Erik Wetterling – Derisked Junior Gold Developers Are Presenting The Most Amazing Valuation Disconnects That We’ve Ever Seen
Erik Wetterling, Founder and Editor of The Hedgeless Horseman website, joins me to discuss how the derisked junior gold stocks are presenting the most amazing valuation disconnects that we’ve ever seen. We start off talking about just how divorced many junior precious metals economic studies are with their “base case” metals price assumptions, from where the spot gold and silver prices actually are at present. This begs the question of a what a fair base case metals assumption is for PM projects, and if companies and analysts should be doing a better job of comparing these projects at values closer to spot pricing. We heard for so many prior years in lower metals price environments that we had to deal in the real and value companies based on current metals prices, but now that gold and silver prices are substantially higher, it seems those same people don’t want to value the projects based on where metals prices are in the here and now. The gold producers are going to demonstrating what the actual metals prices can do to their margins in the quarters to come.
In a sea of companies using far too conservative of metals price assumptions in the $1,400-$1,700 levels, we laid out a few companies I sat down with at the Beaver Creek PM Summit that actually did provide both reasonable base case metal price assumptions on their development projects at $1,800-$1,900 gold and $23-$25 silver, but then also provided metal sensitivity data for levels more in alignment with current metals prices at $2,500 gold and $30 silver; like Thesis Gold Inc (TSXV: TAU) (OTCQX: THSGF), Vista Gold Vista Gold Corp. (TSX: VGZ) (NYSE: VGZ), and Skeena Resources Limited (TSX:SKE)(NYSE:SKE). Some also provided data for the upside potential at $3,000 gold and $35-$36 silver. In these examples these projects are valued in the current market caps of the companies at a large discount to where the net present value of the projects come in between the $2.3-$4.4Billion ranges. This just demonstrates how backward-looking the current valuations are on many of these developers and the potential for a sector-wide rerating in many of these derisked projects with defined ounces in the ground and solid economic studies in place.
Wrapping up this lead the conversation in the topic of M&A and if merger or acquisition transactions for these companies at 30%-50% premiums was anywhere close to enough to get a proper valuation multiple on these projects. We may very well see future M&A transactions at much higher premiums if these companies and projects don’t start getting re-rated higher to close the value arbitrage.
* In full disclosure, Shad is also a shareholder of Thesis Gold and Skeena Resources at the time of this recording.
.
An old expression, kittywampus, describes it
A derivative of FUBAR
Dan was a single guy living at home with his father, and working in the family business. When he found out he was going to inherit a fortune when his sickly father died, he decided he needed to find a wife with whom to share his fortune.
One evening, at an investment meeting, he spotted the most beautiful woman he had ever seen. Her natural beauty took his breath away.
“I may look like an ordinary guy,” he said to her, “but in just a few years, my father will die and I will inherit $200 million.”
Impressed, the woman asked for his business card. Three days later, she became his stepmother.
Women are so much better at financial planning than men.
Irish:
That is tremendous investing advice. Always check options before making a decision.
Speaking of Ireland and investing, Group Eleven has some great drill results out this morning.
I agree totally with you guys opinions on using at a minimum, the full spread of prices for metals: past, present and future, to arrive at possible/probable future value.
Inflation can’t be reduced, debt can’t be paid, corruption is out of control … which are all leading to the death of the dollar. Gold is now classified Tier 1 and is projected by most experts to be significantly higher near term and longer. There are shortages world wide in most all metals during a period of increased demand for AI and war equipment, not counting the debate over EV.
The only argument I can see for low prices and evaluations is that our Corporations do not want to pay fair prices for commodities that may limit profits or the outrageous personal earnings of corporate managers.
I hope to see 10 baggers in most of my investments and do not want any premature buyouts for “peanuts” influenced by false premiums on under priced stocks possibly a result of corporate and managed money intervention.
The Sector should immediately develop standards internally, without Wall Street influence, that can represent fair and realistic valuations, and move forward without reservation or hesitation. The sector owns what the World wants and needs and should have a say in the price. That’s why the BRICs have a plan … because they didn’t like the current Corporate favored system.