### A Dynamic Adaption Of Ben Graham's Formula For Valueing Gold Stock (Yamana Case Study)

June 19, 2009
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For Those who don;t know Ben Graham's Formula which determines the appropriate price to earninigs multiple based on the 5-7 year CAGR of any given company, it goes as follows: 8.5 + 2 * Growth rate. Which I have adjusted to 8.5 +1.5*G

I have made some slight adjustment to this formula and it has returned similiar valuation ranges from the prvious valuation models I have posted. Here is the adjusted model for Yamana Gold

1) Adjusted this years projected Eps as Follows: Take their eastimated production and multiply it by your projected long term price of gold going forward less the average cash costs per ounce. Then multiply this number by .7 to account for income taxes, which you will then divide by the shares outstanding to get an adjusted EPS. This is done to avoid making 2 different growth assumptions (in the price of gold and in the production growth). So although it will turn out to be much higher than this years numbers, you will be using more conservative growth inputs for the rest of the model. Here is an example.

Yamana Gold:

1) 2009 Gold Production 1.2m/oz , Long Term Gold Price: $1250 , Long Term Cash Costs : $450, 7 year CAGR (Production Wise): 25-36%( 800k in 2008 to 2.2m in 2015, Shares Outstanding : 749k. = EPS : (800* 1200*.7)/729k = $.92

2) 8.5 + 1.5*25-36 = 62.5

**3) Value of Yamana: $42.32 - $57.5**