$SBGL : Sibanye-Stillwater Updated High Level Analysis

5 November 2019 Updated Global Reserve Model
Discounted Global Gold Reserve Value *$3,704,036,400
Discounted Global 4PE Reserve Value **$16,582,170,000
Discounted Global 4PE Reserve Value, Lonmin ***$6,798,330,000
Discounted Global Copper Resource Value ****$7,589,744,040
Discounted Global Uranium Resource Value *****$286,861,500
Aggregate Net Global Reserve Value$34,961,141,940
Estimated Reserve Lifespan
PGM32.5 Years
AU13 Years
2020 Estimated Net Income$1,165,371,398
2020 Estimated Market Cap$11,653,713,980
2020 Projected Market Cap Growth133%
FCM Target Price$17.45/sh.

Notes: All Values in U.S. Dollars

*Rustenburg, Kroondal, Mimosa, Rustenburg Tailings, Stillwater, East Boulder

**Beatrix, Cooke, Driefontein, Kloof, WRTRP, DRDGOLD, SA

***Marikana, Tailings

****Altar, Marathon, Rio Grande

*****Beatrix, WRTRP

Early Q4 Updates

  1. $IMPUY — We exited Impala Platinum Holdings at our target of $7 for a return of 150%.
  2. $FCUUF — We doubled our stake in Fission Uranium on 22 October.
  3. $AAU — We took advantage of the Ixtaca permitting suspension to aggressively purchase shares on sale at $0.50 on 30 October.
  4. $GUYFF — We took advantage of the Halloween guidance scare to double our stake in Guyana Goldfields.
  5. $TGB — We like Taseko’s pipeline, especially the Florence Copper Project. We also like the way copper is behaving generally. We started to build a stake on 12 November.

“[Copper is] more strategic than cobalt, more strategic than lithium. You can’t replace copper on conductivity. It is a modern metal.”

Mark Bristow

$VNNHF : Belo Sun Receives Positive Ruling — Construction License Remains Valid

Belo Sun Mining reports that a three judge panel decision by the Court of Appeals of the Federal Justice in Brazil has ruled unanimously that SEMAS remains the competent authority for the environmental permitting of the Volta Grande Gold Project.

The ruling confirms that the Construction and Environmental Licenses granted by SEMAS for the Volta Grande Gold Project remain valid, subject to the completion of the Indigenous Study. [LINK]

$VNNHF : Belo Sun Mining — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au
Flagship ProjectVolta Grande
Mineral Reserves3,788,000 ozs.
Shares Outstanding442,631,915
Market Cap$84,100,064
Average Annual Production205,155 ozs.
Recovery93.1%
LoM17.2 Years
Payable Product3,524,100 ozs.
True All-in Cost (TAIC) $900/oz.
Gross Revenue$5,990,970,000
CFEM Royalty($42,240,000)
Gross Income$5,948,730,000
Total Operating Costs($2,488,640,000)
Operating Profit$3,460,090,000
Income Tax($155,060,400)
Total Capital Costs($486,086,900)
Net Income$2,818,942,700
Net Profit Margin47%
Absolute Cost Structure (ACS)53%
MTQ Score (Higher is Better)0.9
True Value$6.37/sh.
True Value Discount (TVD)97%
Cash Flow Multiple5x
Net Annual Cash Flow$164,124,000
Future Market Cap$820,620,000
Future Market Cap Growth876%
Target$1.85/sh.

Note: All Values in U.S. Dollars.

