The question and answer relates to a gold junior but the same applies here:

Hi Jim,

As a young tad, I worked in severalCanadian hard rock PM mines from jackleg drilling to drill coreinterpretation. I know the B from the BS regarding proven reserves andfactors governing the viability of a start-up, but these juniors haveme stumped. My modest portfolio is exclusively precious metal juniorswith more than adequate proven reserves, and a mine in operation orclose to it. I’ve been diligent in making sure that none of them arehedged yet still they are greatly underperforming in relation to theprice of gold.

Does Jesse’s advice to “sit tight” applyto juniors with good credentials, and if so, what will be some signs ofthese juniors unhooking from the general market decline in the future?You and Dan are the major reason I have not and will not cut and run inthe insanity of the present market.

Sincere gratitude;
CIGA Hardrock GH

Dear CIGA Hardrock GH,

The hedge funds are long the Barricks ofthe world and short ALL the juniors. The hedge funds have over-pricedthe big guys and under-priced the juniors.

Here is the question that needs to be answered:

With gold headed to $1650 what do youthink your junior with 1,000,000 ounces of 43-101 compliant reservesand a deposit strike length of at least 4 kilometers would be worth?Here's a back-of-the-envelope estimate:

1,000,000 times $1650 minus a $300 total production cost per ounce.

In ground value: $1,650,000,000 (not including recoveries)

Cost of extraction: $ 300,000,000

Amortization of plant and equipment over say a 10 year mine life: $200,000,000

Value:

Value of the asset $1,150,000,000.

Now let's say the deposit goes to5,000,000 ounces contained. In this case five times $1,150,000,000 isthe value - all things being equal.

Does the enterprise plan to produce or will they sell the asset when it matures, say two to four years past initial production?

If they plan to produce for their own account, then the value is a combination of discounted present value times cash flow.

If they plan to sell the property, it isasset value. If the last sale of such an asset was at "x" euros timesounces contained, then the starting negotiation would be a premiumabove "x" euros times ounces contained plus a value for gold containedwithin other resource categories.

The hedge funds can play all the gamesthey want but they will fail on valuations as gold goes to and through$1650. My personal money is wagered on my words.

So those that are demoralized should sell and stop the pain.

I am significantly committed and intend to continue my commitment with every cent I have, no margin.

Regards,
Jim