I keep thinking that BCN is undervalued but I just wanted to start a thread where we could constantly re-evaluate where BCN are at and what the share price should be, based of actual numbers and not uprampers or downrampers that just say "This should be 10c already" or "This is overbought now" with no evidence to back it up.
So I'm very interested in getting experts into this thread and putting their own evaluations and calculations in the comments below.
What we know:
- Current Share Price = $0.037
- Current Market Cap = $106M
- Number of shares on issue = 2.86Bn
- Number of options = 0.93Bn
- Total shares if all options are converted = 3.79Bn
- Added cash to Market Cap if all options are exercised = $23M
- Ounces found already = About 200,000oz (160k Lost dog, 30k Black Cat, 10k Panther)
- Ounces I’ve estimated that we’ve drilled but have not been confirmed in a JORC = 100,000oz (20k Lost dog, 20k South of Lost Dog, 20k Black Cat, 20k Panther, 20k East of Jaurdi - All fairly conservative)
- Ounces that I haven’t taken into consideration in these calcs = Unexplored parts of Jaurdi, Bulong Rd and Timor-Leste tenements
- Total ounces = 300,000oz
- Throughput per year = 26,400oz (2200oz that we’ve been getting the last few months multiplied by 12, I wont use 2700oz as I think that could just be a high grade area of the deposit)
- Current Price of Gold = $2700
- AISC = $1270 till end of 2019 (But I think by the sounds of the latest interview, we'll be seeing closer to $1000/oz and this will continue to come down to $900/oz over the LOM according to my below reasons)
AISC
Reasons for cost coming down to $900 over the LOM:
- Because they only produced small amounts of gold when they were ramping up in 2019, of course the cost is going to be high per ounce produced as they still have to run the whole plant to produce less gold. This has already and will continue to change and get better because as I said above, we are producing 2700oz per month lately.
- Reduction in the number of Fly In Fly Out and employing more locals,
- Reduction in operating costs
- Less mining needed in future as they’ve already stockpiled a massive amount
- The more high grade gold we discover in the future such as at Panther
Dividends
According to my quick calcs, the company should have about $50M in the bank by the end of this year. This came from the estimate that they should have about $4M in bank after exploration from that $8M cap raise, they profited $6M from sales in 2019 and will earn about $40M per year in profit at an average POG of $2570 given it stays at $2700/oz for the rest of the year. So after paying the $18M in debentures off in October, they could give a 1c dividend out ($40M given everyone exercises all their options) and still have $33M in the bank ($10M left from sales plus $23M from Options) for future projects. Or they could give the whole $73M out as a 1.9c dividend!!! Given past experience with directors giving 50% of Haley's profits out in dividends, I think the 1c dividend is more likely. 1c dividen within the next 8 months doesn't sound bad at all though!
Valuating BCN
Now there are two methods I use to evalutate companies but neither are comprehensive and have their shortcomings like all methods:
1. Price to Earnings Ratio
Currently, assuming everyone exercises their options, BCN continue operating at 2,200oz per month, POG is $2700/oz and AISC is $1000/oz we get Earnings per year of $45M and Earnings per share of $0.0118. This equates to a P/E ratio of only 3.12, meaning BCN is very undervalued! The S&P 500 average P/E ratio is 22.86! But gold miners have a historical P/E ratio of about 15. It’s very hard to just give BCN the same P/E ratio as the average of the industry because they’re only new and only have a short life of mine (Currently 5 years). But even if we say they should have a P/E ratio of only 10 for example which is fairly low, it still says that BCN should be at a share price of $0.118 (3.2 times the current share price). This article saying these companies all have low P/E ratios, yet the lowest on there is only 7.04 while the rest range between 10 and 23...
https://seekingalpha.com/article/425081-10-gold-producers-with-undervalued-p-e-ratios
2. Life of Mine Profits
BCN know they have 200,000oz of gold which gives them a profit of $360M at todays gold price and a LOM AISC of $900. That plus the money made if all the options are converted, divided by the number of shares and options (3.79Bn) gives us a share price of $0.10 (2.7 times the current share price). But that is assuming they don’t find any more gold. If we assume they find another 100,000oz of gold, that brings the profits up to $540M! Divide that by the number of shares and options, it equals $0.149 which is 4 times the current price. All of this shows how undervalued BCN really is. And that's not taking into account any of the unexplored areas of Jaurdi, the 5 Bulong Rd tenements and Timor-Leste.
The problem with this method is that the company can’t dig and process all the gold immediately. So this method basically tells you that if you hold your shares for 5 years and the company processes that 200,000oz of gold, you will nearly be guaranteed to receive 10c per share of dividends. And if you are willing to wait until all the other additional 100,000oz of gold gets processed which could take an extra 3 years, your $10,000 investment will nearly guarantee you $40,000. But if the company increase the size of the processing plant so they can process more gold each year which I definitely think will happen given the amount of gold they've got, it may only take 4 years from now to get that $40,000.
These two methods both show that theoretically, BCN should and will eventually reach those prices one day. But the problem is, the market either:
- doesn’t put as much research into the company as I have, so don’t buy BCN as much as they should
- don’t realise or believe the cost is coming down from $1270/oz, so don’t buy as much as they should
- don’t have the patience to wait until dividends or for the share price to rise, so they sell more than they should
- manipulate the share price so they can buy more at a cheaper price
- a million other personal reasons especially related to the current economic situation
- or all of the above
Risks and Negatives of BCN
Here are some of the risks associated with BCN and what I think are some rebuttals as to why BCN have minimised these risks
- Coronavirus infects everyone on site and the plant has to shut down for months;
At the end of the day, BCN would eventually start up again whether it be 6 months or 12months, and keep making gold. So the price may fall to 2c because people want to invest in other shares that are currently making money. But as long as we don’t sell, BCN still have all that gold in the ground, the plant will still start up again and make gold each day and there’s still that potential of all the other tenements they own to have even more gold in the ground. None of that changes. So it just delays the money coming in to BCN by 6-12months. So instead of getting dividends at the start of next year, we just get them at the start of 2022. But if everyone on site got sick, I'm sure they'd be able to find another set of healthy workers will to take their jobs within a month or two anyway.
- The world economy shits itself;
Although that normally helps the gold price which only helps our profits and dividends. So this is actually a benefit for us.
- The gold price could come crashing down to $1400 or lower making it unviable to mine the gold (Verrrrrry unlikely, there’s so many articles and experts saying the gold price will go to AUD$5000/oz);
Even if the gold price drops suddenly, the directors have hedged half of production until August at handy gold prices and will probably continue to hedge some of their production a few months in advance to cater for these situations.
Anyways, that's my analysis of BCN. Please be very critical about my calculations, assumptions and methods of valuation. I have been fairly conservative I thought, but would love to hear your thoughts.
Give it a like or a Great Analysis so we can get this up to the "Top Rated Posts" on the HotCopper home page so we can drag more experts to this forum to hopefully give us alternative thoughts as opposed to what seem like mainly very positive posts from all the regulars here. Maybe that's just a sign that BCN is simply undervalued as I've indicated in the calcs above?
This is not investment advice, just my opinions.
(20min delay)