Considering if a company is earning increased revenues from higher gold prices, with costs that largely remain the same, shouldn't the valuation of that company be higher?
That is the question vexing many investors as well as ASX listed gold focused companies, with the market appearing to not factor in the near US$1600 an ounce gold price.
Its not just the producers scratching their heads over valuations - but near term producers and explorers who have already defined significant in-situ gold resources, yet are not feeling the love.
Gold producers
Running a quick ruler over some ASX listed gold producers, Philippines focused CGA Mining (ASX: CGA, TSX: CGX) earlier in the week announced over 190,000 gold ounces were produced for financial year 2011 - and based on an average spot price of around US$1400 an ounce, that’s gross revenues of US$270 million - just for the year.
Add to this a Probable Reserve of over 3 million ounces at the project, and a production goal of 200,000 annually, the sub A$900 million market cap. seems low.
Just consider spot gold has increased 10% since the average of US$1400 in financial year 2011, meaning based on the current spot and if production remained at current levels - funds from gross revenues would eclipse the market cap. in less than three years.
Then to add a little extra spice - the US$20 million exploration budget for financial year 2012 highlights just how much confidence the company has in the project.
Lachlan Star (ASX: LSA) is one producer certainly worth a review - considering the sub A$40 million market cap. yet unhedged forecast production for the next year of 45,000 ounces - for gross revenues of circa US$70 million based on a spot of US$1550, as the company is looking to reduce production costs as well.
Throw in the prospectivity of the area, their next door neighbour is no other than the massive Teck Resources (NYSE: TCK) Andacollo mine and the current valuation seems paltry.
Dragon Mining (ASX: DRA) is another interesting production story, when the A$105 million market cap. is put against the forecast of producing 40,000 ounces in Sweden at US$625 in 2011, plus 30,000 ounces in Finland at US$750 - those metrics supply gross revenues just for this year at US$110 million, based on the current gold spot price.
Integra Mining (ASX: IGR) is another that has been kicking goals in lifting production, with record monthly gold production in the month of May of 7,909 ounces - while on track to reach 100,000 to 140,000 ounces annually.
Integra forecasts financial year 2012 gold production cash costs to rise modestly to circa $550 per ounce maintaining Integra’s position as one of Australia’s lowest cost and highest margin gold producers. The $420 million market cap. seems light.
Silver Lake Resources (ASX: SLR) is an ASX 300 gold producing and exploration company with a resource base of 3 million gold ounces in the highly prospective regions including Mount Monger and the Murchison goldfields of Western Australia.
This strategy is underpinned by an accelerated exploration program that is targeting to grow the resource base to 5 million gold ounces by the end of 2011 - yet a market value of below $400 million.
Feedback
Any feedback or requests for more resource focused articles can be emailed to; john@proactiveinvestors.com.au