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