Tuesday, January 24, 2006

 

Putting A Price On Mining, Exploration Stocks

Paul van Eeden discusses how to put a price on two types of metals firms. "Commentary to address; this week is part one: Valuing Mining Stocks. Mining is a finite business. Mineral deposits contain a certain amount of ore and when that ore is mined out the deposit is depleted, no matter what you do or wish."

And in the second part, he looks at exploration. "Exploration companies don't have assets, cash flow or earnings. They typically only have a management team, sometimes a bit of cash, and one to several properties."

"The cash will get spent, usually a lot quicker than anticipated. Their projects aren't assets: they are liabilities where the cash is going to get spent. That leaves us with management, and management is absolutely an exploration company's biggest asset, if not its only asset. Promoters of these stocks will tell you their company's management has a superb track record, but the reality is that there aren't even enough mediocre management teams to run the thousands of exploration companies resident in Vancouver alone."

"If an exploration company's only asset is management, how do we put a value on it?"

Comments:
Which is why MNEAF is a great little company. Very seasoned mgmt. & Former CEO of Goldcorp is on the board. (Very volatile little stock though at .62 cents ... it swings all over the place.)
 
My questions is how long do I stay in gold stocks in the event of another stock crash due to housing/dollar crisis/etc? Do I try to short it or will they do well(relatively) during do to gold going up? Do I dump everything except IAU/GLD?
 
sd cdl,

The way I use gold mining stocks is as a speculative portion of my gold allocation. These stock will go up or down more than the physical metal. I keep the stock unless something changes with the outlook.

I wish there was a mine that paid a dividend in gold!
 
I agree, I just want to avoid what happened to silver in the Great Dep...who knows with gold since it was price controlled but I think it will hold. I think a good indication of gold peaking is the amount of posts on this blog reach the levels of the housing bubble blog and no one even goes to your housing one because it says "yep, another -3% this month on housing..."
 
It's funny in that as we stand on the brink of another possible (just the possibility is frightening) I'm reminded of my grandfater who died Dec '04, he lived through the Great Depression and his generation aren't around to warn us...
 
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