Exploration Speculation 101

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Exploration Speculation 101

• May 2006
• Presented by John Kaiser
• www.KaiserBottomFish.com
• www.ExhibitorResearch.com

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What is mining all about?

• Cash Flow from a Depleting Resource

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What are the key inputs for mining cash flow?
Revenue Inputs Tonnage Grade Commodity
Price Production Rate
Annual Gross Revenue less Operating Costs
Operating Profit less Taxes

After Tax Cash Flow
Cost Inputs Operating Cost Taxes Capital Cost
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What is an orebody worth?Discounted Cash Flow
Model
?

• Annual Cash Flow
• (1 Discount Rate)n
• n mine life (years of mining)

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Examples of Recent Takeover Bids

• Diamondfields Voiseys Bay - 4 - 160
• Arequipa Pierina - 0.50 - 30
• Dia Met Ekati - 0.60 - 60
• Canico Onca Puma - 1 - 21
• Virginia Gold Eleonore - 1 - 14
• Western Silver Penasquito - 0.50 - 33

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How do we get to an orebody?
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How do we get to an orebody?
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How do we value a project before it reaches the
production stage?
The Probability Ladder
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Rethinking the target outcome at each exploration
stage aka Ultimate Project Value (UPV)

• 100 million
• 500 million
• 2 billion

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Reviewing a Basic Gambling Concept
The probability of an anticipated outcome should
match the payout delivered when the outcome is
achieved.

• Fair Bet 101 odds, pays 101
• Poor Bet 101 odds, pays 51
• Good Bet 51 odds, pays 101

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Applying basic gambling logic to exploration
projects
Find the fair speculative value corresponding to
the target outcome and the exploration stage
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How is the market pricing a project? Buffalo
Golds Mt Kare ProjectCalculating Implied
Project Value
Market Price X Fully Diluted Shares
Net Project Interest ( 1.05 x
57,300,000)/0.65 93,000,000
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Implied Values for Flagship Projects
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Thank You