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Here’s How to Value a Junior Miner’s Gold in the Ground

At any given time, we know the international spot price for an ounce of refined gold but what about the gold an exploration or mining company has in the…

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This article was originally published by Munknee

At any given time, we know the international spot price for an ounce of refined gold but what about the gold an exploration or mining company has in the ground – how do we value that? [We have the answer. Read on.]

The comments above & below are edited ([ ]) and abridged (…) excerpts from the original article by Louis James and Andrey Dashkov (www.CaseyResearch.com)

There are several different ways to value a junior miner’s gold in the ground:@Investment Insights

1. Given sufficient data, you can estimate a reasonable net present value (NPV) for a project and deduce what each of the company’s ounces should be worth. To do this, you need to know annual output of the proposed mine, proposed capital expenditures, energy and other costs, and many more things. Unfortunately, for most deposits held by the junior companies we tend to follow, there is just not enough data available.

2. Another approach is to compare the value the market is giving a company per ounce of gold in hand against the average value the market gives companies with similar ounces. The most obvious way to define “similar” ounces in the ground is to use the three resource and two mining reserve categories defined by Canada’s National Instrument NI43-101 regulations – the industry standard. These are combine these into three broad groups:

a) Inferred:
The lowest-confidence category, based on just enough drilling to outline the mineralization.

b) Measured & Indicated (M&I):
These higher-confidence categories have been drilled enough to establish their geometry and continuity reasonably well.

c) Proven & Probable (P&P):
These are bankable mining reserves – basically Measure and Indicated resources with established value.

So, what does the market give a company, on average, for an Inferred ounce of gold? M&I? P&P? To answer this, we combed through every company listed on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSX-V) and pulled out the ones with 43-101-compliant gold resource estimates (or mostly gold) – no silver, copper, etc. Of these, we kept only those with resources that fall almost entirely into only one of our three broad groups: Inferred, M&I, and P&P leaving us with about 90 companies to calculate some averages on and we got these numbers:

• US$20 per ounce Inferred
• US$30 per ounce for M&I
• US$160 per ounce for P&P

Armed with this information, if you didn’t know anything else about an M&I resource (political risk, type of ore, etc.), but you saw that the company that owned it was trading at $10 per ounce, whereas its peers are valued at around $30 an ounce, you can conclude that there must either be something very wrong with the project or the stock is a great speculation. If there’s nothing wrong with the project, there’s an implied growth potential in the stock price, based on the difference between what the company is getting per ounce and the market average for similar ounces. In this case, it would be: $20 x # Ounces ÷ # shares.

As a matter of perspective, a few years ago the market was giving a company about $25 per ounce Inferred, $50 for M&I, and about $100 for P&P. Then, when gold ran up over $1,000 before the crash of 2008, these valuations went out the window, and some companies were getting over $100 for merely Inferred ounces – do we have your attention now? Conversely, just after the crash, there were companies having a hard time getting $10 for M&I. That was clearly a sign that it was time to buy, and we did, with gusto. It’s also why, when the Mania phase gets underway, we’ll be selling into it as gold approaches the top; we will not be attempting to time the top. It’s far better in this business to be a day early than a day late.

Today, the market is willing to pay more for advanced and producing stories ($160 P&P) but is discounting earlier-stage stories, hence the lower M&I valuation than in previous years ($30). These figures will change again as the market’s appetite for risk changes.

Bottom line
We often get asked what an Inferred, or M&I, or P&P ounce is worth in the ground. The $20, $30, and $160 figures are only rough guides, and you must consider the reasons why some ounces are given more or less by the market, but they’re a good starting point.


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Author: Lorimer Wilson

Economics

Silver price outlook after positive Chinese manufacturing data

Silver price has been on a decline for two weeks. A week ago, it extended its losses by dropping below the crucial level of $24. In the new week, the US…

Silver price has been on a decline for two weeks. A week ago, it extended its losses by dropping below the crucial level of $24. In the new week, the US dollar and Chinese industrial data are the key drivers.  

Chinese manufacturing data

In the new week, investors were keen on the Chinese manufacturing PMI scheduled for release on Tuesday. China is the leading consumer of silver and other industrial metals globally. As such, progress in its economic growth influences silver price movements.

