Updated Valuation and SWOT - RSG, page-49

@jojo and @brianchu82

Sorry but I am not all over the place or ignoring the mathematics.

My first post on the subject said.

"Your dimensionless denominator of 1.2 is actually a normalisation factor based on an AISC of $1,000 per oz"

He has a scaling factor which he randomly chose which is an AISC of $1,000/oz, it has dimensions of $/oz.

Then he has a scaling function which is f(X)= X /($1,000/oz ) where X is the AISC of the company in question. AISCs have the dimensions of $/oz, so for example if a company has an AISC of $1,200/oz the scaling function yields a dimensionless number dependent on the variable X, that's because all units canel each other out, ie f(X) =($1,200/oz)/($1,000/oz )=1.2 a dimensionless number.

What you have remaining is EV/production*F(X) which has units of $/oz/annum because F(X) is dimensionless.

The fact that he chose his scaling factor/normalisation factor randomly might be the problem you are having and where his methodology breaks down.

Take for example three random theoretical companies all with the same EV of $1 billion, all producing 300koz/annum and ASICs of $900/oz, $1,000/oz and $1,100/oz respectively. Using Brian's formula based on his randomly chosen $1,000/oz scale factor, the scaling function F(X) yields the following 0.9, 1.0 and 1.1 and his scaled (AISC adjusted) EV/Production metric yields $3,600/oz, $4,000/oz amd $4,400/oz respectively. If he chose $900/oz as a scale factor instead of $1,000/oz for the same three companies he would get completely different results for the same three companies is, $4,000/oz, $4,444/oz and $4,888/oz instead of the results calculated above.

Brian going by this example it looks like your ASIC adjustment doesn't produce a reliable real life number. I think the number has the right dimensions but using a random scaling factor only produces comparisons that would be valid if you use that same scale factor all the time. Look at my example above and tell me if you agree. I think the non-scaled EV/Annual Production is a real life number that does have a meaning and a relationship to the price of gold, ie it actually represents the pay forward price of 1oz of gold.

Why would you invest in a company where the EV/ounce of production = $/oz of production = $8,000 if the price of gold is $1,800? It's like buying an ounce of gold for 4.4 x the spot price. The answer is because the formula represents annualised production and you expect the company to produce gold into the future. But the market will only pay so much of a premium for an ounce of gold produced today. For producers with large scale production and hence big reserves the market will pay over $7,000/oz for an ounce of annual production today as you present in the non-AISC adjusted EV/Annualised Production chart on page 6 of your PDF

https://hotcopper.com.au/attachments/asx-gold-miners-valuation-summary-report-180619-pdf.1153014/

NCM and EVN were over $7,500/oz in 2017-2018 by your chart.

If I were you I'd look at the problems raised above and maybe think about scrapping the AISC adjusted metric as it produces different results based on the scale factor chosen. Esh