VALUATION TRENDS IN PRECIOUS METALS & EMERGING MINERS
APRIL 30, 2013
Adam P. Graf, CFA, Managing Director
646.562.1344
Adam.Graf@cowensecurities.com
Misha Levental, Associate
646.562.1410
Misha.Levental@cowensecurities.com
www.cowensecurities.com | Member: FINRA/SIPC
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Valuation – Who’s Looking?
 Mining Company / Private Equity
 Concerned with returns and ability to weather the cycle
 Use conservative price assumptions, downside potential is key concern.
 Finance with cash or debt
 Equity Investors
 Looking to determine value today and value change with commodity price
 Debt Investors / Banks
 Most concerned with downside potential and ability to service debt (interest and
repayment)
 May require hedging to insure debt service, thus eliminating upside potential that
likely are the concern of equity investors.
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Determining Value and Leverage
 By separating value and leverage, investors have a more complete method
for choosing stocks that offer one, the other, or both. Additionally, investors
can evaluate the cost of each.
 Value – The difference (or discount) between the market price and the
ultimate intrinsic value of an asset at current commodity prices.
 Leverage – The change in intrinsic value directly associated with the price
movement of an underlying commodity.
 NAV Methodology – Discounted cash flow method used to determine the
intrinsic value of a company from the valuation of its assets at current
commodity prices. By constructing commodity price matrices, leverage to
underlying commodities can quickly be determined and compared. NAV can
accommodate all significant variables and thus offers a more complete
analysis than simple ratios (e.g. ounces of gold per share).
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Leverage to Commodity Price
LEVERAGE PER SHARE VS. UNDERLYING COMMODITY
GOLD
SILVER
COPPER
SA
2.37x
0.32x
0.96x
ZINC
0.05x
NAK
0.46x
0.00x
1.55x
0.49x
TRQ
0.29x
NG
2.25x
SSRI
0.22x
2.18x
1.39x
4.00x
AGI
1.58x
0.04x
KGC
2.12x
0.08x
0.00x
NEM
2.63x
0.12x
0.29x
ABX
2.46x
0.14x
0.78x
0.01x
GG
1.30x
0.19x
0.14x
0.10x
AEM
2.68x
0.15x
0.03x
0.02x
AUY
1.05x
0.19x
0.37x
UXG
0.45x
0.59x
3.82x
VTR
3.42x
0.82x
AR
0.80x
FCX
CDE
0.11x
1.52x
AG
0.78x
ATM
TRQ
0.46x
4.03x
SSRI
4.50x
MAY
NAK
GCU
UXG
1.79x
AR
1.72x
PAAS
2.83x
IMZ
AUMN
GSV
0.06x
TKO
1.84x
TGD
1.96x
0.12x
GG
0.66x
AG
AUY
PAAS
0.00x
ANV
0.19x
AUQ
2.44x
AGI
GBU
TGD
0.24x
GUY
0.04x
IMZ
2.29x
KGC
2.58x
NG
PVG
GGA
0.50x
CKG
1.08x
3.20x
GGA
2.14x
SGR
0.00x
SA
CKG
1.00x
0.00x
VGZ
3.27x
GBU
1.78x
0.81x
ABX
3.99x
AUMN
MDW
2.31x
PZG
PVG
VGZ
1.50x
2.36x
NEM
3.67x
GSV
1.05x
THM
AEM
1.50x
TKO
VIT
GUY
2.00x
0.08x
SGR
2.44x
2.50x
VTR
3.32x
3.00x
THM
VIT
MDW
3.50x
PZG
0.07x
ATM
0.95x
1.33x
MAY
1.35x
GCU
ANV
5.00x
4.50x
1.35x
AUQ
Equity to Gold Leverage
MOLYBDENUM
0.13x
Company Ticker
0.94x
0.09x
2.57x
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The Value Proposition
“Major” and “Mid-Tier” miners trade at a higher P/NAV than single asset
plays (“Juniors”) or development plays (“Emerging Miners”)
1.5x
SWC
AEM
NAV( EoY 2013)
1.4x
“Seniors” or “Majors”, &
“Mid-Tier” producers
1.3x
III
1.2x
CDE
BTO/CGA
1.1x
1.0x
FVI
“Junior”
producers
0.9x
MND
LGC
TMM
P/NAV multiple
0.8x
KRM
0.7x
SSL
RBY
MAG
THO
AR
P
AZK
AUN
BVN
EDR
ABG
SVM
LODE
KDX
NG
AZC
SMF
KOR
RR
CEE
CUM
NSU
SMT/DIB
