Background to this Series of Posts

This is the 14th in a Series of 17 Posts that will be published on this Blog each Tuesday and Thursday from September 16 to November 11. All 17 Posts will be filed under the Blog Category ‘Valuation of Mining Companies’. For previously issued Posts in this Series click here. We hope you find this Post Series useful.

Posts #11 – #16 of this Post Series discuss Valuation Methodologies adopted by stock market investors, stock market analysts, corporate acquirers, merger and acquisition intermediaries, and business valuation experts when they value shares in mining companies. In these Posts the following terms have the following meanings, where each is ‘point in time specific’:

1. Enterprise Value: The total value of a business including both its interest bearing debt and equity components.

2. Equity Value: The total value of the shareholders’ equity of a business, where shareholders’ equity is stated at its fair market value, not at its ‘book’ or ‘carrying’ value.

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Background to this Series of Posts

This is the 13th in a Series of 17 Posts that will be published on this Blog each Tuesday and Thursday from September 16 to November 11. All 17 Posts will be filed under the Blog Category ‘Valuation of Mining Companies’. For previously issued Posts in this Series click here. We hope you find this Post Series useful.

Posts #11 – #16 of this Post Series discuss Valuation Methodologies adopted by stock market investors, stock market analysts, corporate acquirers, merger and acquisition intermediaries, and business valuation experts when they value shares in mining companies. In these Posts the following terms have the following meanings, where each is ‘point in time specific’:

1. Enterprise Value: The total value of a business including both its interest bearing debt and equity components.

2. Equity Value: The total value of the shareholders’ equity of a business, where shareholders’ equity is stated at its fair market value, not at its ‘book’ or ‘carrying’ value.

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I received the following comment by e-mail (nothing to do with this Blog) from a long-time friend who is a successful Investment Advisor with one of Canada’s larger wealth management groups.  The business model of the group he works with is to attract money from (largely) individual investors into ‘managed pools and segregated securities’, to screen and select external money managers based on prior performance and other criteria, and then invest client’s money in a globally diversified group of pools that are sector diversified.

“Good day.  I have been searching for some time for a rather concise summary of the background to the 21st century tsunami in the credit markets.  Investors have suffered miserably for the past 19 months and deserve to know what and who played a part in setting the stage and controlling the play.  The media has not been very forthcoming to date with investigative journalism.   The answer should come as no surprise – organized activists and an accommodating US political party.  If the Polls are correct, this same political party may well control the entire US government after November 4th.  What further fiscal management mischief will they bring to America and the world?  Cheers.”

I think readers of this Blog might be interested in my e-mail response to him, which follows: Continue Reading »

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As many of you may know, Alan Greenspan testified yesterday before a U.S. Congressional Committee.  As reported by The Globe and Mail (Canada’s principal national newspaper) Greenspan appears to be, aside from anything else, an honest man.  He is reported to have testified that:

“Something which looked to be a very solid edifice (a reference to the U.S. Banking System) and, indeed, a critical pillar to market competition and free markets did break down. … And I think that … shocked me.  I still do not understand why it happened.”

It strikes me that for Greenspan to say he ‘still doesn’t understand why it happened’ indicates naivety and a lack of street sense on his part.  Psychologists broadly believe that one’s value system and fundamental views largely are formed in the first five years of life.  Greenspan was born in 1926, an only child, and a young child during the years of the Great Depression.  Evidently of very high intellect, he seems (according to his writings in his recently published book ‘The Age of Turbulence’), largely to have been sheltered from hardship during those years.  To me, who grew up with wonderful parents but without a ‘silver spoon’, the answer to ‘why’ is obvious and should have been foreseen.  Broadly speaking:

•    individuals in this world act first and foremost out of self-interest;

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Background to this Series of Posts

This is the 12th in a Series of 17 Posts that will be published on this Blog each Tuesday and Thursday from September 16 to November 11. All 17 Posts will be filed under the Blog Category ‘Valuation of Mining Companies’. For previously issued Posts in this Series click here. We hope you find this Post Series useful.

Posts #11 – #16 of this Post Series discuss Valuation Methodologies adopted by stock market investors, stock market analysts, corporate acquirers, merger and acquisition intermediaries, and business valuation experts when they value shares in mining companies. In these Posts the following terms have the following meanings, where each is ‘point in time specific’:

1. Enterprise Value: The total value of a business including both its interest bearing debt and equity components.

2. Equity Value: The total value of the shareholders’ equity of a business, where shareholders’ equity is stated at its fair market value, not at its ‘book’ or ‘carrying’ value.

