Valuing and assessing gold mining projects
Valuing and assessing gold mining projects isn't as complicated as it sounds
. You certainly don't need to be a mining insider, engineer or financial analyst to do it accurately. Once you've got the basics down, it's remarkably easy.
Firstly, it's important to understand that from the perspective of a mining company, the value of gold on its property stake is not equal to what that gold would fetch trading on international markets. There are a lot of reasons why this is so, and they're all crucial to assessing the returns on a mining project.
The most obvious reason is that the total projected cost of getting gold out of the ground must be factored into profits. If a site has $40 million worth of gold, but will take $15 million to process, then the mine is only worth $25 million to the company. And because mining is such a heavy, extensive and complicated operation, its sources and levels of expense are often untamed and turbulent. If they're not monitored carefully, they can bleed into a company's bottom line with disastrous results. And just think, $80 million worth of gold in Ecuador that takes $70 million to mine certainly isn't a better investment than a $20 million mine in Brazil that only takes $5 million to develop.
The fluctuating price of gold on international markets is also a crucial component to assessing mining investments. Suppose a mine has 500,000 ounces of gold and the international spot price is at $1500/ounce. If the production cost for the mine is $1000/ounce, then the value of the gold underground is worth $250,000,000 (sale value per ounce of gold minus cost per ounce of gold multiplied by the number of ounces). But if the price of gold rises by 10% to $1640 an ounce, the value of the gold underground will be worth 28% more, at $320,000,000. Conversely, if the price of gold declines 10%, the value of the gold will be $175,000,000; a 45% decline for the company's bottom line. Because spot price fluctuations affect the revenue per ounce but not the cost, they have a geared affect on a mining site's return, and are thus crucial to anticipating a project's profitability.
The next step is to wed these anticipated costs and future gold prices with an analysis of the company's stake; mainly the quantity and quality of the gold in the ground. With a great deal of surveying, tests and data, a company and its investors can extrapolate a predictable understanding of the land they sit on, making it less of a speculative investment and of course raising the cost of entry for investors.
However, the strategy of most junior mining companies, which sometimes lack the massive amounts of capital demanded of excessive geological scrutiny, is to act more speculatively, mining a site whose magnitude is more uncertain. While this might sound like a downside, it's not. The less a mining company appreciates its stake, the more it's going to be undervalued and the bigger the returns for investors.
To help investors assess a junior mining company's prospects, the Canadian Institute of Mining has categorized mine analysis into three regulated and transparent stages: Inferred Analysis, Indicated and Measured Analysis and Proven and Probable Analysis.
Inferred is the lowest-confidence category and is based on just enough drilling to outline the basic mineralization of the site. The quantity and grade of the gold can be estimated through limited sampling and its continuity can be reasonably assumed but not verified. The information is obtained through limited techniques like outcrops, pits, workings and drill holes.
A Measured and Indicated analysis indicates that the mines have been drilled enough to establish their dimensions and continuity relatively well. The site is at a stage in which the grade, quality and densities of the gold can be estimated with enough confidence that operations planning and economic modeling can begin extensively.
Proven and Probable signifies that the site has bankable gold reserves with a firmly established value. The quality and quantity of the data is accurate enough that the amount and grade of the gold has been ascertained with enough accuracy that the financial outcome of the project is a certainty.
Valuing and assessing gold mining projects
By: Iminesco.com
The Twlight Craze In Jewelry Are These Claims A Proper Time To Obtain Silver? Simulant Diamonds - Unbiased Reviews Ten Basic Rules Of Wearing Silver Jewelry Jewellery Tittle-tattle Features Of 3l6l Stainless Steel Jewelry Blue And Silver Spiderman Shiny Zentai Suit Golden Lycra Spandex Unisex Outfit Costume Spiderman The Gold Double Standard Shanghai Gome To "four Raiders" Detonated On May 1 Golden Week Crystal Jewellery Htc Desire Deals- A Golden Opportunity Heart Of Gold Is Neil Young