darlot gold mine underperformance and a thin cash balance. However, the King of the Hills mine is under development and is expected to become a substantial operation as they announce the mineral resources increasing from 1.88Moz to 3.1Moz on 20th May. Pantoro has been deemed substantially overvalued based on its production level, but it is worth noting they have high grade production and is now on the path to becoming a potential mid-tier company with their purchase of a 50% stake at the 4.4Moz resources Central Norseman Gold Project for $45m. Medusa Mining is probably the only truly undervalued junior gold mining company now as they upgrade their production to 98 000-105 000oz p.a. The company has been a quiet achiever. Finally, Blackham Resources has had a horrifying 18 months and it became more of a prolonged nightmare through their highly dilutive 5-for-4 rights issue, followed by a poor quarter of operations. Given the current price levels, the company is at fair value.© Copyright 2019. Australian Gold Fund Page 5 of 10https://www.goldfund.com.au Operational Performance ASX Code CategoryMarket Capitalisation Net CF Less Capex Production% Annual Guidance Rise/Fall?AISC Rise/Fall? NCMA$20,018.790N/A623,12425.18%Fall$1,036.010RiseOGCB$2,624.510$54.748125,68123.94%Fall$1,440.306 RiseEVNB$6,058.540$107.800175,90123.61%Fall$925.000 Fall NSTB$6,042.840$14.300205,33123.47%Rise$1,369.000RiseKLAB$10,700.964$133.642231,87924.15%Rise$786.132 Fall AMIC$537.540$15.70023,32319.04%Fall$1,302.000RiseDCNC$408.540-$5.22335,00417.95%Fall$1,488.000 Rise RMSC$557.920$17.60045,28622.64%Fall$1,210.000FallSLRC$679.080N/A56,13329.94%Rise$1,346.165 FallPRUC$554.540$37.90367,14423.89%Fall$1,194.640 FallWGXC$540.860N/A74,00423.87%Rise$1,269.000 Fall SBMC$1,746.280$52.00088,35823.56%Fall$1,098.000RiseSARC$2,616.670$71.00089,20825.31%Rise$1,035.000 RiseAQGC$1,181.240$42.69189,35425.53%Fall$1,012.145 Rise RRLC$2,396.930$40.00091,08725.66%Rise$1,019.000RiseRSGC$879.390-$9.60098,10532.70%Rise$1,039.000 FallPNRD$189.370-$6.9289,52518.14%Fall$1,867.000 RiseGCYD$38.180-$18.23512,21612.59%Fall$2,052.000 Fall TRYD$49.300N/A13,33321.00%Fall$1,739.317RiseBLKD$25.340$0.25815,29620.13%Fall$1,757.000 RiseMOYD$109.170-$12.70017,39318.31%Fall$1,576.000 RiseREDD$155.400-$0.74524,18722.50%Fall$1,637.000 FallMMLD$84.160N/A29,85831.43%Rise$1,333.807 FallKRME$27.010-$0.3815,47127.36%Rise$1,670.531 Fall ALKE$108.810-$0.92110,66928.45%Fall$956.000Fall The average production over this quarter across the 25 companies is 90 275oz, which compares with last quarter’s 90 877oz. The average AISC and production-weighted average AISC this quarter are $1 326/oz and $1 122/oz, respectively. This compares with last quarter of $1 240/oz and $1 080/oz.Production over this quarter for companies has largely fallen compared to the December 2018 quarter with 16 out of 25 companies (64%) reporting lower production this quarter. The AISC for this quarter has risen for 13 out of 25 companies (52%). In terms of the companies delivering quarterly production relative to its annual guidance, 16 out of 25 companies (64%) are behind schedule. Overall, this quarter has seen more challenging operating conditions in terms of a lower gold-oil ratio and several companies undertaking development projects and experiencing delays.The stronger performers for this quarter include Resolute Mining, Kirkland Lake Gold, Regis Resources, Saracen Mineral Holdings and Alacer Gold when considering a combination of the production relative to the annual guidance and the AISC relative to its production level. For Resolute Mining and Alacer Gold, the strong performance is a result of their development© Copyright 2019. Australian Gold Fund Page 6 of 10https://www.goldfund.com.au projects being largely complete and hence they embark on their next stage. Kirkland Lake Gold, Regis Resources and Saracen Mineral Holdings are maintaining their level of strength, being reliable low-cost mining companies. It is worth noting that Saracen Mineral Holdings is moving towards expanding their existing operations and will expect to deliver over 400 000oz p.a. for the next financial year.What may be worth paying attention to are the number of junior mining companies that delivered very underwhelming quarterly results, with a not insignificant proportion, namely Millennium Minerals, Gascoyne Resources, Pantoro, Blackham and Troy Resources delivering