LYD
ASR
ANV
TRY PZG
R
BSX
CS
CG
SRCH
GUY
PG
SWD MAX
SSRI GBU
CSI
MUX PVG
MDW
WS
LSG LCC
AUMN
TGB
SUE
GSV
.HDA
SA
ATM
EOM/GSL SGR
SSP
VGZ
CKG
ATN THM
CUV
GCU ORANCQ
NAK
NKL
QMM
XRA
VTR VIT
GGA
NUS
JAG
SFEG
ANTO
NCM
PCU/SCCO
NGD
SLW
AUY
AG
IVP
HOC
AUQ
AGI
HL
FRES
FNV
GOLD
OSK PMTL/POLY
DGC
RGLD
PAAS
NEM
ABX
GG
EGO
KGC
FCX
IMZ
0.6x
0.5x
0.4x
0.3x
0.2x
MAY
0.1x
0.0x
10
KBX
100
1,000
IMG
TRQ/IVN
Explorers &
Emerging Miners
10,000
100,000
Market Cap ($MM)
Single/Duel Asset Producer
Pre-Producer
Multi-Asset Producer
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Life Cycle of a Mining Share
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The NAV Argument: Company vs. Asset Level Analysis
• The finite resource and uniqueness of every ore body favors an asset-by-asset
approach.
• Mining companies and regulatory requirement often (but not always) provide the
transparency needed.
• The consolidated company approach loses data
• The NAV is a collection of the value of each asset combined with the corporate
balance sheet to indicate value to equity holders.
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Market Based/M&A Based Valuation System
$25
$20
$15
$10
$5
FRG Fundmental Value
FRG Projected Market Value
2017 E
2016 E
2015 E
2014 E
2013 E
2012 E
2011 E
2010
2009
2008
$0
FRG Avg Annual Stock Price
 FRG provides a convenient case study.
 Applying a simple multiple set to project in various states of development, FRG
followed “fair-market value” from 2008-2010.
 In late 2010, FRG was acquired by NEM for near “fundamental value”.
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Market Based/M&A Based Valuation System
17%
16%
15%
14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
Gold & Silver Discount Rate
Dec-12
Oct-12
Aug-12
Jun-12
Apr-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
Apr-11
Feb-11
Dec-10
Oct-10
Aug-10
Jun-10
Apr-10
Feb-10
Dec-09
Oct-09
Aug-09
Jun-09
Apr-09
Feb-09
Dec-08
4%
Copper Discount Rate
 As equities underperform the commodities, the implied discount rate rises.
 A rising discount rate reduces NAVs, especially for long-lived projects.
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Forward Looking Trends In Valuation
Source: Mike Samis, Ernst & Young
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Valuation Trends
 Dynamic NAV methodology, with market based inputs allows for asset
and equity valuation in the context of the current market.
 Only by using this method can value be separated from leverage, allow
both to be quantified and ranked.
 By determining fundamental (or intrinsic) value for each asset, can fairmarket value be projected over time using a schedule of catalysts.
 Advanced computing power allows for the use of increasingly
sophisticated dynamic NAV models – which replace the need to use
arbitrary conservative inputs (non-market derived) for prices or discount
rates to evaluate risk.
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Current Investment Trends
 Risk-Off in Gold Equities – Producers vs. Pre-Producers
 Investors shunning any hint of risk.
 Major Risks Concerning Investors & Acquirers
 Political Risk
 Permitting Risk
 Financing/Dilution Risk
 Execution Risk
 Large Producers have been punished for making acquisitions or
aggressively executing project pipelines, then falling pray to these
risks.
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