Valuing Silver Companies?????

[Scorpio]

Let's go thru a quick list to see what values should be of producers vs explorers or amount in reserves......

1) PAAS -- Pan American Silver
Current Price: $10.73
Shares Outstanding = 51.8M shares
Reserves and Resources: 874M Oz. or 16.87 ounces per share out.


2) CDE -- Coeur D Alene Mining
Current Price: $3.30
Shares Outstanding = 119M shares
Reserves and Resources: 586.6M Oz of silver equivalent or 4.92 ounces per share out.

3) HL -- Hecla Mining
Current Price: $6.76
Shares Outstanding = 109 M shares
Reserves and Resources: 94M Oz of silver equivalent or 0.86 ounces per share outstanding.
(does not include inferred or other mining, only gold and silver)

4) ECU -- ECU Silver Mining
Current Price: $0.06
Shares Outstanding = 77.1M shares
Reserves and Resources: 36,000,000 Oz of silver equivalent or 0.467 ounces per share outstanding

5) GAM -- Gammon Lake Resources
Current Price: $4.07
Shares Outstanding = 46.7M shares
Reserves and Resources: 146.8M Oz of silver equivalent or 3.14 ounces per share outstanding

6) SSRI -- Silver Standard Resources
Current Price: $7.97
Shares Outstanding = 39.2M shares
Reserves and Resources: 350.6M Oz of silver equivalent or 8.94 ounces per share outstanding. (does not include inferred)

OK guys, so tell me who is undervalued of this group, and who is overvalued?

Yeah, I know this is simplistic, but it was done that way on public information available and for a reason.

If you say we can value the silver at $1 an ounce in the ground, then....

PAAS shares should = $16.87
CDE shares should = $4.92
HL shares should = $0.86
ECU shares should = $0.46
GAM shares should = $3.14
SSRI shares should = $8.94

That gives a starting point. This does not take into account that HL, PAAS, and CDE are producers while the others are explorers. Granted that there must be something wrong with the HL numbers as it just does not add up that they would be so severely overvalued. I am missing something there, I am sure. All prices are converted to US$ for ease.

This can also be an exercise in showing the fallacy of choosing one viewpoint to rate stocks against one another.

Anyway, it would be interesting to hear your viewpoints on this........

[IrishGold]

And after all of you finish with this "thingy" with silver producers/explorers, let's do the same with gold producers/explorers.
Maybe, just maybe I can learn some of this $hit.

[Scorpio]

Using market cap:

PAAS mkt cap is about $555.8M which would equate to a value of $0.64 per ounce of silver in the ground.

CDE mkt cap is about $392.7M which equates to $0.67 per ounce of silver in the ground.

HL mkt cap is about $736.8M which equates to $7.83 per ounce silver in the ground. Something is wrong here.

ECU mkt cap is about $4.6M or about $0.13 per ounce in the ground!!!!!
(to come equivalent to a good company like PAAS, shares would be $0.32/share)(believe me that ECU could not hold a candle for PAAS)

GAM mkt cap is approx. $190M and that works out to a value of $1.29 applied to each ounce in the ground currently. Seems overvalued to the others, huh???

SSRI mkt cap is $312.4M and for one of the most respected silver explorers that works out to $0.89 per share.

Note how a pure explorer with no production, SSRI, is being valued by the market quite a bit higher than a very good producer or PAAS.

After looking at this, could you assume that PAAS is the most undervalued for decent companies? I have excluded ECU for this reason, they are not producing, their management is suspect, and the possibilities for them going forward are limited. They have not shown the acumen to continue on. ECU has some resources, but without a mgt change, they may not be realized. Maybe someone will acquire them to get their hands on the resources for a bargain rate. Hecla already owns part of this outfit.

Hey HL MGT, you can have my shares of ECU for $0.45 per share. I won't even cry about it. :0)

From this, you could conclude that SSRI and GAM are overvalued against the producers of PAAS or CDE.

This same thing has been prevalent in gold stocks, with Jr explorers achieving rather large gains while the producers have not made moves of equal magnitude. This has resulted in undervaluations for the producers against the explorers.

Hint, Hint, Hint...........

