What will the company look like as a producer?

Although, many exploration companies will never consider making the transition to a producer, their deposits may eventually be purchased by a producer and the purchasing producer is likely to look at the opportunity in a like manner -- that is, what is the ore value, what would this deposit be worth once it was in production, what is it going to cost to reach production, what are the risk premiums and appropriate discounts.

GoldMinerPulse answers the "what will the company look like as a producer" by applying the following steps:

• Step 1: calcuate the company's average ore value per tonne. This metric is part of the summary section of the GoldMinerPulse NI 43-101 Metal Valuation Reports which are updated daily for gold companies and silver companies.

• Step 2: estimate a Projected Market Capitalization per ounce of Equivalent

  • Step 2a: for gold companies, estimate the company's in production Market Capitalization per ounce of Gold Equivalent from the Gold Producer Valuation Line based on the average ore value per tonne using the Gold Explorer-Producer Valuation chart. That is, with all things being equal, for an in production gold producer, use the company's average ore value per tonne and the gold producer valuation line to estimate a projected market capitalization per ounce of gold equivalent. As appropriate, reduce the Projected MCpOzAuEq to account for known issues with the company's deposit(s) based on comparables. For example, Yamana Gold (YRI), a large percentage of its total in situ metal value comes from copper and not gold or silver. Therefore, Yamana Gold (YRI) is expected to fairly priced well to the left of the Gold Producer Valuation Line.

  • Step 2b: for junior silver companies, estimating the company's in production Market Capitalization per ounce of Silver Equivalent from the Junior Silver Producer Valuation Line based on the average ore value per tonne using the Silver Explorer-Producer Valuation chart. That is, with all things being equal, for an in production junior silver producer, use the company's average ore value per tonne and the junior silver producer valuation line to estimate a projected market capitalization per ounce of silver equivalent. As appropriate, reduce the Projected MCpOzAgEq to account for known issues with the company's deposit(s) based on comparables.

  • Step 2c: for combined gold and silver companies, estimating a point part way between the junior silver producer valuation line and the major gold producer valuation line may be appropriate. The Silver Explorer-Producer Valuation Example chart assumes that a gold and silver company is being valued.

• Step 3: Estimate the capital expenditures required to move the company from its current state into production on its gold and/or silver deposits. Typically this should come from a feasibility study, pre-feasibility study or scoping study on the company's project or else from a like project in the region.

• Step 4: Estimating a risk premium to be applied to the company's transtion to production.

• Step 5: Estimating a discount factor to account for the time lag between the deposit as it stands now and a future in production status. The discount factor can be used to account for known issues. For example, discounting an Inferred resource because of reason xxx.

  Discounting past the estimated start of production is not required since such discounts are already factored in the Gold Producer Valuation Line and the Junior Silver Producer Valuation Line.

Following the above valuation allows an interested party to focus on the capital expenditures to transition a deposit or deposits(s) into a producing mine(s) and the known exceptions in estimating a value for a company of interest. The issue of future pricing of gold, silver and base metals has been factored out by the Gold Producer Valuation Line and the Junior Silver Producer Valuation Line which are both based on established gold and silver producers and which therefore fully reflect the market's expectation on the future metal prices. The GoldMinerPulse metrics are updated daily with closing prices and as result, predicted fair market share prices will vary on daily basis as the gold and silver valuation lines are updated with the most recent closing prices.

Fair Market Value Calculation

Gold Company

Fair Market Stock Price Estimate = {

{
{Projected Market Capitalization per ounce of Gold Equivalent × Number of Gold Equivalent Ounces
- Capital Expenditure - {Capital Expenditure × Risk Premium }
}
× {1 - Discount Factor }
}
÷ Current Fully Diluted Share Count

}

Silver Company or Gold and Silver Company

Fair Market Stock Price Estimate = {

{
{Projected Market Capitalization per ounce of Silver Equivalent × Number of Silver Equivalent Ounces
- Capital Expenditure - {Capital Expenditure × Risk Premium }
}
× {1 - Discount Factor }
}
÷ Current Fully Diluted Share Count

}

Note: Since all metrics are based on closing metal prices, gold equivalent ounces and silver equivalent ounces have equal value at the closing metal market prices and are therefore interchangable.

Discussion

The fair market stock price estimate is estimated on the basis of the current fully diluted share count since the expected capital expenditures, risk premiums and other discounts have already been attributed. That way whether the capital expenditure requirements are raised through borrowing or issuing shares should not impact the current fair market stock price.