As a recent shareholder and follower of CMM I very much enjoy most of the chat that I read and find it both entertaining and sometimes informative. As a C.A.
Firstly lets take off the table the macro items such as a major retreat or growth spurt in the markets in general, large changes in the US, Canadian dollar exchange rate etc etc. Assuming the big picture items, which can and do effect the share prices of all stocks albeit sometimes differently, remain the same we also need to assume that grades and recovery rates too are not negatively effected by actual rates. Having stated some caveats I do believe that some writers are in danger of doing exactly what management has frequently been accused of in recent months and that is of being “over optimistic”. By setting the bar too high and creating the expectancy regarding the financials for 2011 i.e. the short term outlook we are not doing ourselves any favors.
Let’s look at another set of forecasts and assumptions. If we assume; the Lamaque revenues start in the second quarter, say 52,500 ozs for the remainder of the year, and Sao Juan 20,000 ozs and gold prices average $1,250 in 2011 gross revenues would come in at $90.6m. I’m not sure I understand fully the impacts of the Deutschbank arrangement but believe that CMM gets $561 plus US$88 revenue for each ounce and is obliged to deliver 8004 ounces in 2011. If this is correct then gross revenues would have to be adjusted downwards by $4.8m bringing them down to $85.8. Assuming a cost per ounce at Lamaque at say $700 for 2011 and $600 for Sao Juan then the gross profit would be $28.875m for Lamaque and $13m for Sao Juan before the Deutschbank adjustment.
The next big unknown is what will the corporate admin, deprecation and other overhead costs be. I note they jumped considerably in this last quarter. I’ve assumed $4 million a quarter as depreciation must be considerably higher after all the equipment purchases and improvements to the Lamaque mine. Take this $16 million off the gross profit and you have a pretax profit of $21.1m. Without any income tax on this profit, since I have no idea what any accumulated brought forward losses may be, and assuming warrants and options are all exercised based on 443m shares the FDEPS comes out at
4.8 cents a share or half of BullionBull’s forecast.
One should also bear in mind that if Lamaque’s production is only treated as revenue from the second quarter that we may not have a good idea of how things are shaping up until the second quarter’s numbers are released around August 2011.
Does anyone have a good hold on a p/e ratio of a company(s) that is a year or two ahead of C.M.M.?
This is just one more perspective which hopefully adds something to the communal pot.
Hopefully my lesser expectations will be exceeded and I too will not be disappointed. 2012 in turn will produce undoubtedly even better EPS. I am certainly looking at a 2 year horizon at this stage which I will modify as things unfold. My advice is that we should all treat ourselves to a dose of patience this Christmas. Oh and a very Happy one to all. Off to the beach now…
15 comments:
I think you're correct on a number of points, notably the fact we do all need to be patient as full revaluation likely won't take place until well into 2012 at the earliest.
But I think your estimates for Corp Admin, depreciation and other overhead are far too great. Century acknowledged in the Q3 conference call that the G&A expenses for Q3 were thrown out of wack by Peggy's departure and other factors. On the call they said that in the future those expenses should come in around $1,000,000 - $1,100,000. Also, depreciation in Q3 was approx. $850,000 and this more or less included all equipment, as most has been on site for a while now.
Assuming that depreciation increases to $1,200,000 for whatever reason in 2011, that brings all of the above expenses to roughly $2.3 million per quarter.
Just my two cents though.
Merry Christmas to yourself aswell! Enjoy the beach.
Ipanema, I appreciate your feedback but guys, let's not forget we are a MINING company. You can not analyze us like solely like a manufacturing company or retailer. Your current estimates assume that we should have the same stock price whether we had 500k in reserves, 3 million or 6 million in reserves. Mining companies can not be analyzed in a purely fundamental manner (especially not in early stages) You have to include reserves, grade, political jurisdiction, etc.
As for PE ratio - mature mining companies generally range anywhere from 10-40 depending on their growth potential and forward projections. The range is so wide due to all the other data I mentioned affecting it.
Cheers,
RE
Hi Ipanema
"..the FDEPS (what is this?) comes out at 4.8 cents a share or half of BullionBull's forecast."
Assuming an often-used and consider to be conservative P/E ratio of 10, if I read you correctly, the SP thus derived is $0.48 per share going into 2011!
