I get asked all the time why I’m so enthused about the prospects of finding another high-grade ore shoot of a mere 150,000 ounces, like our first one, vs. a more industry-typical discovery of 1.5 million ounces. Quite simply, it’s all about the profit margin and leverage for LKA shareholders. Here’s how it shakes out;
On average, it takes over 8 years and $60 million to build a mine containing 1.5+ million ounces of gold. Conservatively, a company would have to issue at least 90+ million shares along the way and borrow tens of millions to make it happen. At that point, shareholder leverage isn’t all that great. One of the world’s biggest producers, Barrick Gold, reported 2015 ore grades of .06 ounces (1.88 grams) per ton for all of its projects in the Americas. Average production cost was $831 per ounce and net earnings for ALL projects was $.30 per share resulting in last year’s-end share price of $7.38. That’s 24.6 X earnings. A company lacking Barrick’s stature with similar earnings would likely receive a significantly lower price-to-earning ratio of say 15 X net earnings resulting in a $4.50 share price. And, none of this takes into account the risks associated with billions in debt to bring and keep these projects on-line.
By contrast, the first Golden Wonder ore shoot produced over 141,000 ounces at an average ore grade of 11.63 oz (361.7 grams) per ton…the highest ore grades we know of in the Americas. Production costs at the time were less than $90 per ounce. Assuming we find another ore shoot of similar size and grade our cost of production would likely be $150-$180 per once and generate earnings in the range of $.48-$.50 per share. Even accounting for our minority share in a joint venture with Kinross, assigned the same reduced P/E ratio of 15 X earnings, LKA stock could arguably be worth something north of $7.20 per share…and possibly much more if multiple ore shoots are found…or even anticipated. With Kinross as our partner, financing shouldn’t be much of a problem and would not likely exceed $10 million since permits and infrastructure are already in place.
Admittedly, there’s a lot of estimating and projecting baked into my theoretical LKA valuation since we haven’t yet identified a commercial ore body. However, the 6 new surface anomalies recently identified by Kinross geologists (potential ore shoots?) could be a game changer. These new targets are located right on the existing trend of the known vein system and will be drilled in the next few months.
Kinda makes the current LKA share price of $.35 look cheap doesn’t it? We’ll know soon.
As always, you’re welcome to contact me directly with any questions or comments: firstname.lastname@example.org
Previous Email Updates:
October, 2015 – Why LKA Should Be A Part of Every Gold Portfolio
August, 2015 – The LKA-Kinross Deal – Golden Wonder Exploration Shifts Into Higher Gear
**To read previous President’s Email Updates simply click on the “Archive” button below**
Mr. Abraham’s views and opinions may not reflect those of Kinross, regulatory authorities, or other gold industry members. His comments contain no material non-public information. This message is intended to provide investors and shareholders with management’s views and opinions of current operations, objectives, and industry conditions and may contain certain forward-looking statements. For more complete assessment of project and investor risk readers are encouraged to read the Company’s most recent public filings with the Securities & Exchange Commission. Mr. Abraham’s statements, projections, and opinions expressed in this message are made pursuant to the “safe harbor'” provisions of the Private Securities Litigation Reform Act of 1995 and the Bespeaks Caution Doctrine.