around or less than 20% of their annual guidance and AISC rising above $1 600/oz. Though these results are not confined only to the smaller mining companies, as Dacian Gold and Aurelia Metals also shocked investors with poor production levels over the quarter.In terms of cashflow generated from operations net of maintenance capital expenditure, 12 out of 20 companies (60%) generated positive cashflows. For the junior mining companies, only Blackham Resources delivered positive operating cashflows, which is a very surprising result. Thus, even though many investors have largely written off this company because of its longstanding operational and financial issues, they may want to challenge their perspective in light of the financial results. Across the 20 companies, the average net operating cashflows generated is $26.6m.Cumulative Progress © Copyright 2019. Australian Gold Fund Page 7 of 10https://www.goldfund.com.au ASX Code Category Cumulative ProductionMidpoint Production Guidance % Annual Guidance Cumulative AISCNCMA1,826,3242,475,00073.79%$1,032.91KLA*B231,879960,00024.15%$786.13NSTB606,183875,00069.28%$1,320.07EVNB558,115745,00074.91%$927.05OGC*B125,681525,00023.94%$1,440.31SBMC276,150370,00074.64%$1,036.80RRLC272,453355,00076.75%$975.69SARC266,982355,00075.21%$1,031.67AQG*C89,354350,00025.53%$1,012.15WGXC202,588310,00065.35%$1,435.66RSGC227,304300,00075.77%$1,270.91PRUC207,699281,00073.91%$1,369.07RMSC149,337200,00074.67%$1,216.97SLRC123,099187,50065.65%$1,411.90DCNC102,250155,00065.97%$1,488.00AMIC94,656122,50077.27%$919.70REDD71,914107,50066.90%$1,662.01MMLD77,156101,50076.02%$1,509.41MOY*D17,39395,00018.31%$1,576.00BLKD53,36167,00079.64%$1,642.86GCYD41,41360,50068.45%$2,256.46TRYD46,55159,00078.90%$1,457.73PNRD31,70752,50060.39%$1,576.79ALKE37,41444,50084.08%$988.17KRME11,34517,00066.74%$2,242.34 Taking the operating performance in the context of annual guidance, this may provide a better picture of how the company is faring relative to their expectations. Note that some companies such as Kirkland Lake Gold, Oceanagold, Alacer Gold and Millennium Minerals have financial years ending in December, meaning they have commenced their new financial year.The companies that are most on track to meet their annual production guidance while keeping their AISC low are Regis Resources, Saracen Mineral Holdings and Aurelia Metals, the latter is a surprise given their very disappointing March quarterly results. Interestingly, after this March quarter performance, most companies are largely slightly behind their schedule in delivering their own guidance. While Resolute Mining has caught up this quarter through a surprisingly strong level of production, this is from their Syama oxide operations, rather than the Syama sulfide operations. Blackham Resources appear to have delivered almost 80% of the 2019 guidance but this is due to the company downgrading its guidance to 66 000-68 000oz p.a. from 77 000-89 000oz p.a., although part of this reduction is due to their processing of ore from Northern Star for toll revenue.The progress may not give an accurate indicator since some companies have adjusted their annual guidance over the financial year. In particular for this quarter, 3 out of 25 companies (12%) upgraded their annual guidance, being Alkane Resources, Medusa Mining and Saracen Mineral Holdings, while 6 out of 25 companies (24%) downgraded their annual guidance, being Blackham Resources, Dacian Gold, Gascoyne Resources, Kingsrose Mining, St Barbara Mines and Troy Resources.The average cumulative AISC and the production-weighted average up to this quarter are $1 343/oz and $1 135/oz, respectively.© Copyright 2019. Australian Gold Fund Page 8 of 10https://www.goldfund.com.au GlossaryThe gold mining companies are classified based on their production level on an annual basis. The classification used in this report is as follows – A (major producer – 1Moz p.a. or more), B (large producer – 0.5-1Moz p.a.), C (mid-tier producer – 150 000-500 000oz p.a.), D (junior producer – 50 000-150 000oz p.a.) and E (micro producer – less than 50 000oz p.a.).The All-in Sustaining Cost (AISC) is a measure adopted by the World Gold Council as a standardised measure of production costs. This cost includes typically the Cash Cost associated with the direct production (extraction, transportation, processing and refining costs, staff salary and wages and