The following is MY valuation and interpretation of OVR's...

The following is MY valuation and interpretation of OVR's resource and should not be taken as investment advice.

This is one of many methodologies used extensively by geologists, high net wealth investors and mid-tier investors in major mining conferences as a benchmark understanding of a junior's potential vs its market capitalisation.

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Comprehensive Valuation of zinc and lead resources [Only 80% extraction factored into calculations]

For my calculations, i will take the JORC compliant figures of OVR, multiply them by the commodity price, multiply that by the recovery rate, and then subtract capital expenditures [CAPEX] and operating expenses [OPEX, or cost per ounce], giving a rough estimate of what a company's project is worth. Of course there are taxes, interest, and other variables, but this is a good ballpark indicator.

Here's the formula;

[Compliant oz or lbs] X [$/oz or lb] X [Recovery rate] - [Capex + Opex] = MINE VALUE or MV

MINE VALUE approximates a gross present value figure.

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Comparing this MINE VALUE to a company's Market Capitalization [MCap] or Enterprise Value [i.e. EV = MCap adjusted for cash and liabilities] gives a ratio that can be used to compare the company to its peers. I have left done the calcs and left the ratios below for your reference.

Any ratio above 1.0 says the market is giving the company MORE than the rough valuation the project seems to presently merit. Reasons for a RICH VALUATION might include known resources that are not yet JORC compliant but are on the way. If a reason for the high valuation can't be determined, its best to be cautious.

Conversely, a ratio below 1.0 suggests that the company is selling cheap. Again there might be a good explanation such as feared political risk, but it will tell you that a company is worth a closer look. Remember that the market will likely revalue a junior firm's of their ounces / pounds to some degree when they go into production successfully on their first mine. Therefore, as a frame of reference;


[MCap / MV] and [EV / MV] = PEER COMPARISON RATIO

IF RATIO > 1.0, MEANS RICH VALUATION, WITHOUT A KNOWN VARIABLE, CAUTION IS WARRANTED.

IF RATIO < 1.0, MEANS LEAN VALUATION, COMPANY WORTH A CLOSER LOOK. WATCH FOR RED FLAGS.

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I have also included ratios of EV/lb [for zinc] or EV/oz [for silver] for the summary below. Basically, this tells you how many dollars per ounce or per pound the market is giving the company for its resources and reserves. Therefore;

EV/OZ OR EV/LB = MARKET APPRAISED $ PER OZ OR LB FOR COMPANY RESOURCES AND RESERVES

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LATEST FIGURES: Advanced Development opportunity

ZINC/LEAD/SILVER/GERMANIUM

Overland resources [OVR]

Share price at close on 18th Feb 2011 AUD = $0.245

MCap = $35.91 million

EV = MCap + debt - total cash and cash equivalents = $35.91 m + $0.402 m [2010 statutory accounts] - $2.84 million [recent 2011 cashflow quarterly] = $33.47 m


MV of zinc resources = [Compliant lbs] X [Zinc price*] X [Recovery rate*] - [Capex* + Opex*]

= [19.725 B/lbs X 0.063** X 0.80*] X [$1.14/lb] X [0.962] - [Capex + Opex]

= [994.14 M/lbs] X [$1.14/lb] X [0.962] - [Capex + Opex ]

= [1.09B] - [63M + 490.5M]

= 536.5M

MV of lead credits = [Compliant lbs] X [Lead price*] X [Recovery rate*]

= [19.725 B/lbs X 0.012**X 0.80*] X [$1.205/lb] X [0.986]

= [189.36 M/lbs] X [$1.205/lb] X [0.986]

= 224.98M

Therefore;

MV of resources at 80% extraction = Zinc resources + Lead credits
= 536.5M + 224.98M
= 761.48M

In conclusion;

[MCap / MV] ratio = [35.91m / 761.48m] = 0.047

[EV / MV] ratio = [33.47m / 761.48m] = 0.044

Summary; It is pretty obvious based on the metrics above that OVR is significantly undervalued on their resources [released in 2010].

By looking at these figures, OVR has a REALLY LEAN VALUATION and is worth a closer look.

There does not seem to be any red flags as the recovery rates are high, infrastructure is close [with producing mines nearby], cash-costs are low [i.e. $0.45/lb includes transportation] and no environmental issues. OVR have also been employing First Nations groups and local labor since inception. The Yukon government is pro-mining and are working in concert with the management to get this project online. Further to this, there is no need for any new types of machinery in processing and no geo political risk in Canada.

NOTE: This valuation is from PREVIOUS RESOURCE FIGURES and NOT INCLUSIVE of the pending new significant upgrades. Of course, the figures will be even more undervalued then.

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Also;

EV/LB = 33.47 / 994.14 M lbs = $0.034; As such the market is giving OVR a mere 3.4 cents per lb of Zn....current spot price is $1.14 per lb of Zn.

Note - The valuation above provides a context, not definitive guidance; a compass, not a GPS. As OVR moves through its discovery cycle, the figures will move higher. Significantly undervalued by all accounts.

As always, invest accordingly and do your due diligence.


*Footnotes

Zinc price = $1.14 per lb
Lead price = $1.205 per lb
Extraction rate = 80% or 0.80
Resource estimate = 8.95MT at 6.3% Zn and 1.2% Pb
Recovery rate = 96.1% for zinc / 98.7% for lead
Opex = 0.45/lb cash costs for extraction and transportation as indicated in OVR's latest report
Capex = 63m according to OVR's latest report

** Cut off for the Zn is at 6.3% for 8.95MT according to OVR presentation.

Realise that resource upgrades are due and things are going to change dramatically on the upside valuation.

The above is my valuation calculation and should not be taken as investment advice. Do your own due diligence.