Frankly if I believe you are right (no insult intended) I will definately skip CMM and avoid it totally!. Further, I am rather curious why you had decided to own CMM inspite of all the implied reservations you had put forward. With due respect, seriously hope to read your comments/logics as it may be a good lesson for me if you are right.
FDEPS=Fully Diluted Earnings Per Share
Ipanema, I appreciate your contribution. I wanted to ask you and I don't intend this to be at all confrontational - Have you done valuation analysis for a precious metals mining companies before? Or are you taking basic fundamental analysis of non-mining companies and applying them to Century Mining?
The reason I'm asking is I've been doing this in the mining sector for a little under a decade for clients and I can assure you the 2nd does not work out to any useful target because you are leaving too much critical data entirely off the table.
It is equivalent to trying to judge how good a NBA player is by how many average points he scores a game without taking into consideration their assists, steals, FG%, blocks, rebounds per game etc. It is just not a viable analysis.
As I mentioned before, I have some issue with how Dennis values Century as well in that I don't think he is discounting some of our baggage enough, but feel this link is somewhat closer to reality than a straight earnings / PE method which discounts all other key factors specific to the mining industry. I personally feel Dennis' target divided by 2 for baggage (until eventually being resolved) is reasonable.
http://www.goldminerpulse.com/blogs/century-mining-valuation.php
RE
This is the first example I found of factors that need to be included in a usable valuation analysis of a PM mining company. This is outdated and NOT comprehensive but gives the basic idea and can see clearly there is much more than earnings and PE at play.
http://www.gold-eagle.com/editorials_05/schwensen022306.html
RE
Tks Glorieux. RE I totally agree with you one cannot analyse a mining co using methods generally applied on general trading/manufacturing co especially ignoring the reserves/resources in the ground n other mining specifics is simply not the way to go about IMHO. Incidentally, if one only consider revenue, profit and expenses, then most probably all exploration co shloud have zero value.
Exactly. There are tons of mining plays with negative earnings and no production and minimal development with billion plus market caps. Clearly resources, reserves and grade (especially 43-101 compliant) is a massive factor in the mining sector that can not be left out in any usable analysis.
RE
As another example I use a lot: Goldcorp paid 3.4 billion for Andean when they had zero earnings or production. Why? High grade 43-101 resources.
Quoting an article about the buyout
"Cerro Negro (Andean's resource) currently has reported indicated resources of 2.54 million ounces of gold and 23.56 million ounces of silver. Inferred resources total 523,000 ounces of gold and 3.12 million ounces of silver."
RE
Thank you for the comments. I wanted to put something out there which hopefully will be easily achieved by management and therefore not disappoint. I really do hope that BullionBull is right and even over pessimistic but I prefer to make decisions on the grounds that I’m taking a conservative approach. I guess it’s a result of my profession. You’ll have noted the $1,250 average price, no logic just conservative pricing. The $4 million per quarter overheads hopefully grossly overstated as supported by BB’s observations. Although, after nearly 40 years working as a CA, my experience has been that costs are always somehow higher than one ever imagined they would or should be and revenues/productivity also lower than one hopes. .
With respect to Wingfongs comments on why hold CMM, if you view 2011 results as I do, as Real-Economics states there are numerous influences on what makes a SP what it is. Some of the more common methods of valuing a company include multiples of its future and historic earnings, dividend yields etc. Another is its net asset backing or the value of future cash flows. With 1,325,000 ozs in P&P at $1,250 an oz there’s $1.6B and another $5.3B in M&I plus I. This all of course has to be reduced by the costs and the cash flows NPV’ed. The SP can also be influenced by one or more predators!
As RE suggests, quite correctly, I have never valued a mining company and am not trying to now. But I would suggest to you all that what seems to be influencing the current SP is not the big picture items but the very short term ones like 1000 tpd versus 700tpd or the next quarters earnings/losses. Current progress seems to have been about 6 months behind what was promised a year or so ago and this seems to be like a lead weight holding back the SP progressing. Quite unreasonable really when gold has climbed significantly during the year materially increasing the long term value of our company.
