Consider Millenium Minerals (MOY.ASX). The company has just released its earnings for the March 2013 quarter. They were $10million, or $40 million annualised. This compares favourably with a market capitalisation of $60mil (according to Google Finance); however you might want to confirm that. It addition they have $11mil of cash and bullion on hand, so effectively worth $50 million. Now, you have to consider the impact of:
1. Mine expansion - generally justified by successful resource drilling - or extended mine life
2. Future capital raisings - to cover large capital expenditure like a mine expansion
3. Gold price outlook - price recently fell, but appears to be consolidating
4. Hedge book - a new mine will have some hedging to consider
5. Mining costs - High costs make the company sensitive to gold price fall, but greater upside to a recovery in gold prices.
But I identify this company to provide a case study in how to appraise mine costs and revenues, because it offers you all the information. When you buy most equities, you will have no idea what their commercial viability is because you don't see their 'unconsolidated' operational accounts. This is not the case if you buy miners because:
1. Prices are evident
2. Mine operating costs are disclosed - This is because they are 'price takers' (there are many producers in the market) - so you are more readily able to appraise them
3. Price outlooks can be forecast up to 1-3 years out - whether hedged or open to forecast
These are of course compelling reasons to invest in mining stocks. So what are our sources of information:
1. Quarterly report - see here offers the quarterly cost, production levels, etc.
2. Mine cost model - see here for base metals, here for copper, and here for gold (Oz Mineral's Prominent Hill project)
3. Google Finance - for the latest number of shares and market capitalisation - you should confirm this number with the Quarterly Cashflow reporting because unlisted shares are often not included, and this will also tell you their cash holdings.
Here is another gold project which you could model to test your skills establishing the value of companies. This is an emerging gold miner in New Zealand, listed on the NZX and ASX, called New Talisman Mining. I did not look at their broader corporate interests.
Of course if is desirable if you can model these spreadsheets on Google Documents or Excel. I will eventually do this for a stock so that people can access it, or share it.
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