in situ value, why noront is worth more then most think, #1 of 5
posted on
Feb 19, 2008 05:58AM
NI 43-101 Update (September 2012): 11.1 Mt @ 1.68% Ni, 0.87% Cu, 0.89 gpt Pt and 3.09 gpt Pd and 0.18 gpt Au (Proven & Probable Reserves) / 8.9 Mt @ 1.10% Ni, 1.14% Cu, 1.16 gpt Pt and 3.49 gpt Pd and 0.30 gpt Au (Inferred Resource)
hello friends,
back from south america, and saw this recent question from a new member of the board:
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what is ment by in situ value? Can you explain if it is not too much trouble.
thanks
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so thought it would help some newer readers to repost my october/november series of 5 articles i wrote analyzing in situ value.
here is #1 of 5
Posted by: jsq on October 26, 2007 11:22AM
hello friends,
when reading mining info you often see the term in situ, it is latin and means "in place" from the posts i read and even the press comments, many still do not fully realize what noronts press releases mean. i have been investing in the market for over 30 years, much of it specializing in mining firms. so here is my take, which may assist some of our friends. several key factors go into valuing a mine. a typical rule of thumb is that the in situ value of the minerals in the ground is worth 10% in terms of shareholder market cap. this is based on historical experience in the mining community of what it costs to get it out of the ground and converted to shareholder wealth. noront is much different from a "typical" valuation model and we will discuss why. lets look at 5 key factors:
many profitable mines process ore that is worth only $50 to $200 a ton. in other words most mines have to move a lot of dirt. this of course costs a lot of money in the form of trucks, humans, mill capacity, energy, infrastructure, cost of capital, etc. are you aware that there is gold in your backyard? just because you know where it is does not mean it is valuable. the amount of gold in your backyard is miniscule in most cases. it will cost a lot more to retrieve the microscopic amounts then you can sell it for after you retrieve it. the same with gold in sea water, many millions of ounces in miniscule amounts. it costs more to retrieve then you get for the found metal. that is why nobody digs up your back yard. it is not worth the effort. well that same analogy goes for most mine sites, their costs are to high to retrieve the metal so they close down after a short while, or never open to begin with. as mentioned before, most mines dig out only $50 - $200 worth of metal per ton of ore. coal mines can make a great business by digging coal out of the ground which they sell for $40 a ton. if it costs them only $30 a ton, which is what some of the better coal mines experience, they get rich with enough volume. what makes the $1000 a ton ore, (this is what noront has so far found some quantity of) so much more valuable is the economies of scale it allows for. think about the following:
a profitable mine firm A: this is extremely important to understand. we have all seen the cost of buying a house with a mortgage example. if you buy a house for $100,000 and you make payments over the life of a 30 year mortgage you pay about $300,000 for that house!. $100,000 for the principle and $200,000 for the interest. the bank makes twice as much as the guy who built the house who had to buy lumber, labor, land, etc.! that should help you understand the time value of money and how it massively impacts a mines value. if you have a mill set up that can process 1,000 tons of ore a day and you are using feedstock that generates $100 output value how much profit can you make, obviously less then $100 for each ton after the cost of moving the ore from the ground thru the mill. there are some very specific limits to what your mill size will be. your engineering team will have to optimize the mill size to the size of the ore body, its mine life, grade, etc. the more profit we can realize per ton, and at $1,000 a ton, that profit is exceptional on noront ore, the quicker we pay the banksters back and get them off our back. in many mines the interest on the loans is one of, if not, the single largest expense over the life of the mine. so it is imperative to get out of debt quickly. look at a simplified example. two mines, both with identical total costs to extract ore and process, not including interest expense, which is $50 per ton. mine A: ore sells for $100 a ton mine A: mine B: (hopefully noront): now you see the massive leverage a high grade mine can generate. you now understand how much quicker mine B can pay off its banksters. remember, for many mines interest expense is one of the single largest expenses over the life of a mine! this is a rough and dirty example to give you "perspective". i am out of time but will try to get #2 thru #5 posted in the next few days. the info from #2 - #5 will continue to open many eyes, there are a few surprises. when you are done with all 5 i think you will see noront in a different light. i think you will see some of what i see, and what some major investors see, (that is why the share price has continued upward without news). be right and sit tight, regards, jsq |