Re: Valuing Mining Stocks: In Defense of Net Asset Value
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Welcome to the Crystallex HUB on AGORACOM
Crystallex International Corporation is a Canadian-based gold company with a successful record of developing and operating gold mines in Venezuela and elsewhere in South America
Message: Valuing Mining Stocks: In Defense of Net Asset Value
I will guesstimate NAV at $900/oz appro. $16.50 per sh and $950/oz $18.00 per sh
Analyst Research Report Snapshot
| title: | Crystallex International Corp. - Update from Las Cristinas... | |
| price: | $10.00 | |
| provider: | Orion Securities, Inc. |
 
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| file info: |
Available for Immediate Download date: 26 Sep 2007 pages: 5 type: AcrobatPDF 
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| companies referenced: | KRY.TO |
| summary: | KRY, TSX - C$2.75 12-Month Target: C$9.50 KRY, AMEX - US$2.76 Potential Return: 245% Market Cap.: $720 million All values in US$ unless otherwise noted. What's Changed Previous New Rating Overweight Unchanged Target C$9.50 Unchanged What Happened? * Crystallex reported a project update including reserve and resource estimate increases at the Las Cristinas project, located in Bolivar State, Venezuela. * The company indicated that the updated reserves/resources incorporate the 2006/2007 drill program and are also based on a higher gold price ($550/oz compared with the prior study based on $450/oz). * P&P reserves and M,I&I resources are estimated at 16.9 million and 27.4 million ounces of gold, respectively. This compares with prior P&P reserve and M,I&I resource estimates of 14.0 million and 22.2 million ounces of gold, respectively. * Crystallex also indicated that the reserve/resource update includes some changes to the mine plan - including higher operating costs, higher strip ratio and a lower average gold grade. What Does it Mean? * The increased contained metal is a positive - we have always believed that consultants to Crystallex were more conservative than many other groups providing feasibility estimates. * The cost structure for Las Cristinas discussed in the release is based on a 20,000 tpd operation - at the current mineable reserve estimate, this would lead to a 65-year mine life (clearly unrealistic). We examine impacts on costs of a higher production rate, allowing fixed costs to be spread over a larger base. * We have explored the impact of the larger reserves, lower grades and updated cost structure to our Crystallex estimates. What Is it Worth? * Incorporating the increased contained metal, lower grades and higher operating expenditures into our Crystallex model, we realize about a $2.50/sh lower 0% NAV (of $9.36/sh). * Our life-of-mine production assumption is now 15 million ounces at an average total cash cost of $305/oz (compared with prior estimates of 13 million ounces at an average total cash cost of $230/oz). * We note that our cost forecasts are slightly lower than company estimates because we build in the larger 40,000 tpd project. * At spot metal prices ($730/oz gold), our updated mine plan reflects a 0% NAV of about $11.41/sh, while at $800/oz gold, our 0% NAV increases to $14.02/sh - the project still exhibits significant leverage to gold prices. * Our new aggregate value takeout for Crystallex (based on spot gold prices, exchange rates and our updated model) is about C$10.50/sh. What to Do * We reiterate our Overweight rating and out C$9.50 target for Crystallex. * We continue to believe that the crux for Crystallex remains permitting of the Las Cristinas project in Venezuela - with a permit in hand, Crystallex would be one of the most attractive takeover candidates in the gold sector. For a more detailed report, please contact Orion Securities. Disclaimers Orion Securities Inc. has acted as a financial agent (underwriter) for Crystallex International Corp. within the past two years. Robert Fung, an employee of Orion Securities Inc., is Chairman and a shareholder of Crystallex International Corp. |
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