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The Real Cost of Growth for Gold Miners Part 3


 -- Published: Tuesday, 12 April 2016 | Print  | Disqus 

By Cipher Research

In this series we turn our attention to growth in the gold mining sector, the most active of which, occurs at the Mid-Tier level.

We study the growth of eight Mid-Tier gold mining companies: B2Gold (TSX:BTO), New Gold (TSX:NGD), Endeavour Mining (TSX:EDV), Oceana Gold (TSX:OGC), Primero Mining (TSX: P), Newmarket Gold (TSX:NMI) , Teranga Gold (TSX:TGZ), and Alamos Gold (TSX:AGI).

In The Real Cost of Growth for Gold Miners – Part 1 we measured and compared the cost of growth of the companies in the peer group. In The Real Cost of Growth for Gold Miners – Part 2 we captured the market value of growth. In Part 3 we turn our attention to the operational health of the eight Mid-Tier miners.

MEASURING OPERATIONAL HEALTH

Sustainability of Operations and Growth

The main uses of cash in mining are Operating Expense (OPEX) and Investment in Mining Property (IMP).  OPEX is the direct costs attributable to the production of the goods sold. Investment in Mining Property is classified as an outflow from Investing Activities in the Statement of Cash Flows.

The following tables illustrate the percentage of Revenues that OPEX and IMP represent for the companies in the period 2005-Q3 2015

OPEX as % of Revenues

Company

Q3 2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Ave

B2Gold

55%

54%

48%

35%

33%

49%

88%

N/A

N/A

N/A

52%

Alamos

67%

51%

30%

21%

24%

25%

29%

39%

57%

49%

39%

Primero

55%

58%

44%

41%

41%

77%

N/A

N/A

N/A

N/A

53%

Newgold

59%

57%

56%

44%

44%

47%

55%

78%

62%

N/A

56%

Oceana

53%

51%

47%

59%

55%

49%

51%

64%

78%

N/A

56%

NewMarket

58%

72%

73%

71%

94%

89%

N/A

N/A

N/A

N/A

76%

Endeavour

64%

66%

100%

51%

45%

N/A

N/A

N/A

N/A

N/A

65%

Teranga

74%

80%

65%

51%

63%

72%

N/A

N/A

N/A

N/A

68%

Average

61%

61%

58%

47%

50%

58%

56%

60%

66%

49%

58%

 

IMP as % of Revenues

Company

Q3 2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Ave

B2Gold

21%

50%

46%

25%

25%

24%

204%

N/A

N/A

N/A

56%

Alamos

52%

31%

14%

12%

30%

32%

21%

19%

20%

32%

26%

Primero

27%

41%

36%

22%

19%

18%

N/A

N/A

N/A

N/A

27%

Newgold

43%

38%

37%

65%

59%

115%

34%

61%

21%

N/A

53%

Oceana

10%

13%

18%

26%

19%

33%

28%

21%

73%

N/A

27%

NewMarket

22%

24%

24%

45%

69%

124%

N/A

N/A

N/A

N/A

51%

Endeavour

18%

20%

68%

35%

14%

N/A

N/A

N/A

N/A

N/A

31%

Teranga

10%

7%

23%

23%

32%

3%

N/A

N/A

N/A

N/A

16%

Average

25%

28%

33%

32%

33%

50%

72%

34%

38%

32%

36%


Exploration and Development Cost (E&D) depending could be found as an expense item in the Income Statement or capitalized under Cash Flow Form Investment as a part of IMP.

E&D as % of Revenues

Company

Q3 2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Ave

B2Gold

26%

11%

14%

31%

17%

9%

32%

 N/A

N/A

N/A

20%

Alamos

1%

7%

10%

8%

8%

4%

3%

0%

3%

8%

5%

Primero

0%

0%

0%

0%

0%

0%

N/A

N/A

N/A

N/A

0%

Newgold

1%

2%

4%

3%

1%

2%

2%

4%

3%

N/A

2%

Oceana

9%

5%

11%

49%

18%

2%

2%

28%

41%

N/A

19%

NewMarket

4%

1%

1%

1%

2%

3%

N/A

N/A

N/A

N/A

2%

Endeavour

0%

0%

2%

3%

2%

N/A

N/A

N/A

N/A

1%

Teranga

11%

0%

0%

0%

0%

0%

N/A

N/A

N/A

N/A

2%

Average

7%

3%

5%

12%

6%

3%

10%

11%

16%

8%

6%


OPEX + IMP +E&D gives us the total cost of carrying and sustaining operations.

OPEX+IMP+E&D as % of Revenues

Company

Q3 2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Ave

B2Gold

102%

116%

108%

90%

75%

82%

325%

 N/A

N/A

N/A

128%

Alamos

120%

89%

54%

41%

62%

61%

54%

58%

80%

90%

71%

Primero

83%

99%

80%

63%

60%

95%

N/A

N/A

N/A

N/A

80%

Newgold

103%

97%

97%

111%

105%

165%

91%

143%

85%

N/A

111%

Oceana

73%

70%

76%

134%

92%

85%

81%

113%

192%

N/A

102%

NewMarket

84%

97%

98%

117%

166%

216%

N/A

N/A

N/A

N/A

130%

Endeavour

83%

87%

170%

89%

61%

N/A

N/A

N/A

N/A

N/A

98%

Teranga

96%

87%

88%

75%

95%

75%

N/A

N/A

N/A

N/A

86%

Average

93%

93%

96%

90%

89%

111%

138%

105%

119%

90%

101%

 

Cash Adequacy Ratio

Cash Adequacy Ratio

In The Real Cost of Mining Gold we showed how following the cash can determine whether the companies generate adequate cash flows over a significant period of time in order to operate or they have to borrow money to survive and pay out dividends.  We use Cash Adequacy Ratios or inflows over outflows of cash; in the case of Mid-Tier mining companies the formula we use is:

CAR (Revenues / (Operating Costs + IMP + Exploration + Development + 10% of Net Debt))

We take 10% of Net Debt as a standard cost of debt measure.

A ratio greater than 1.0 is healthy, a ratio below 1.0 over an extended period means that companies must continuously raise money from sources other than operations in order to stay in operation.

About Cipher Research

 

Cipher Research Ltd. is an independent research and analysis company covering Metals and Mining markets. We develop comprehensive valuation models applying the disciplines of Geology, Economics, Statistics and Finance ("Geonomics").  Our valuation models have proven to be successful in generating investing and trading strategies.

 

Disclaimer

Cipher Research Ltd. is not a licensed broker, broker dealer, market maker, investment banker, investment advisor, analyst, or underwriter and is not affiliated with any.  There is no assurance the past performance of these, or any other forecasts or recommendations in the reports, will be repeated in the future.  These are high-risk securities, and opinions contained herein are often time and market sensitive.  No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned.  While we believe all sources of information to be factual and reliable; we in no way represent or guarantee the accuracy thereof, nor of the statements made herein.  We do not receive or request compensation in order to feature companies in this publication.  We may, or may not, own securities and/or options to acquire securities of the companies mentioned herein.  This document is protected by the copyright laws of Canada and the U.S. and may not be reproduced or for other than for personal use without prior, written consent.  This document may be quoted, in context, provided that proper credit is given.


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 -- Published: Tuesday, 12 April 2016 | E-Mail  | Print  | Source: GoldSeek.com

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