I reiterate that I’m in CMM for the 2 year view and will reassess as we go along. That in my opinion speaks for itself as to the direction I think the SP will go. It’s fun, amongst ourselves, speculating on how far the SP will move by when etc etc. It’s also a learning experience for me as those of you who have much more experience in this sector share their perspectives. Thank you.
Thank you for the comments. I wanted to put something out there which hopefully will be easily achieved by management and therefore not disappoint. I really do hope that BullionBull is right and even over pessimistic but I prefer to make decisions on the grounds that I’m taking a conservative approach. I guess it’s a result of my profession. You’ll have noted the $1,250 average price, no logic just conservative pricing. The $4 million per quarter overheads hopefully grossly overstated as supported by BB’s observations. Although, after nearly 40 years working as a CA, my experience has been that costs are always somehow higher than one ever imagined they would or should be and revenues/productivity also lower than one hopes. .
With respect to Wingfongs comments on why hold CMM, if you view 2011 results as I do, as Real-Economics states there are numerous influences on what makes a SP what it is. Some of the more common methods of valuing a company include multiples of its future and historic earnings, dividend yields etc. Another is its net asset backing or the value of future cash flows. With 1,325,000 ozs in P&P at $1,250 an oz there’s $1.6B and another $5.3B in M&I plus I. This all of course has to be reduced by the costs and the cash flows NPV’ed. The SP can also be influenced by one or more predators!
As RE suggests, quite correctly, I have never valued a mining company and am not trying to now. But I would suggest to you all that what seems to be influencing the current SP is not the big picture items but the very short term ones like 1000 tpd versus 700tpd or the next quarters earnings/losses. Current progress seems to have been about 6 months behind what was promised a year or so ago and this seems to be like a lead weight holding back the SP progressing. Quite unreasonable really when gold has climbed significantly during the year materially increasing the long term value of our company.
I reiterate that I’m in CMM for the 2 year view and will reassess as we go along. That in my opinion speaks for itself as to the direction I think the SP will go. It’s fun, amongst ourselves, speculating on how far the SP will move by when etc etc. It’s also a learning experience for me as those of you who have much more experience in this sector share their perspectives. Thank you.
Ipanema, I appreciate your contribution and I agree that it's nice to set a conservative target and then overachieve. I also agree other short term factors are what is at play at the moment.
My only concern is only that as you mentioned, you are not experienced in mining valuation and other visitors here may create targets based on your analysis that are far too low and miss a ton of the upside based on you not including some critical data - especially reserves and resources.
I have made the mistake of selling far too early countless times. (As one example I sold Nevsun a while back for a 200% gain at somewhere around a buck and now it's sitting close to 7 dollar after the smoke has truly cleared) If I had held on the gains would have been astronomical.
I just want to caution others against making that mistake here. My suggestion has always been if investors here can wait it out not for the first burst, but when Century has become a boring, slow moving, fully valued mid-tier, the gains will be massive and outdo anything trying to dart in and out will achieve. (unless someone has a true talent for exceptional swing trade timing which I do not have.)
Especially this active group here that truly deserves the maximum upside for being here through difficult times and a lot of stagnation.
P05 posted a great peer analysis a while back titled "the gap"
http://www.stockigloo.com/2010/09/gap-updated.html
I wish there was some way we could program a way for this to auto-update and have it in the permanent information links.
There is also a peer analysis in the investor presentation and on GoldMinerPulse. This gives an idea of what we will look like when fully valued, have a new CEO, and after steady state has been achieved and is consistent.
RE
RE: This exchange has been a very positive learning experience for me and your point about seeing it through "to when Century has become a boring, slow moving, fully valued mid-tier, the gains will be massive" is well noted.I look forward to the journey together.Thanks.
It will be a fun ride. It's been difficult, but I believe the turning point is finally here. BTW - MrStormPay mentioned he has info that the PP will close today and we are getting a news release update next week and are at 1000 TPD plus now.
Cheers!
RE
RE
Impressed with your perceptive and insightful comments n your choice of words too. They seems to have oozed out strongly when something touch your raw nerve (no disrespect intended). It has certainly been frustrating and at times tiring over the past months (perhaps years for some) watching this baby learning how to tango.
Yes, I will wait out the first burst and hopefully you will speak when CMM is about to become or has became a boring, slow moving fully- valued mid-tier!
Many cheers!
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