New Direction — Say more with a lot less.

We are taking our approach to the valuation of businesses in a new direction.

Many metrics, including those that measure resources relative to shares or market cap, have proven of exceptionally low utility, so they will be left by the wayside, as will be quick and dirty market cap valuation methodologies in which the divisor is company shares.

We will be discontinuing the Deep Value Grading System, as well, as it too easily lends itself to misinterpretation.

Basic cash flow analysis will take a back seat to a new costing methodology that leverages our experience with and passion for cost accounting: True All-in Cost (TAIC). Four additional valuation metrics extend therefrom: True Value, True Value Discount, Absolute Cost Structure (ACS) and MTQ Score.

The following key metrics will now represent the chief means by which we arrive at determinations concerning value:

True All-in Cost (TAIC)
True Value*
True Value Discount (TVD)
Absolute Cost Structure (ACS)
MTQ Score

Although we have devoted a great deal of time to the development of our acquisition formulas (TAC), they too have proven of too little essential everyday value to support unless we find ourselves in a situation that requires the valuation peculiarities that set them apart, including their spot price independence.

*True Value shouldn’t be misconstrued as a Price Target. Our targets are based upon projected annual cash flows to which a multiple is assigned; the multiple is determined by analyzing Net Profit Margin and Absolute Cost Structure.

Occasionally, at our discretion, we will publish a Target in addition to True Value.

Final Thoughts (They are never final.)

Historically, our valuation methodologies have utilized fully-diluted shares. We are actively considering transitioning to a Free-Float methodology in order to better anticipate future tendencies of price.

What About the Income Taxes?

When perusing my posts, you may find All-in Costs numbers that are larger than is stated elsewhere in technical reports and corporate presentations. That’s because I have made an effort to account for royalties and income taxes, as the impact of royalties and income taxes on the overall valuation of a company is enormous, and is very often the factor that determines whether or not a company has a snow ball’s chance in hell of producing Net Income.

Current cost methodologies, including the much-improved All-in Costs methodology, which expands upon AISC, are gravely flawed, in so far as the above mentioned inputs are ignored. I try to remedy that in my valuation scenarios.

In order to differentiate between the traditional All-in Costs methodology and my own costing methodology which incorporates royalties and income taxes, I will hereafter utilize the term, ‘True All-In Costs.’

Once True All-in Costs are calculated, I am able to determine what I refer to as True Value, or Projected Book Value per Share. True All-in Costs are also required for our Total Acquisition Cost (TAC) calculations, but are not required for the less important PMCV10/15 formulas.

Several flavors of our PMCV10/15 formula are common in the industry, but we are quite certain that our True Value methodology and approach to TAC are original, so it is doubtful that we will ever publish the formulas.

The Future of True All-in Costs and True Value

In the future, I would like to incorporate Exploration and Development Capital, Working Capital and Financing into the True All-in Costs methodology formula. Were all of these inputs used regularly when appraising development-stage companies, I believe investors would be better armed when confronting management about the economics of proposed projects.

$FOSYF : Forsys Metals — The Glaring Value Proposition

Long-Term Price Case$65/lb. U308
Flagship ProjectNorasa
Mineral Reserves90.7 Mlbs.
Shares Outstanding156,900,000
Market Cap$18,511,250
Average Annual Production5.2 Mlbs.
LoM15 Years
Payable Product77,800,000 lbs.
True All-in Cost (TAIC)$55.16/lb.
Gross Revenue$5,057,000,000
Gross Income$4,905,290,000
Total Operating Costs($2,701,216,000)
Operating Profit$2,204,074,000
Income Taxes (37.5%)($826,527,750)
Total Capital Costs($‭612,100,000‬)
Net Income$765,446,250
Net Profit Margin15%
Absolute Cost Structure (ACS)85%
MTQ Score (Higher is Better)0.2
True Value$4.87/sh.
True Value Discount (TVD)98%
Cash Flow Multiple5x
Annual Cash Flow$51,168,000
Future Market Cap$255,840,000
Future Market Cap Growth1,282%

Notes: All Values in U.S. Dollars

Like GoviEx, Forsys Metals needs to bide its time for substantially higher uranium prices. Though the economics technically work at the Base Case ($65/lb.), the Net Profit Margin is too thin. To be successful, the Net Profit Margin needs to rise above 30% and the Absolute Cost Structure needs to drop below 70%, which implies a spot uranium price of $80/lb.

So where is the value?

The Forsys Metals value proposition stems from a discrepancy between share price and True Value, as the present discount to True Value is 97%. Similarly, the value proposition for Bannerman Resources stems from its 97% discount to True Value, as opposed to value being derived from Net Profit Margin or Absolute Cost Structure, neither of which are particularly good at a Long-Term Price Case of $65.


We take it for granted that the merits of the Forsys Metals story have not gone unnoticed and that it is daily becoming more ripe as an acquisition target. Naturally we’d like to witness and profit from Market Cap growth up to 1,282%, but we would also be delighted to learn that the Norasa Project had found a good home on an acquirer’s long-term development schedule.