[Scorpio]

Agreed, there is more info to complicate the issues. The questions you ask are very valid, yet the jr explorers do not have a cost per ounce to mine proven. They only have projections.

I am just trying to get a value by what their reserves are and neglecting their production for the time being. The producers should be valued much higher as they are proving daily to pull it out of the ground. Plus you can make rational business comparisons when the companies are developing revenues from operations continuously.

When you dig into the hedging and the debt carried, you are getting closer to valuing these companies comparitively. For now I was assuming that to be equal.

As you say, pretty hard to value these things without all of the facts, but I was using this as a jump off point.

Great questions.....

[G-khan]

This points out what is real (scorpio you da best) being the fundamentalist that I am I want to know who is holding the physical real stuff. At this time when the price of Silver is so low it really matters also, the cost to get each ounce out of the ground to determine profits as the price of Silver rises this will be a smaller factor. I am like IrishGold and just learning, we should have a list of what is most important in picking your stocks - a guide and put it together for our users and each other. We could use the polling option to pick what is most important aspect to look at when choosing your stocks?

I have been around a long time and I have a problem choosing stocks. Think about people who have no clue at all - how can we make this easier for them?


This is a very good thread thanks scorpio for starting it and sharing your knowledge and experience.

[Scorpio]

so now what would the majors place for a value on the assets of an SSRI who has every thing on stategic reserve?

And how about a value on GAM who is fast approaching quantifiable production results?

What would the majors be willing to pay per ounce in the ground for this additional reserve? Remember that CDE just announced yet another share dilution :0(, supposedly to use for acquisitions.

Last year when Harmony announced a dilution, they already had the play in mind, and followed thru with it.

Maybe the reason for CDE not being creamed after the news was the revelation that something was brewing..........

BTW, thanks Khan. Also, everyone has their own beliefs as to what should comprise a valuation list. Each chooses his own way to look at these things. Some will only use capitalization, others reserve.

[Spike G]

greetings, forum. this is my first post at "Gold Is Money"...

I saw a link to your "Valuing Silver Companies" on Kitco tonight and felt compelled to add one more to your list - Sterling Mining - SRLM on the pink sheets. why include a pinksheeter? because in June they leased the Sunshine Mine...

http://biz.yahoo.com/bw/030611/115257_1.html

...which, by Sunshine Mining's last estimate, held "28.85 million ounces of silver-equivalent, as well as an additional resource of 159.66 million ounces of silver" - or 188.51 Moz of silver equivalent in reserves & resources combined. though I don't have an exact share count, I've been using 10M as a conservative estimate. (I'm pretty sure that it's actually fewer than that right now.)

so doing the math, that comes to 18.85 ounces per share, or at $1/oz, $18.85 per share - far north of the current share price of $3.50 and good enough to be at the very top of your list.

whether or not Sterling is really worth "$1/oz" is debatable, imo - but relative to some of the other companies listed here, I believe that it should sell for a stiff premium. for one thing, the Sunshine is something like 92% silver, making Sterling the PUREST of the major silver asset holders by a wide margin. for another, it appears that you're only valuing these silver plays on a resource basis here - I believe that the Sunshine was actually PRODUCING at about $4 cash costs as recently as a few years ago and I don't see why it couldn't do so once again. there is INCREDIBLE infrastructure in place there - miles of tunneling, the hoist, the mill, power, water, skilled labor - can the other "resource plays" say ANY of that? not even close...

check out this essay from Bob Moriarty at 321gold.com for an even more upbeat assessment...

http://www.321gold.com/editorials/moriarty/moriarty072903.html

good luck to all and go silver!!!

Spike G

[asimpowers]

I'll throw a little money Sterling's way, but it's market cap is way too small and it's too volatile to do serious investing there. After the 321gold story, the stock went beserk. Too much speculation for me. I like CDE. Does anyone have info on their debt situation? It didn't look so good to me, but I heard its getting better. Also, they have some low cost producing mines in S. America. They don't hedge their silver, but I think they may hedge some of their gold.