Analysts had forecast a reading of 49.6, which would have been a slight improvement from October’s 49.2. However, it would mark the third consecutive month of reduced industrial production. The prediction was founded on a decline in China’s domestic demand. Based on this forecast, silver price was expected to record further losses.

Interestingly, the released data has surpassed analysts’ expectations. The reading of 50.1 is an indication that eased energy shortages in the Middle Kingdom boosted industrial production in November. Nonetheless, silver price has reacted rather subtly to the news. Granted, it has bounced off Monday’s low of $22.76. However, it is now trading within a tight range as it experiences resistance at $23.00.

US dollar

In addition to its industrial demand, silver price movements are further linked to its status as a precious metal. From this perspective, its ongoing downtrend is a result of the strengthening US dollar. Granted, the declining Treasury yields have pushed the dollar index below the support zone of $96. The benchmark 10-year yields are at 1.42 after surging to 1.69 in the previous week. This downtrend is expected to offer some relief to silver price.

However, amid concerns over the latest COVID-19 variant – Omicron, greenback safe-haven appeal has sustained its uptrend. Precious metals tend to have an inverse correlation with the US dollar.  

Silver price prediction

Silver price is trading within a tight range even as it remains on a downtrend. The upper and lower borders of the aforementioned horizontal channel are 23.00 and 22.76 respectively. At the time of writing, it was up by 0.16% at 22.93.

On a four-hour chart, the precious metal is trading below the 25 and 50-day exponential moving averages. With an RSI of 29, it is still in the oversold territory.

In the near term, I expect silver price to remain within the current horizontal channel. Past the upper border, the resistance level will likely be along the 25-day EMA at 23.37. On the flip side, a further decline below the lower border may have it find support at 22.34. In the short term, the crucial level of 24.00 will likely remain evasive.

silver price
silver price

The post Silver price outlook after positive Chinese manufacturing data appeared first on Invezz.





Author: Faith Maina

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Metalstech drops the Tlamino purchase option

 
Just a few weeks after announcing it had entered into an option agreement with Medgold Resources (MED.V) whereby Metalstech (MTC.AX) could acquire the…

Just a few weeks after announcing it had entered into an option agreement with Medgold Resources (MED.V) whereby Metalstech (MTC.AX) could acquire the Tlamino gold project in Serbia, Metalstech decided to terminate the option agreement as the project was ‘not a fit’.

This means the company remains fully focused on its flagship Sturec gold project in Slovakia where the company is continuing its aggressive drill program which will expand and increase the credibility level of the underground gold mineralization. Metalstech has recently appointed a Chief Permitting Officer and country manager which seems to indicate the company wants to keep the momentum going at Sturec.

Metalstech is also looking into obtaining a listing in London which could help the company’s financing efforts, considering it is working on an European project.


Disclosure: The author has no position in Metalstech. Metalstech is a sponsor of the website. Please read our disclaimer.


Author: CR Team

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Lunnon Metals charts path to success in world-class nickel domain after transformative year

Special Report: While the world is on the lookout for nickel sulphide deposits anywhere they can be found, Lunnon Metals … Read More
The post Lunnon…

While the world is on the lookout for nickel sulphide deposits anywhere they can be found, Lunnon Metals chief Ed Ainscough maintains there’s no place like Kambalda.

The mining town 50km south of Kalgoorlie in WA has produced 1.6Mt of the stainless steel and now lithium ion battery ingredient since 1966, when WMC driller Jack Lunnon punched the discovery hole and gave birth to Australia’s first nickel boom.

Since listing in a $15 million IPO in June, Lunnon (ASX:LM8) has continued Kambalda’s rich legacy of delivering high grade nickel.

Lunnon owns the Foster and Jan nickel mines from which WMC produced more than 90,000t of nickel metal from the 1975 to 1994, operations that missed the early 2000s nickel revival that proved the making of ASX success stories Mincor, IGO and Panoramic.

Lunnon already boasts 39,000t in resources at typical Kambalda nickel grades of 3.2% and drilling since its float is already delivering high grade results.

These have confirmed historical results from kilometres of old WMC drill core logged by Lunnon at the Kambalda coreyard and backed the Lunnon team’s conviction in the quality of the Foster and Jan assets.

“One of the benefits at Kambalda is that generally above a 1% cut off if you’re going to mine, it’s going to be in the high 2s or 3s,” Ainscough said.

