$TSRMF : Treasury Metals — An Independent Economic Analysis, Wherein is Introduced a New Metric: Absolute Cost Structure

Long-Term Price Case$1,700/oz. Au & $24/oz. Ag $1,600/oz. Au & $22/oz. Ag $1,500/oz. Au & $20/oz. Ag $1,400/oz. Au & $18/oz. Ag
Flagship ProjectGoliath Goliath Goliath Goliath
Ownership100% 100% 100% 100%
Mineral Resources (Measured & Indicated)1,174,668 AuEq ozs.1,173,099 AuEq ozs.1,171,320 AuEq ozs.1,169,287 AuEq ozs.
Fully-Diluted Shares192,845,004 192,845,004 192,845,004 192,845,004
Fully-Diluted Market Cap$34,712,101 $34,712,101 $34,712,101 $34,712,101
Average Annual Production90,100 AuEq ozs.90,041 AuEq ozs.89,974 AuEq ozs.89,898 AuEq ozs.
Recovery95.5% 95.5% 95.5% 95.5%
Payable Product1,171,294 AuEq ozs.1,170,531 AuEq ozs.1,169,667 AuEq ozs.1,168,679 AuEq ozs.
LoM13 years 13 years 13 years 13 years
True All-in Cost (TAIC) $1,006/oz.$979/oz.$953/oz.$927/oz.
Gross Revenue$1,991,199,800$1,872,849,600$1,754,500,500$1,636,150,600
Smelting & Refining($5,890,560)(5,618,549)(5,263,502)($4,908,452)
Total Operating Costs($613,751,040) ($613,751,040) ($613,751,040) ($613,751,040)
Operating Profit$1,376,859,200$1,253,480,011$1,135,485,958$1,017,491,108
Total Government Taxes and Royalties($357,983,392)($325,904,803)(295,226,349)($264,547,688)
Total Capital Costs ($200,675,520) ($200,675,520) ($200,675,520) ($200,675,520)
Net Income$818,200,288$726,899,687$639,584,089$552,267,900
Net Profit Margin41%39%36%34%
Absolute Cost Structure (ACS)59%61%64%66%
True Value $4.24/sh.$3.77/sh.$3.32/sh.$2.86/sh.

Notes: All Values in U.S. Dollars

Were Goliath in production at $1,400/oz. Au, it would earn roughly 34 cents on every dollar it collects. From there, Net Profit Margins improve incrementally as the fundamental gold picture improves. An Absolute Cost Structure (ACS) of 66%* makes this possible. What is more, the ACS declines by ~11% as gold prices move from $1,400 to $1,700. It is this factor which underpins the improvement in Net Profit Margins.

We have learned to shy away from enterprises (catastrophes?) that cannot manage to rein in their ACS, but Treasury Metals is an example of a future gold producer that makes the cut.

*You’ll see plenty of ballyhooed Before-Tax Cost Structures below 50%, but they aren’t an accurate representation of reality. If you can find a gold producer with an ACS under 70%, you may have stumbled upon a real gem, though abiding by non-GAAP in your analysis won’t help you find gems. Which is to say, one must find new methodologies that enable one to push beyond AISC & All-in Costs in pursuit of extended valuation factors such as Absolute Cost Structure.

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