[MOAB]

Scorpio,

Great work on stock valuations.
The only thing I see as a discrepancy is that you factored only the silver reserve of HL, and apparently omitted their gold reserve from your valuation. If you did factor it in, you didn't list the actual gold reserve data for HL.

[MOAB]

I just checked ECU's numbers (unaudited ones, on their website: http://www.ecu.qc.ca/english/trim/trim.30sept02ang.htm) and their debt looks a little ugly. In fact, unless it's just a matter of them getting on their feet, their management approach looks ugly. How long have they been inbusiness? Their website doesn't seem to say. If they struggling because they're a young start-up company, well, maybe we can give them the benefit-of-the doubt.

[Scorpio]

All calcs were using silver equivalent with gold ounces converted at a 70:1 ratio for the ease of achieving a value.

So reserves included gold reserves.

Secondly, I did not include all silver stocks as I am limited on research time for free. The purpose is to take this info and expand it to include any and all stocks you would like to.

The same can be done for gold stocks. You can compare one explorer to another, and then those to producers.

Have a blast!

As for the HL info, I got what I could off their website, and I pulled out their annual reports, and there is no good picture of their reserves and resources. This is an unknown to me without looking deeper into the subject. Torus might be able to put a number on this.

[BarnacleBob]

Nice work Scorpio....very impressive Sir :thumbs up

Too bad the stocks are not traded on fundamentals, I enjoyed your analysis because I am value buyer and invest very little in speculation plays.

Thanks for the effort!

BB

[Scorpio]

Hey thanks BB,

For all those coming on board,


BTW, this is what I start looking at when a stock gets overstretched like Gammon, which went on a tear which was too far too fast. The gains will have to be consolidated.

The purpose of the post is to give an idea on how to compare them off. For instance, I knew GAM was due for a correction, and this simple little analysis coupled with charts, allowed me to sell into the highs of the move. It ended up working out very well.

I will now be resetting and determining the re-entry point. Sold some at $3.45 US and again at $3.80 US.

I am of the school that says "A profit is not a profit until it is in your hands". A buy and hold forever in a bull market is perfect for some, while others choose the sell into strength route. Gold and silver stocks are very volatile to say the least, as they turn on the emotions of greed of people everywhere. Up like a shot, and down like a lead brick. This is a great scenario for someone who wants to keep up with it, and work it (or farm it).

I find that emotionally it makes a lot of sense also to pull some back into rising prices. This confirms the gain as your funds, as it transfers to cash. Then when you put it back to work, you are all that much more alert protecting your hard earned cash.

Think of it as the first $5000 you ever put to work. You sat there and watched it and felt bad when it went down and good when it went up. The point is, you were trying to protect it with all you had. This is what you are trying to achieve by pulling some off the table into cash. It makes you work that much harder to protect it.

The other side is the buy and hold forever. Most persons can watch the stock go up, and then watch the pullbacks with little angst, unless the trough gets deeper, then they get uptight. They then tell themselves that what the heck, it is only the houses money. My funds are still OK. You see where I am heading with this?

Remember this if I never say another word, your accounts are marked to market daily! That means it is not the houses money, it is your money you are working every day. Every inch of hard earned gain is yours. You should do your best to protect it. That means nurture it, help it to grow, and then harvest it as needed.
And by all means, don't fall in love with any stock, or that will be your demise.

Yahoo at $200 became Yahoo at $50. How many people rode it all the way? I know some funds rode it all the way down. Actually kept buying all the way down as they were dollar cost averaging there clients funds to the poorhouse.
Is Yahoo going back to $200? Who knows, but it takes a very long time, meanwhile you could have been breaking even or making gains in something else.

If you want to buy and forget about it, that is fine as gold and silver are in very solid bull markets. You will be handsomely rewarded over time. This is a great way to grow funds if your emotional makeup is not suited for selling into strength. Don't freak out about the pullbacks, it is just normal behavior. Don't get too high about the mini runs, as it is no big deal. Quit watching your account value daily, just track your investments for changes that could affect your safety, ie mgt changes, political chgs, etc. Just be cognizant of the fact that all good things come to an end, including bull markets in gold and silver.

One man's opinion is all this is. Do what you must, and what you are suited for as we move forward from here.