$ Value - Lamaque vs Lobo-Marte (Kinross)

Kinross recently purchased the Lobo-Marte deposit from Teck Cominco and Anglo-American. The deposit comes with 5.4M indicated ounces and .5M inferred ounces. There are no ounces in the reserves category. Grades are 1.72 g/t (indicated) and 1.56 g/t (inferred). It’s a past producer (located in Chile), but hasn’t produced anything since 1992 (shut down due to low gold prices, below $350 US). It sounds like it will be a heap leach (open pit) operation. It looks like it’s going to be at least a couple of years before they can bring this into production, as not only do they have to develop the project but they have to perform significant exploration work to upgrade the ounces. Certainly, Lamaque’s production start up timeframe is much shorter.

Based on the limited info available, there doesn’t appear to be anything that distinguishes Lobo-Marte from a typical gold deposit or mining operation.

Kinross paid $250M US ($313M Cdn) for this gold deposit.


Lobo-Marte analysis:

Proven & Probable Reserves: 0 ounces $100 = $0

Measured: 0 ounces * $50 per oz = $0

Indicated: 5.4M ounces * $45.37 per oz = $245M

Inferred: .5M * $10 per oz = $5M

Total (in the ground) value of Lobo-Marte = $250M US ($313M Cdn)

Note: I assumed a $10 value per inferred oz then I backed into the value per indicated oz, of $45.37


Lamaque analysis:

Proven & Probable Reserves: 1.221M ounces $100 = $122.1M

Measured: .124M ounces * $50 per oz = $6.2M

Indicated: .5M ounces * $45.37 per oz = $22.685M

Inferred: 2.824M * $10 per oz = $28.24M

Total (in the ground) value of Lamaque = $179M US ($224M Cdn)

Note: Ounces profiled for Lamaque represents the same breakdown as used in the recent technical DD report prepared by Gorman (for Fortis).


Summary / Conclusion:

Lamaque appears to compare favourably to Lobo-Marte. If Lobo-Marte is valued at $250 US then (the Lobo-Marte) logic would suggest that Lamaque has a true value of $179M US ($224M Cdn). Of course, it is supply and demand (as well as perception) that will ultimately determine the sale price of the asset (if it gets sold instead of getting bank financing). As such, let’s see what is left if we were to apply various discount rates:

25% discount: $179M * .75 = $135M US ($168M Cdn)
50% discount: $179M * .50 = $90M US ($112M Cdn)
75% discount: $179M * .25 = $45M US ($56M Cdn)

The numbers are certainly suggesting that Peggy should not settle for anything too low.