you make good points, however, if you need to value a resource stock - do not use a PE ratio.
Companies valued on PE need a recurring revenue, whereas a mining resource will eventually be depleted. You would be better off using Net Asset Value (value of product - production costs - tax). You could also get more complex and discount for the time value of money and 'likelihood' of the future drilling expanding the resource.
Example of why PE ratio is bad: Gold mine with mine life of 2 years, will make $20M profit per year, and has a market cap of $60M. It has a PE of 3, but why would you pay $60M for only $40M worth of gold? Based on this information the stock with a PE of 3 is overpriced.
Making a valuation on AGO is quite difficult. The likelihood of building a magnetite proccessing plant is hard to estimate. I don't think that some people on here actually realise the cost of setting it up. It is the blue sky of this stock.
However, it is possible to value their Haematite DSO, since they have told us to expect around $15-$21/t operating margin, and are targetting 40Mt at Pardoo and Abydos, but currently have a JORC resource of 4.4Mt.
Will be interesting to see what this suspension brings. It took VRE about 2 weeks to do their capital raising a couple of months ago. Whatever it turns out to be, it is my view that being shielded from the current falls in the stock market might not be a bad thing.
If you're interested in Haematite, also take a look at UMC. Drill results out in next few weeks.
There are plenty of interesting iron ore plays out there, and at least AGO looks like being one of the first new ones to get into production.
Joel
AGO Price at posting:
0.0¢ Sentiment: None Disclosure: Held