“And it is very pleasing to not only reproduce the nickel where WMC was hitting it, but to be hitting it at the same level of mineralisation.

“I just think that speaks to the quality of the camp and that particular contact between the Kambalda Komatiite and the Lunnon Basalt.

“It’s a world famous contact, and nearly all the nickel in Kambalda is on or close to that contact, and it’s proven to be the case so far. You’ve got to persevere and be resilient because the rewards are definitely worth the effort.”

Lunnon Metals
Lunnon has hit high grades on the contact of the Kambalda Komatiite and Lunnon Basalt. Pic: Lunnon Metals

An option to play the Kambalda narrative

Kambalda is on the cusp of a revival.

Mincor Resources will open the first new nickel mine in the district since production at the Long mine ceased in 2018, when its Cassini operation starts production in 2022.

That will see BHP’s Nickel West division restart its Kambalda concentrator, just a few clicks from Foster/Jan, for the first time in four years.

Unfortunately for investors there are not a lot of options to play the Kambalda story, with what was a diverse field of ASX companies a few years ago whittled down to just Mincor and Lunnon after Panoramic sold Lanfranchi into private hands in 2018.

That’s where the opportunity lies, Ainscough says.

“Lanfranchi’s private now, so that’s been a big message I’ve been trying to sell – if you want to invest in Kambalda through the ASX it’s Mincor, and it’s a half-a-billion dollar company plus, or little old us at $50 million,” Ainscough said.

The key for Lunnon will be resource growth, which Ainscough said is a major aim in 2022 after its success with the drill bit in recent months.

“It’s a 10 times gap and the encouragement is that’s a big gap, but it’s a gap we feel we can make a big effort to fill next year,” he said.

“That will be filled by drill results and resource growth, but we’ve just got to get the runs on the board…  but what better place to be trying to do that than Kambalda?”

Lunnon Metals
Lunnon has hit high grades on the contact of the Kambalda Komatiite and Lunnon Basalt. Pic: Lunnon Metals

East Cooee resource drilling under way

One of the company’s priority targets outside its Foster and Jan mines is East Cooee, a prospect to the north-northwest of Jan consisting of known hanging wall nickel mineralisation that was underexplored when the mines were in WMC hands.

Since drilling began in July, assays from East Cooee have delivered a string of strong nickel grades, with Lunnon also recording a hit of 2m at 5.07% Ni in its first assays from the East Trough target in September.

Subsequent encouraging results at East Cooee have included 1m at 3.15% Ni, 2m at 2.44% Ni and a best hit of 9m (8.7m true width) at 1.66% Ni from 113m, including 1m at 7.44% Ni.

Contractors Blue Spec are now drilling the hanging wall prospect on infill drilling spacing of less than 40m x 40m to support the delivery of an initial Mineral Resource estimate.

East Cooee is just over 300m from a mothballed open cut gold pit mined by Lunnon’s major shareholder Gold Fields, providing a potential access point into a future underground development.

“That’s been a little bit of the surprise package because it’s so shallow and it’s so close to that existing gold open pit,” Ainscough said. “I hadn’t really considered  that we would have the ability so early to have a second centre on top of the resources in the Foster Mine.

“We’ve gone back there with the RC rig and we’re drilling that out probably better than 40m by 40m.

“It’s so shallow we can drill it pretty quickly, we can get that done before Christmas and then as and when we get the results back next year we should be able to put that into a maiden resource.”

Ainscough said the location of the gold mine relative to the shallow East Cooee mineralisation meant it wasn’t out of the question that study work could begin before underground drilling starts at Foster.

Lunnon Metals
East Cooee could be a second centre for Lunnon. Picture: Lunnon Metals

Warren, historical core also delivers the goods

The other areas where Lunnon is seeing success include the Warren channel, an underexplored nickel deposit which currently hosts 211,000 tonnes at 3.1% Ni for 6400t of nickel metal.

Located 1km to the northwest of Foster itself, Lunnon believes it has the potential to mirror that mine with assays from RC drilling up and down plunge of the known resource delivering impressive results.

They included a best hit of 4m at 3.44% Ni from 163m in the channel position at Warren.

“It was seen as part of Foster underground mine (by WMC),” Ainscough said.

“Where they could they tried to drill it from Foster so the drill angles are pretty horrible.

