Valuing a junior at each stage

Start with enterprise value

Most yardsticks use enterprise value (EV), not market value, so that cash in the bank is not counted as project value:

Many early-stage explorers trade close to their cash: the market is giving little or no value to the project.

Which method at which stage

EV per resource ounce

Before a study, the most common yardstick is enterprise value divided by the resource:

On its own, the figure means little. Compare it with peers that are similar in:

• grade and whether the deposit suits open-pit or underground mining,
• category: a mostly Inferred resource deserves a lower value per ounce than an Indicated one,
• metallurgy: simple or refractory ore,
• jurisdiction and infrastructure,
• size and expandability.

A cheap value per ounce is often cheap for a reason. The point is to find the reason.

Never use in-situ value

In-situ value is contained metal times the metal price: 2.0M ounces × $2,000 = $4B for the example above. It ignores grade, recovery, every cost and the chance of the mine ever being built. A project worth $50M can have an "in-situ value" of billions. Its use in a company presentation is a red flag.

Price to NAV

Once a PEA or later study exists, analysts build a net asset value (NAV): the study's after-tax NPV, usually re-run at their own metal prices, minus corporate costs, plus cash. The market then pays a fraction of it.

These multiples are illustrative assumptions for teaching, not market data. Real multiples vary with the metal, jurisdiction, market cycle and company.

Risked NAV

Instead of one multiple, some analysts multiply NAV by the chance of reaching production:

The odds come from the site's stage guide. Use either a probability or a lower multiple for the same risk, not both, or the project will be undervalued: see jurisdiction risk for the same point about counting risk once.

Comparable transactions

What buyers actually paid for similar projects at a similar stage is often the best reality check, especially for a junior that expects to be taken over. Look at value per ounce or tonne paid, and at the premium to the target's share price.

Cross-checking

Use two or three methods and see whether they agree. For the invented junior above, with a PFS NAV of $310M:

The spread tells you something. Here the market values the company below what its study implies, which may be an opportunity, or may reflect a risk the study does not capture: permits, funding or jurisdiction.

What to take away

Match the method to the stage, adjust every comparison for grade, category and jurisdiction, and never use in-situ value. Use the gap between methods as a question to answer, not a number to trade on.

All figures are invented for illustration. This is educational material, not investment advice.