$NTGSF : Golden Predator — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au
ProjectBrewery Creek
Mineral Resources577,000 ozs.
Shares Outstanding132,981,088
Market Cap$49,163,108
Average Annual Production53,853 ozs.
Recovery84%
LoM9 Years
Payable Product484,680 ozs.
True All-in Cost (TAIC)$1,291/oz.
Gross Revenue$823,956,000
Freight & Marketing($1,938,720)
Smelter Deduction($4,119,780)
Royalties($32,958,240)
Gross Income$784,939,260
Total Operating Cost($377,081,040)
Operating Profit$407,858,220
Income Tax($122,357,466)
Total Capital Costs ($116,973,363)
Net Income$168,527,391
Net Profit Margin20%
Absolute Cost Structure (ACS)76%
MTQ Score0.3
True Value$1.27/sh.
True Value Discount (TVD)72%
Cash Flow Multiple5x
Annual Cash Flow$22,025,877
Future Market Cap$110,129,385
Future Market Cap Growth124%
Target$0.83/sh.

Notes: All Values in U.S. Dollars

$RIOFF : Rio2 Limited — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au
ProjectFenix (Cerro Maricunga[OLD])
Mineral Reserves3,743,000 ozs.
Shares Outstanding118,239,464
Market Cap$38,427,826
Average Annual Production227,895 ozs.
Recovery79.2%
LoM13 Years
Payable Product2,962,630 ozs.
True All-in Cost (TAIC) $1,333/oz.
Gross Revenue$5,036,471,000
Royalties($251,823,550)
Gross Income$4,784,647,450
Total Operating Cost($2,748,135,588)
Operating Profit$2,036,511,862
Income Taxes($549,858,203)
Total Capital Costs ($398,900,000)
Net Income$1,087,753,659
Net Profit Margin22%
Absolute Cost Structure (ACS)78%
MTQ Score0.3
True Value$9.20/sh.
Cash Flow Multiple5x
Annual Cash Flow$83,637,465
Future Market Cap$418,187,325
Future Market Cap Growth988%
Target$3.54/sh.

Notes: All Values in U.S. Dollars

The Fenix Project is on the high end of the TAIC curve. It will need higher gold prices to be viable. Above $1,700, Net Profit Margin becomes sustainable. It is important to note that social investment costs will be much higher than envisioned by Atacama Pacific and that will have a further deleterious impact on margins, as has the 35% increase in Chilean Corporate Taxes since 2014.

MTQ Score Comparison

$EANRF : Eastmain Resources — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au
ProjectEau Claire
Mineral Resources1,001,100 ozs.
Shares Outstanding221,884,037
Market Cap$26,115,751
Average Annual Production79,200 ozs.
Recovery95%
LoM12 Years
Payable Product951,000 ozs.
True All-in Cost (TAIC) $1,271/oz.
Gross Revenue$1,616,700,000
Total Operating Cost($612,522,240)
Operating Profit$1,004,177,760
Income Taxes($313,503,994)
Total Capital Costs ($283,000,000)
Net Income$407,673,766
Net Profit Margin25%
Absolute Cost Structure (ACS)75%
True Value$1.83/sh.
Cash Flow Multiple5x
Annual Cash Flow$33,976,800
Future Market Cap$169,884,000
Future Market Cap Growth551%
Target$0.77/sh.

Notes: All Values in U.S. Dollars

$EQX : Equinox Gold — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au $1,700/oz. Au $1,700/oz. Au
ProjectMesquiteAurizonaCastle Mountain
Mineral Reserves1,004,000 ozs.971,000 ozs. 3,560,000 ozs.
Shares Outstanding113,255,742 113,255,742 113,255,742
Market Cap$673,871,665 $673,871,665 $673,871,665
Average Annual Production97,429 ozs.136,247 ozs.172,727 ozs.
Recovery62.9%91.2%79%
LoM7 Years6.5 Years16.2 Years
Payable Product682,803 ozs.885,608 ozs.2,798,173 ozs.
True All-in Cost (TAIC) $897/oz.$1,145/oz.$1,233/oz.
Gross Revenue$1,160,765,100$1,505,533,600$4,756,894,100
Royalties($26,697,597)($75,276,680)($204,546,446)
Gross Income$1,134,068,000$1,430,256,920$4,552,347,654
Total Operating Cost($545,696,000)($568,252,500)($1,992,299,176)
Operating Profit$588,372,000$862,004,420$2,560,048,478
Income Taxes($14,120,928)($258,601,326)($763,918,465)
Total Capital Costs ($26,177,000)($111,940,851)($488,700,000)
Net Income$548,074,072$491,462,243$1,307,430,013
Net Profit Margin47%33%27%
Absolute Cost Structure (ACS)53%67%73%
MTQ Score (Higher is Better)0.6
True Value$20.72/sh.
Cash Flow Multiple10x
Annual After-Tax Cash Flow$234,516,081
Future Market Cap$2,345,160,810
Future Market Cap Growth361%
Target$20.71/sh.

