DYOR. Comparative analysis and in-production valuations are not intended as financial advice. Analysis is based on my own opinions and assumptions. You are encouraged to do your own independent research on the company and their strategy/progress and make your own decisions.
Targets / valuation (speculative):
- Peer analysis of resource, target for 5 Moz to 7 Moz at $0.36 to $0.50 per ounce
- Risked target at $0.19 to $0.26 (65% margin of safety applied) for 150 koz to 200 koz pa
- $0.53 to $0.73 at USD $1,900 gold in production in 2025/26
- $1.46 to $1.97 at USD $3,000+ gold in production in 2025/26 (if long-term gold forecasts materialise)
(valuations above don't consider long-term potential of resource to grow beyond 7 Moz at Estelle)
For an alternative view, see analyst coverage here (price target 40c):
2020 was a significant year for NVA: the resource matured to a higher confidence 3.3 Moz, resource re-confirmed as a near-surface low-strip resource, depth of mineralisation confirmed to over 500m, 85% earn-in achieved, progress on road engineering studies, significant resource growth drill campaign initiated, plans maturing for completion of PEA in 2021, planning in place for regional exploration, additional mineralisation identified at RPM.
NVA have set a plan for development which I think will see mining and hence cashflow commencing in either 2025 or 2026 (allowing 18-24 months for construction / commissioning).
Now a look at where the gold price could be headed. We have the following respected forecast suggesting a range approaching USD $6,000 in 2025/26. Gold could move towards USD $3,500 in 2023 and then pull back towards USD $2,000 in 2024 before the climb to USD $6,000 in 2025, 2026.
I think NVA will complete their PEA at more conservative gold pricing, perhaps around USD $1,700 to USD $1,750.
For mining stocks, I encourage both peer analysis and production-based valuations. Helps to give a perspective of current value and potential future value of what you are buying. If you don't understand the potential range of upside then why bother investing.
So where do we stand on peer value based on resource? NVA's current peers are those with inferred resources in prime jurisdictions. That means Australia or North America. Reviewing peers, peer average is ~AUD $120 per ounce with one high-valued peer still at very early earn-in stage. NVA is currently valued by the market at AUD $80 per ounce.
On this peer analysis of resources, fair value for NVA is currently AUD $0.24 per ounce. Notably there is significant scale of NVA's resource at 3.3 Moz compared to peers which I think justifies a valuation beyond $0.24 per ounce.
The company in interviews has given guidance that we can expect the resource to grow to the 5 Moz to 7 Moz range in 2021. Using peer average valuation this allows a target range for the planned resource upgrade in H1 2021 at AUD $0.36 to $0.50 per ounce. A resource of this size at 60% conversion to reserves, 76% recovery, 85% ownership, current gold price, current USD exchange rate $0.77 and 12 year mine life suggests potential revenues in the range USD $307M to USD $430M in production.
It's not just grade that matters in mining, but all the factors that go together to work out the economics for a project. That means the combination of mineralisation type, grade continuity, strip ratio, mining method, processing method. A mine of this type is most amenable to heap-leach processing since this is a very effective method of profitably recovering gold from this type of ore. Key peers for this type of processing include Victoria Gold in Canada and the Kinross Fort Knox mine in Alaska.
Now for the in-production scenarios. A resource of 5 Moz to 7 Moz would comfortably support annual production of 150 koz pa to 300 koz pa in production. I think production scenarios in the range 150 koz pa to 200 koz pa are more likely as this will keep development capex manageable ( based on capital intensity for Victoria Gold, I think CAPEX will start at USD $285M ). Now we do have evidence of NVA applying development strategies (e.g. the snow road) that are cost-conservative so it will be interesting to see what CAPEX NVA cost up during the Preliminary Economic Analysis to be completed in 2021.
The following assumptions are applied:
- Gold price at USD $1,900
- Exchange rate at a conservative USD $0.82 (current exchange rate is $0.77)
- Recovery at 76% (as per test work results)
- Resource to reserve conversion at 61.6% (as per Victoria Gold)
- AISC at LOM average USD $929 ( based on Victoria Gold with escalation 20% applied )
- 2% net smelter royalty to partner
- Interest on debt at 10%
Assumptions for interest rate, exchange rate and AISC have all been tuned for a conservative estimate.
Exclusions:
- Royalty for road / infrastructure development. This is speculated to be in the 1%-2% range to the Alaska Industrial Development and Export Authority and a short-term cost until payback of infrastructure is completed. It is also expected that the cost of this infrastructure will be shared with other end-users.
I have assumed 40% dilution of the fully-diluted share issue to achieve cashflow.
Price targets are as follows:
- At gold price USD $1,900 ( for 150 koz pa to 200 koz pa )
- risked valuation $0.19 to $0.26 (65% margin of safety applied)
- in-production valuation $0.53 to $0.73
The valuation below is provided if you agree with macro long-term forecasts for gold. NVA is expected to be producing in 2025 or 2026, estimate is at USD $3,000 per ounce (trying to keep conservative in context of 5 year gold forecasts at USD $6,000+ ).
- At speculative long-term gold price USD $3,000+ ( for 150 koz pa to 200 koz pa )
- risked valuation $0.51 to $0.69 (65% margin of safety applied)
- in-production valuation $1.46 to $1.97
(20min delay)