LPG shares his scorecard for resource stocks
We decided to bring Laurent-Patrick Gally (LPG) on today to share his thoughts on the markets. We begin by talking about US retail sales and equities. LPG makes an interesting comment regarding the movements in yields and the direction liquidity could flow. We then get into resource stocks and LPG shares with us the key metrics he looks at when investing in resource companies.
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Welcome Confused.
I use that spreadsheet as a valuation summary tool basically.
I found the perspective it provides as being very helpful within the investment process.
Best,
LPG
I agree, stocks go up despite the poor fundamentals. Charts are saying that.
Interesting comment Chris.
Just keep in mind what drive stock prices up – any stock – is not fundamentals.
Best,
LPG
Well done, LPG, I too use a spreadsheet for each issue I own, with a handful of same indicators, as well as a few I’ve developed technically on my on strictly in metal issues.
Great ideas, and thanks for sharing…LPG…………………..
Np Franck.
Hope all’s well w. you.
Best,
LPG
Hope everyone is doing well.
Just a few additional words on the topic.
I have several spreadsheet for different purposes, and we just discussed here w. Cory/Big Al the “MM” (Magic Matrix).
But – and this is for you Marty, fwiw – the reason why I did build THAT spreadsheet is that it consolidated data from different places/sources.
So with that MM spreadsheet, in one screen, I can see how any name I have compares to an another RIGHT AWAY.
I can compare every name, right now, vs. its peer group, right away. This is the reason why I compiled everything together.
So Marty, if you haven’t done so, I humbly suggest that you compile data related to all the issues you own into one spreadsheet – you may call it “M3”: Marty’s Magic Matrix :-). I think you will be amazed at how things data will “pop” to you compared to when you have data scattered across spreadsheets.
The fact to have one summary spreadsheet is something that really really gives a perspective on one’s holdings/the sector.
My 2cts.
GL to all investing/trading.
LPG
LPG, Merci Beaucoup👍
Np Marty.
If you spend some time setting it up, hope you’ll find it useful.
Best,
LPG
I think you need to go for LPG’s suggestion of “M3” – Marty’s Magic Matrix
LPG,
That is really good stuff! Thank You.
Np Chartster.
Hope all’s well.
Best to you,
LPG
LPG
I wonder what the valuation for Silver producers would be?
If we start with the $90/ounce for gold and estimate the silver to gold ratio over the same approx. 25 year period (see chart below) = 0.0175 (Approximate mid-point between range in 2015). We would calculate the following:
.0175 x $90 = $1.575 per ounce of silver
Now, if we take an example:
Alexco
55M ounces (Indicated) x $1.575 = 86M
Market Cap = 93M
Overvalued by 8.1% ((93-86)/86).
Fair share price = US$ 1.09
http://deviantinvestor.com/wp-content/uploads/2015/02/N-SG-ratio.jpg
Interesting calculations Brian.
LPG
How does that model account for exploration upside that may be reflected in share price?
I also agree with LPG’s point that the $90 per ounce M&A price per gold was based on 25 years, and obviously over time that acquisition amount per ounce will be heading higher when the range in spot gold is in the $1200-$2000 range.
In addition, the marketplace can punish or reward a stock for it’s jurisdiction and the negative or positive ramifications of taxes, political movements, permitting times and ease of permitting, etc….. It is very hard to quantify this, but obviously there are many variables that go into sentiment around jurisdiction.
Another thing to consider is that premium management teams with a string of victories, get a premium in share price over management teams that have not been successful in a while, or don’t own a big position in the company personally, or that have made a series of bad calls. Again certain management teams are followed into all their affiliations and their projects get a premium bid because success leaves clues……
Using a 25 year average acquisition price per ounce of gold is a little bit too long of a period of time for me, and I’d much rather use the current acquisition price of Gold in today’s market to compare a companies economic metrics. IMO it is an error in judgement to multiply the average gold silver ratio times a 25 year average price in gold times the number of indicated ounces to determine if the company is under/over valued at this time, and again this doesn’t take into account exploration upside, jurisdiction premium or discount, management team premium or discount, environmental concerns (mostly water), infrastructure build out or accessibility to roads, power, water, skilled labor, etc….
One final comment would be that I am much more interested in the companies All In Sustaining Costs (along with how they actually calculate this figure, as there are different ways to massage those numbers), along with their revenue trend and free cash flow trends in relation to current metals prices.
OK actually one more thought now that my wheels are turning on this. A simple equation like that also does not take into account for the unloved or improperly valued assets a company may hold. Many times the marketplace or analysts just number crunching miss the fact that there are hidden Gems withing a companies portfolio like Royalty streams, JV projects, Tolling agreements that bring in additional revenues beyond their ounces, equity holdings that companies may hold in other peer companies that may be good/bad, and also separate divisions or subsidiaries. For example, Alexco that you mentioned has an Environmental Services division just like Denison does in the Uranium space. Denison also has a partial tolling agreement source of revenue.
There is much more to consider when valuing a company than strictly ounces in the ground.
Govermental concerns always abound.
EG….ASX.KCN.
Chatree announcements await.
Admittedly I have some skin in this, fortunately not too much if things go sour?
But am in limbo ATM.
Cheers.
Oh I agree with your comments, Ex.
It was more of a thought experiment – I was just extending LPGs $90 heuristic to silver. And thought it was interesting that it got pretty close to Alexco’s current value.
When I first started investing in silver explorers (2006), I remember there being a $2-3 rule of thumb for valuation.
Cool, yes it was a good thought experiment because it did get me thinking 🙂
Yes, I believe Keith Neumeyer said he’s been picking up properties for $3-$5 an ounce Silver in the ground.
Skeeta – Yes I’ve been following Kingsgate Consolidated on the OTC (KSKGY).
It seems like their revenues have been decreasing with the low metals prices but they still have a very healthy production profile and longer term I think they’ll do quite well especially once Gold is $1300+.
Shad,
Just to clarify something…
I never said I used the Matrix to value a company per se.
The worksheet has been put in place in order to get a snapshot of where all the names I look at stand one vs. the other on specific valuation metrics. That’s all.
Hope this clarifies.
Best as always.
LPG
Yes I got that LPG. Makes sense for a quick comparison. My response was to Brian about valuing a stock based on the $90 (25 year average acquisition gold in the ground valuation) multiplied times the average Gold:Silver ratio.
My only point that it is difficult to determine the trajectory or valuation on a company’s share price using only number crunching. Whether it is that metric, or PE ratio, or Book Value, or Enterprise value, etc……. my only point was that there were a number of other factors that are not as easily quantifiable. Again valuation metrics like these don’t take into account exploration upside, jurisdiction premium or discount, management team premium or discount, environmental concerns, remoteness of a project, infrastructure build out or accessibility to roads, power, water, skilled labor, etc….
It turns out it was just a thought experiment anyways, and it did get us all thinking.
Well done lad.
All good Shad.
Thought your comment was directed at me in the first place.
Best as always,
LPG
Thank you LPG, your opinions are always valuable.
You’re welcome Pete.
Best,
LPG
LPG,
After buying and selling Torex for the last months, I’m thinking of taking a more sustained position and your matrix sounds extremely helpful and generous. Merci monsieur!!!