Others have made the point on price not being a proxy for value,...

Others have made the point on price not being a proxy for value, but by just focussing on production ounces alone its understandable why the valuation disparity between the companies is confusing. Here are a few additional factors you should consider when comparing producers.

• The market gives a higher valuation to companies with lower operating costs. AISC is a quick touch stone for comparing companies on costs.
• Profitability is more important than profit. The size of the profit/reserves/production is irrelevant. The company must be able to mine an ounce of gold profitably. If you yield a million dollars of profit mining 10,000 ounces you will attract a lower market valuation than someone else mining 5,000 ounces for the same return, the profit is the same, the profitability is different. Operating cashflow/ounce produced is the key ratio in this regard.
• Age profile of operations is important. Older operations have higher sustaining capital requirements and higher operating costs.
• The market is forward looking. You need to consider the growth paths, timing of the growth, profitability of the growth and the cost of achieving the growth, these all impact on valuation.
• Analysts put a high price on reliability. It is much easier to value a company when there is some certainty in production metrics. If a company can hit targets, the analyst can use a lower risk premium which creates a higher valuation. Perhaps the following table is helpful in this regard: