"$600m/(200 000/1.2) = $600m/166 666 = $3 600/oz. So, the company is valued at $3 600 per production oz adjusted for the AISC. You pay $3 600 per oz of gold produced by the company"
$600 million/(200,000ozs/1.2) = $3,600/oz
Your dimensionless denominator of 1.2 is actually a normalisation factor based on an AISC of $1,000 per oz, ie
1.2 =($1,200/oz)/($1,000/oz). The units cancel one another out in this scaling formula.
The $3,600/oz is actually per unit of annual gold production. It wouldn't make sense otherwise. It just goes to show how much we are willing to pay forward on some of the bigger mid-tier producers. Going by your numbers of $5,000 to $7,000 per oz for producers with a production scale of 500koz to 1Moz/annum investors in those companies are paying forward between about 2.7 years and 3.8 years based on an $1,800/oz gold price.
Based on gold prices prevailing about 3 months ago of about $1,650/oz the same investors would have been paying forward between 3 years and 4.2 years at today's share prices. Looking at NST's reserve life recently published in the latest DCN presentation, of less than 6 years, the market is taking a big gamble paying these stocks that far forward.
Based on DFS metrics, ie 2.4Mt/annum, 2.7g/t reserve grade, 85% recovery and AISCs of A$1,000/oz we get 177,1000zs per annum of production from Syama UG alone.
Just assume an EV of $1 billion to use a round number which puts RSG roughly in the right EV category currently and you end up with an EV/production number of $1B/177,100ozs = $5,646/oz (adjusted for ASIC because the DFS ASIC is around your normalisation factor) based on DFS metrics.
This obviously doesn't include production from the oxide plant, the potential for scaling to 4Mt/annum or production from Ravenswood.
Scaling at Syama to 4Mt/annum using all the other same DFS assumptions gives 295,200ozs of annual production (before Mali government 20% share) or a EV/production = 3,387/oz (ASIC adjusted) at an EV of $1 billion which falls into your range of 150koz to 500koz producers.
That is only 3.13 years paid forward based $1,800 gold and a 2.4Mt production run rate and 1.88 years based $1,800 gold a 4MT run rate (not including Syama oxide, Ravenswood production or future Bibiani production).
Given that Syama has a mine life of 14 years paying the stock forward between 1.88 years and 3.13 years on Syama UG alone (and DFS metrics) leaves some room to grow from an EV of $1 billion IMO based on the other mid-tiers in your charts.
If I recalculte the above for oxide production and ongoing contributions from Ravenswood you would see the picture would look dramatically better again based on your formulas/rules of thumb. I've left this production out of my above calculations because I won't to just focus on one of RSG deposits alone, ie their major company maker orebody.
The arguement for me still revolves around the undervaluation of RSG's reserves. Those reserces give a lot of flexibility and leverage to a gold bull market. RSG won't run into the reserve replacement dilemma that NST will find itself in. The problem with NST is that it is an aspiring 1Moz producer but it doesn't have the mines that justify that level of production. Barrick cast off Kundana for this very reason. A million oz producer shouldn't have to scavenge around for reserves and production from all sorts of disparate ore bodies. A million ounce producer needs mines of sufficient scale and mine reserves to sustain production on autopilot, ie much better quality ore bodies. Grade might be king where the minnows swim but scale is king where the whales swim.
That's why I personally, in my subjective view, value RSG's Syama reserves much higher than most other gold reserves held by ASX mid-tiers. RSG's reserves at Syama have the potential to produce ~200kozs/annum of production at low cost in auto pilot mode for decades. Something these other companies just don't have. Esh
RSG Price at posting:
$1.13 Sentiment: Hold Disclosure: Held
(20min delay)
