Minding the gap – Re-analysing the discount from PEA to BFS

Minding the gap – Re-analysing the discount from PEA to BFS

Re-analysing the discount from PEA to BFS

Edison has once again analysed pre-production junior miners to determine what their valuations tell the industry about investors’ appetites for exploration assets.

Written by

Lord Ashbourne

Director of Content, Mining

New deposits with exploration upside preferred

In sharp contrast to previous years, there is definite evidence that investors are giving precedence to lower confidence inferred gold resources over measured ones – presumably reflecting a desire to identify new deposits. This is also true for vanadium, lithium and iron ore deposits. By contrast, uranium appears to represent the other end of the spectrum, with almost all value in uranium deposits existing within the measured category of resources.

While the value of a number of in-situ resources demonstrated attractive gearing to their associated refined metals prices over the past seven years, the industry has been characterised by a distinct lack of the beta expected of junior mining companies. As a consequence, many resources are cheap relative to history, with gold resources arguably cheaper than at any time since at least July 2010 and nowhere near the levels of 2010–12. At the same time, almost all metals demonstrate investors’ willingness to pay premium prices for small deposits with blue-sky exploration potential (with the notable exception of bauxite, where investors instead seem happy to pay a size premium).

Market multiples yet to catch up with NPV increases

Further along the Lassonde curve, discount rates applied to projects by consultants have devolved down to very nearly just two: 5% (predominantly applied to precious metals) and 8% (applied to almost everything else). In contrast to these rates, Edison has calculated the definitive range of discount rates that the market implicitly applies to development projects (Exhibit 16). We have reconciled these with EV/NPV (sometimes called P/NAV) multiples, shown in Exhibit 19. Among other things, the analysis demonstrates the value contraction that occurs as companies progress their projects from PEA to PFS. In contrast to prior years however, there is almost no discernible relationship between companies’ valuations and either the grade, jurisdiction, size or internal rate of return (IRR) of their projects, leading us to speculate that the defining factor in determining company valuations is now the quality (or perceived quality) of management. This is in sharp contrast to the past, when we estimate that as much as 97% of a company’s valuation could be determined by its project’s grade, jurisdiction, size and IRR. Of interest to those looking to enter the market, we now estimate the ‘average’ project has an IRR of 39.7% and a net present value (NPV) of US$1,165.0m (79.6% higher than in 2018). However, in general, investors will now value a company with such a project at a much smaller multiple of NPV than they did previously. Finally, we investigate what characterises a ‘typical’ gold deposit in 2026.

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Companies featured in this report

 

Abrasilver Resource

Adelong Gold

Aftermath Silver

Alaska Energy Metals Corp

Alaska Silver

Allegiant Gold

Alligator Energy

Altamira Gold Corp

American Lithium Corp

Anfield Energy

Anglesey Mining

Apollo Silver

Appia Rare Earths & Uranium Corp

Argent Minerals

Argenta Silver

Augusta Gold Corp

Ausgold

Australian Silica Quartz Group

Australian Vanadium

Avalon Advanced Materials

Bannerman Energy

Banyan Gold Corp

Barton Gold Holdings

Beowulf Mining

Berkeley Energia

Bezant Resources

Big Ridge Gold Corp

Black Dragon Gold Corp

Black Iron

Blue Sky Uranium Corp

Blue Star Gold Corp

BonTerra Resources

Brightstar Resources

Brockman Mining

Cadence Minerals

Canada Nickel Company

Canadian Gold Corp

Canadian North Resources

Canyon Resources

Capitan Silver

Centaurus Metals

Century Global Commodities Corp

Century Lithium Corp

Cerro de Pasco Resources

Chesapeake Gold Corp

Class 1 Nickel and Technologies

Copper Fox Metals

Copper Giant Resources Corp

Cora Gold

Core Nickel Corp

CuFe

CZR Resources

Dateline Resources

Deep Yellow

Defiance Silver

Desert Gold Ventures

DFR Gold

District Metals Corp

Dynasty Gold Corp

Elevate Uranium

Energy Metals

Energy Transition Minerals

Engineer Gold Mines

Engold Mines

Euro Sun Mining

European Lithium

European Metals Holdings

Excellon Resources

Faraday Copper Corp

First Mining Gold Corp

Forsys Metals Corp

FPX Nickel Corp

Freegold Ventures

Freeman Gold Corp

Frontier Lithium

Fury Gold Mines

G2 Goldfields

Galantas Gold Corp

Galleon Gold Corp

Giga Metals Corp

Gold Springs Resource Corp

Gold Terra Resource Corp

GoldMining

Goldquest Mining Corp

Gorilla Gold Mines

Goviex Uranium

GR Silver Mining

Granada Gold Mine

GT Resources

Hawsons Iron

Highland Copper Company

Homeland Nickel

Horizon Gold

Independence Gold Corp

International Tower Hill Mines

Iron Road

Isoenergy

KEFI Gold and Copper

Klondike Gold Corp

Kodiak Copper Corp

Kootenay Silver

 

Labrador Iron Mines Holdings

Lahontan Gold Corp

Landore Resources

Laramide Resources

Lavras Gold Corp

Legacy Iron Ore

Liberty Gold Corp

Lifezone Metals

Lincoln Gold Mining

Lithium Americas Corp

Lithium Ionic Corp

Lode Gold Resources

Loncor Gold

Macarthur Minerals

Magnetite Mines

Maple Gold Mines

Marimaca Copper Corp

Marvel Gold

Mayfair Gold Corp

Meridian Mining UK Societas

Mexican Gold Mining Corp

Minco Silver

Mirasol Resources

Nevada King Gold Corp

Nevada Lithium Resources

New Found Gold Corp

New Pacific Metals

Newcore Gold

Nexgen Energy

NeXGold Mining Corp

NorthX Nickel Corp

NovaGold Resources

Nuclear Fuels

Oceanic Iron Ore Corp

Odyssey Gold

Omai Gold Mines Corp

Outcrop Silver & Gold

Panoro Minerals

Patriot Battery Metals

Phenom Resources Corp

Power Metal Resources

Power Metallic Mines

Premier American Uranium

Prime Mining

Probe Gold

Prodigy Gold

Pure Energy Minerals

Quartzstone

Radius Gold

Rock Tech Lithium

Sama Resources

Seabridge Gold

Silver Mines

Silver One Resources

Silver Predator

Silver Storm Mining

Silver Tiger Metals

Silver Viper Minerals

Silver47 Exploration

Siren Gold

Sitka Gold Corp

Snow Lake Resources

SolGold

Southern Silver Exploration

Spanish Mountain Gold

SPC Nickel Corp

STLLR Gold

Strategic Resources

Strike Resources

Summa Silver

Sunstone Metals

Surge Battery Metals

Talon Metals Corp

Tartisan Nickel Corp

Temas Resources Corp

Tesoro Gold

THEMAC Resources Group

Thesis Gold

Trilogy Metals

TriStar Gold

Triumph Gold Corp

True North Copper

Tudor Gold Corp

Turaco Gold

Unigold

VBX

Velox Energy Materials

Venus Metals Corporation

Vista Gold Corp

Viva Gold Corp

Vizsla Silver

Warriedar Resources

West Wits Mining

Western Copper and Gold Corp

WIA Gold

Xtra Gold Resources Corp

XAU Resources

Zanaga Iron Ore Company

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