Notes: All Values in U.S. Dollars

Q2 Updates

In Q2, we reduced our exposure to uranium and increased our exposure to gold, silver and agriculture; our allocations to platinum and rare earths remain unchanged.

At Fahy Capital Management, our investment decisions are based upon quantitative data. Analysis of that data enables us to execute in what we perceive to be a timely and prudent manner. When our data suggest the gap between price and value has closed, we sell. This approach ensures that we do not fall in love with a particular idea or stock. We perceive stocks as inventory and we like to see that inventory get worked off.

Over the course of a 12-month time frame, we typically expect inventory to be reduced by as many as 2 or 3 names, and this has proven a rate that allows us to reinvest and grow.

New Directions

We remain committed to the value proposition, but how we arrive at determinations of value is changing. We have developed new formulas and new ratios that we believe better reveal the merits and shortcomings of businesses under investigation, while conferring to us an edge on the hairy margins.

We are looking forward to sharing some of our results here in our blog. Those results, however, don’t constitute a recommendation to buy or sell; it’s just food-for-thought.

$ASM : Avino Silver & Gold Mines — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au | $24/oz. Ag | $2.72/lb. Cu
ProjectAvino Mine
Mineral Resources50,525,000 AgEq ozs.
Shares Outstanding65,420,000
Market Cap$36,635,200
Average Annual Production2,731,357 AgEq ozs.
Recovery86% (Ag); 67% (Au); 91% (Cu)
LoM15 Years
Payable Product40,970,350 AgEq ozs.
True All-in Cost (TAIC)$12.06/oz.
Gross Revenue$983,288,400
Transportation, Refining & Insurance Costs($15,623,865)
Gross Income$967,664,535
Total Operating Cost($94,068,000)
Operating Profit$873,596,535
Income Taxes($327,598,700)
Total Capital Costs ($56,920,000)
Net Income$489,077,835
Net Profit Margin50%
Absolute Cost Structure (ACS)50%
True Value$7.48/sh.
Cash Flow Multiple10x
Annual Cash Flow$32,612,403
Future Market Cap$326,124,030
Future Market Cap Growth790%
Target$4.99/sh.

Note: All Values in U.S. Dollars

Investment Case
  • Measured & Indicated Resources have grown by 100% over the last 3 years.
  • Mine Life has effectively doubled.
  • Net Profit Margin and Absolute Cost Structure (ACS) are excellent at $24/oz. Ag.

Gold Data Analytics

As expected, broadly speaking, low Absolute Cost Structures (ACS) are associated with high Future Market Cap Growth (FMG) and substantially higher Net Profit Margins (NPM). One anomaly is Alio Gold, which has a study group-beating Future Market Cap Growth projection in spite of average-to-high ACS, as capital and operating costs are fairly low while share structure is tight.

When selecting stocks, the criteria on which we base overall investment decisions and weightings has grown stricter. We look for companies with True All-in Cost (TAIC)* on the lower end of the curve.

*TAIC, you will recall, includes G&A Expenses, Corporate Taxes & Royalties, Refining & Transportation Costs, Working Capital, and Exploration Budgets, in addition to all capital and operating costs. TAIC is, in our opinion, a much better reflection of a company’s true costs, as it makes an effort to include costs that are often excluded from related non-GAAP.