Slapshot,

Thank-you for taking the time to share your thoughts with such clarity and ease of exposition.

I would like to argue one point by providing some financial arguments against it. To be fair, your assertation is most certainly correct in almost all business models except for the case of a mine.

The point I would like to argue is your assertation that timeline to production greatly affects the current valuation. It shouldn't.

One of the truths about commodity pricing, is that the price of the commodity necessairly incorporates the term structure of interest rates. You can see this in a few ways, one way is through the futures market:

To avoid arbitrage: Delivery in time period 1 of a commodity must be valued as the time 0 price plus interest at the risk free rate. This ensures that someone cannot buy the commodity at time 0, sell a futures contract, hold the commodity to time 1 and deliver it for profit. It also means that for any commodity that will be produced at time period 1, you can sell it, through the futures market, for the time 0 price today! - No discounting!

The other way is to go back to the basic definition of the price of a stock (NPV of cashflow):

The price at time 0 is equal to the present value of the price at time 1 plus the present value of the dividend paid at time 1. Since commodites do not pay dividends, the price at time 0 is simply the value at time 1 discounted for interest. Recursively this implies that at time 0, the term structure of interest rates is incorporated in the expected future prices.

As the term structure of interest rates is already included in the price of the resource at time 0- it is not proper to discount the proceeds for deferal of timeline as your post suggests.

Less mathematically: Here is the question that you need to answer for me to believe that timeline for production is important in the valuation: If all you say is true, why do people buy gold as an investment? and then: What is the difference between

1. buying nickel over an exchange (and saving it in your safety deposit box, until delivery), AND

2. buying NOT's "proven" nickel, mining it, and then delivering it? The only difference is the cost of mining it and maybe a small liquidity premium (i.e the chance that you need to sell all the nickle at once - and so need to have it all mined at once - or find a buyer for the whole mine)

I'd also like to point out that this is the reason why the % insitu valuation method works. It is a simplification of a NPV method that is arbitrage free. The % of insitu that is not included in the valuation are costs of mining and profit for the takeover company.