You are always going to get far greater leverage to the gold price among junior exploration companies compared to the major gold companies. The leverage of the major is about 3, whereas the leverage among the juniors is about 70.
819.63M shares outstanding
x $37.45/share = $30.7 billion market cap
Newmont Mining Corporation (NYSE: NEM) (Newmont or the Company) reported gold Reserves of 65.4 million attributable ounces for 2018
65.4 M x $1400 = $91.6 billion
Leverage? 91.6 / 30.7 = 2.98
428,022,975 shares fully diluted
Stock: WKM.V 4.5 cents/share
$19 million CDN Market Cap x .76 usd/Cdn
= $14.6 million market cap usd.
762,000 Au ounce Reserve in Nevada. at ~1 gram per tonne.
x $1400 gold = $1,066,800,000
Leverage? 1066 / 14.6 = 73
$.155 CDN x 58.4 million shares issued: $9.05 million CDN. x .76usd/cdn
= $6.9 million USD.
Highlight! “Mazoa Hill zone 43-101 Mineral Resource Estimate – 259,100 Indicated Au oz within 4,428,000 tonnes grading 1.8 g/t, and 86,200 Inferred gold ounces within 1,653,000 tonnes grading 1.6 g/t”
Total indicated and inferred ounces = 345,300 oz. gold x $1400/oz. gold = $483 million.
Leverage? 483 / 6.9 = 70
For my prior report on Guyana Goldstrike:
(Leverage changes quickly, based on stock price changes. The stock is up to $.155 from $.13 earlier this week.)
What is this leverage? It’s a comparison of the value of the resources in the ground divided by the value of the company. It’s a measure of what you get, compared to what you are paying for.
For the major, it appears as if to make 3 times your money, you have to assume that the major will mine all of its resources at zero cost. This is not feasible, as mining costs are high. I think all the major mining companies are all very overvalued.
The majors are overvalued for a wide variety of reasons.
- There is too much paper money in the world.
- The majors, being the largest mining stocks, tend to attract large investments from funds who tend to allocate more money to the larger companies just to get a “sector based” allocation, rather than a value based allocation. It’s “big dumb quick” money, trying to enter the “gold sector”.
- People are attracted to the larger companies for the greater liquidity, as they are easier to buy and sell.
- People like the perceived stability and safety of the major companies.
- The majors are well known companies but the juniors are hard to find.
What is the difference between “proven and probable reserves” (of the major) and “indicated and inferred resources” (of the juniors)?
The primary difference is that the indicated and inferred resources are not yet backed up by a full feasibility study. Meaning, they might not be economic. But before millions are spent on a feasibility study, we investors can try to estimate the potential feasibility by looking at both the grades of the ore, and the remote or proximate location of the project. If it’s located in a mining district, the potential distance problem is typically solved already.
A secondary difference is legal. “indicated and inferred resources” are a “Canadian National Instrument 43-101” legal designation, and this explains why most exploration companies are registered and trade in Canada.
Even in flat market, where the gold price is not moving, you can make far greater money from investing in junior mining companies, compared to the majors.