Gold – Premium to NAV

By Tshepo Magagane

Since I started being trained in M&M 2 decades back, Gold companies always commanded a huge premium to NAV/NPV

NAV/NPV is simply the Discounted CashFlows over Life of Mine!

NAmerican operating companies used to command a 2.5-3.0x Premia over their NAV/NPV; SAfrica will all the “perceived issues” would command 1.8-2.0x!

There was a rationale for it, supposed rationale – I remember when the GS guys called me in for a chat to try and convince me to jump over – going through it with one of the MDs and me going – “it is because it is like gold in a vault, and the cost of capital should reflect that…blah blah” and he going “stop it, that is BS, people are just used to paying it”😂😂

Now look at the attached chart – this is collapsed, not even to NAV/NPV but through it!

Remember the Mining Value accretion curve – as you derisk a project, you unlock the NAV eg 0.25 for MRE/PEA/PFS, 0.5 for BFS, 0.6 at Construction, 1 at Production etc!

What does this really mean – still getting my head around it – yes, there is an element of the prices that are being used in the NAV calcs  – street consensus for Gold is about 2k/oz – so that means a higher NAV (exaggerated by the shorter LoM for GoldCos ie captured more)…

…but what else is at play here?

Gold companies AISCC has really shot up, scaringly so and tradionally they have had this pernicious inability to even turn NI into CashFlows!

Interesting times – so much evolving – Copper for comparison is at a Premium to NAV – but LT Copper (and ST) prices have barely budged – they are half the Replacement Cost of Las Bambas and a quarter of that of Oyu/Reko and an eighth of SAmerican low grades!