“So I think next year for us with Warren is the ability to try and demonstrate that channel is a channel in its own right and has the ability to be as long and as prospective as Foster main.

“That’s all about resource growth.”

The analysis of historical WMC core is also paying off for Lunnon, with re-assayed samples from the unmined N75C area at Foster delivering 15.75m at 2.76% nickel at an estimated 10.7m true width.

This compared well to WMC’s result for the same hole (CD 54) of 16.52m (11.2m true width) at 3.05% Ni from 268.22m.

In 2022 a deep drilling program is also planned beneath the historical Jan mine and a government-supported hole at the new Kenilworth target is due to be drilled.

“I think we’ve set the groundwork in the last six months of the year to really have a big year in 2022, hopefully leading into a buoyant nickel market,” Ainscough said.

Lunnon Metals
Owned by gold miner Gold Fields at the time, the Foster and Jan mines were among the only former WMC mines to miss the last nickel boom. Pic: Lunnon Metals

Nickel market on the up

Led by former Donegal Resources boss and now Lunnon non-executive director Ian Junk, Lunnon initially moved into the Foster and Jan projects in a joint venture with Gold Fields back in 2014.

Back then nickel was looking on the up, hovering around the US$20,000/t mark before slipping into a long bear market.

But with excitement around the use of nickel in batteries and electric vehicles and shifting supply-demand dynamics, it recently peaked above US$21,000/t, hitting a seven-year high.

Ainscough said being in Kambalda, Lunnon is seeking to outline high grade resources that are not dependent on booming nickel prices, but believes the broader market is looking positive.

“I think there is a natural rhythm to the nickel price and we’re entering into that next cycle, but the whole electric vehicle story, the energy transition, that’s all just a fantastic macro backdrop to the nickel price,” Ainscough said.

“I try not to pontificate too much about the nickel price.

“My firm belief is that wherever it gets to, being in Kambalda and mining at the grades that Kambalda delivers – I won’t say it doesn’t matter what the nickel price is but I’d certainly rather be mining in Kambalda regardless of the nickel price.

“I think there’s a momentum now to the whole electrification of everything that we’ll just see a new floor develop in the nickel price. Where that is, I don’t know.”

Q&A Time

Lunnon’s 2021 highlights

  • Acquiring 100% of the Kambalda Nickel Project.
  • Fully underwritten, oversubscribed, successful $15M IPO.
  • Drill rigs turning within a month from a standing start.
  • HIT NICKEL – confirming WMC historical data.
  • East Cooee shaping as second centre of mineral resource growth.

“Our goal is to replicate the success of those ASX companies that bought assets from WMC before the last nickel boom. Each one of the above milestones is a key step to demonstrating we are on that trajectory and can offer investors a similar growth story leading into the next nickel cycle.”

Where is the nickel market heading?

“LM8 sees the macro setting for nickel as extremely positive; there are generational shifts under way at country, government, city and corporate levels regarding the push to achieve net zero goals that all tie in with the energy transition away from fossil fuels.

“These are all strongly in favour of nickel being an important, sought after and in demand metal.

“Covid-19 has also highlighted the issue of supply chain sovereignty and having nickel assets in one of the world’s best nickel camps in a Tier 1 country offers the sort of sustainable supply chain that governments and downstream businesses will value highly in the future.”

What is the upside for Lunnon and why will it be a good investment in 2022?

“We tell investors if you want to be exposed to nickel in Kambalda (and why wouldn’t you want to be exposed to one of the world’s most famous nickel camps against the backdrop described above?), you really only have two choices on the ASX.

“Mincor, who have done an amazing job of restarting their operations in Kambalda and Widgie with Nickel West planning to open up the Kambalda Concentrator, and Lunnon Metals.

“We are just starting out on the same growth journey as Mincor. Kambalda has three key advantages: The grade is high (often >3%), Nickel West’s concentrator offers a ‘capital light’” restart solution and the nickel assets themselves are renowned for delivering extensional growth year after year.

“We are expecting a big year in 2022 for all of these reasons.”

 


 

 

This article was developed in collaboration with Lunnon Metals, a Stockhead advertiser at the time of publishing.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

 

 

The post Lunnon Metals charts path to success in world-class nickel domain after transformative year appeared first on Stockhead.




Author: Special Report

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