relevant corporate costs) as well as Sustaining Expenditure that may include maintenance of mine equipment and infrastructure, insurance and administration costs over its production life. Companies may still have discretion in apportioning their expenses.The EV/AISC-Adjusted Annual Production is a comparative measure used for valuing companies in this report and can be used to determine relative value. The enterprise value is the sum of the market value of equity (stock price multiplied by number of issued stocks) and net debt (total borrowings less cash and gold bullion, but excluding gold in circuit and ore stockpiles). The AISC-adjusted annual production is measure whereby the annual production of gold per oz is divided by the AISC adjusted by a factor of 1 000. The intuition behind this measure is to value the company by taking into account annual production but giving favourable treatment for lower AISC and penalising for higher AISC. The factor of 1 000 is arbitrarily chosen. As an illustration, if a company produces 250 000oz p.a. at AISC of $1 250, the AISC-adjusted production is 200 000.The EV/AISC-Adjusted Production Range is used to determine the Price Range for the company. This range takes into account the baseline range depending on the company’s classification, as determined by the annual gold production level. The range can be adjusted upwards or downwards based on other factors that are presented in the SWOT Analysis section.As a rough guide, the fair value ranges for different mining company classes are as follows: Major and Large Companies - $6 000-8 000/ozMid-Tier Companies - $2 500-5 000/ozMicro and Junior Companies - $800-1 800/ozThe measure is by no means perfect and other factors should be considered including reserve and resource life, projected production volume and costs, management quality and geographic location. Further, it is of a retrospective nature, focusing on past performance and this may not be a good indicator for future performance.The Net Cash/Debt is the net amount of cash and bullion the company holds after their borrowings and interest-bearing debt are paid. This represents the liquidity position of the company, although this measure does not consider whether the debt is current (due within© Copyright 2019. Australian Gold Fund Page 9 of 10https://www.goldfund.com.au the next twelve months) or not. A company in a significant net debt position is owing more than they currently have in cash and bullion, which may potentially put them in financial distress if the debt is due soon.The Net Cashflow from Operations Excluding Maintenance Capital Expenditure measures to what extent the company can generate cashflows from its operations after paying for its operating costs as well as Cash Paid for Purchases of Property, Plant and Equipment and the Cash Paid for Development Expenditure in the Investing Cashflows section of the Statement of Cash Flows. It does not include Cash Paid for Exploration and Evaluation, which is assumed to be growth capital expenditure. This is by no means a stable and comparable measure as different companies may have discretionary interpretation of what constitutes as Operating Activities and Investing Activities or Development, Exploration and Evaluation expenditures.The Price Range determines a reasonable range for which the company stock price should be trading at. This range is relatively wide as it considers the margin of safety. A company whose stock price is currently outside the fair value range is significantly over or undervalued and investors should look more deeply into the company’s operations, financial performance and recent market announcements. This range should not be taken as the sole driver for investment decisions, but as a starting point for further research to identify the potential causes for the current stock price.DisclaimerInformation in this report is not intended to be financial advice and should not be used as such. While every effort is made to ensure the information is reliable and accurate, errors and omissions may still exist. The interpretation of financial reports, market announcements and management commentary is subject to personal views and discretion. Users of this report are highly advised to seek professional financial advice before making their decisions.© Copyright 2019. Australian Gold Fund Page 10 of 10https://www.goldfund.com.au