Continue Reading »

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Like many of you, I spend a great deal of time talking to people.  I have the good fortune of having the ear of a great number of thoughtful, interesting people with diverse interests, beliefs and opinions.  Here is what they had to say in the past few days:

1.    One North Carolinian told me that while there were still lots of people visiting Walmart in her small town, she observed comparatively few were buying.

2.    A New Yorker told me that traffic in a high-end mall in his neighborhood was down significantly.

3.    A ‘Best Buy’ sales clerk in Toronto told me that customer traffic is down significantly in the store she works in, although she attributed it to seasonality.

4.    I have been told that beginning in September Walmart and Sears both began discounting the price of Christmas toys.  If that is true it doesn’t auger well.

As I am sure you know, retailers depend on last calendar quarter trade to generate most of their annual profit.  The Friday after American Thanksgiving (which always is on a Thursday) traditionally is the largest retail-shopping day in the U.S.  If this year that Friday shopping day sees significantly reduced sales, watch out – the ripple effect likely will be something to behold.  If you don’t do it on a regular basis, I suggest you do your own ‘consumer spending’ research at a ‘sales clerk’ ‘grass roots level’.  I find these people willing to talk openly if questions are asked in a non-threatening way.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. See Legal Disclaimer.

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1.    There is daily ongoing talk by any number of economists as to whether the U.S. is in recession.  What at these economists thinking?  Who is kidding whom?  Irrespective of ‘economic modeling’ and historically based ‘measurement of what constitutes a recession as economists assess such things’, as a practical matter I can’t see how the U.S. currently is not in recession based on:

•    continued drops in housing prices, foreclosure increases and housing sale stagnation;

•    reported lack of consumer confidence;

•    the extent of existing U.S. consumer credit;

•    bank credit extension issues (read ‘Bail-out Strategy’);

•    and so on,

how can the U.S. not be in recession?  Moreover, I believe it stands to reason that said recession will deepen before we see improvement.

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1. It apparently has become very difficult to impossible to buy physical gold either in bar or coin form. I was told last Thursday (in separate conversations) by two highly sophisticated Vancouver based investors that they had been unable to buy physical gold for immediate delivery, and that they had to pay for the physical gold they wanted to buy at last Thursday’s spot price plus vendor commission – and that delivery was promised in greater than six weeks. I tested this out last Friday by calling the Toronto Head Office of one of Canada’s largest banks. At 1:30 p.m. last Friday that Bank had a grand total of 17 one ounce gold bars for immediate delivery at the spot price plus vendor commission. Apparently where gold coins can be found they are being bought and sold at significant premiums (antidotally I was told in the order of 30%, although I have been unable to verify this) to the spot price. Finally, it was reported last week (again I have not been able to verify this) that the European Central Banks sold 7.6 tons of gold (about U.S.$250 million)

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Background to this Series of Posts

This is the 11th in a Series of 17 Posts that will be published on this Blog each Tuesday and Thursday from September 16 to November 11. All 17 Posts will be filed under the Blog Category ‘Valuation of Mining Companies’. For previously issued Posts in this Series click here. We hope you find this Post Series useful.

Valuation Methodologies - Introduction

This Post and Post #13 - #16 canvass the valuation methodologies adopted by stock market investors, stock market analysts, corporate acquirers, merger and acquisition intermediaries, and business valuation experts when they value shares in mining companies. In these Posts the following terms have the following meanings, where each is ‘point in time specific’:

1. Enterprise Value: The total value of a business including both its interest bearing debt and equity components.

Continue Reading »

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Background to this Series of Posts

This is the 10th in a Series of 17 Posts that will be published on this Blog each Tuesday and Thursday from September 16 to November 11. All 17 Posts will be filed under the Blog Category ‘Valuation of Mining Companies’. For previously issued Posts in this Series click here. We hope you find this Post Series useful.

Mining Company Risk Assessment

The following assumes a ‘single project’ company. If a company has more than one project the considerations discussed that are ‘project specific’ need to be considered separately with respect to each project. From an investor perspective important timing issues, risk assessment, company information, and an appropriate ‘risk related rate of return’ ought to be include a large number of common factors. Posts #4 – #10 of this Post Series discuss many of these factors – in some cases followed by discussion shown in italics. On a cautionary note, ‘Risk Factors’ are fact and circumstance specific, and no list or broad discussion of ‘Risk Factors’ should or can be considered all-encompassing.

Mine Life

For a producer at least the following questions need to be addressed with respect to resources, reserves, capital assets, production capacity and efficiency:

1. What is the company’s estimated mine life at any given point in time having regard to where in the commodity cycle metal prices then are?

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