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# XMFConnor (97.06)

## XMFConnor's CAPS Blog

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December 31, 2011 – Comments (2) | RELATED TICKERS: PPP , GLD

Fools,

I am a long-time investor, but relatively new to gold investing so I am hoping a more experienced metals investor can help me out here.

I have been researching PPP latley, but can't seem to understand some of their financials. For example,  for the three months ended Sept 30, 2011, the following financials are given (from here: http://www.primeromining.com/Theme/Primero/files/Primero%20Mining%20interim%20Q3%202011%20Report.pdf)

They produced 27,450 ounces of gold equivalent and sold 27,633 ounces. With an average realized price of \$1,668 for gold, I would expect the revenue to be: amount of gold equiv. sold * avg. realized price of gold = 27, 633 ounces * \$1,668/ounce = \$46,141,884. This is CLOSE to the revenue number given, but not exactly as they give: \$46,079,000. Why is there a difference here?

At least the revenue figure I calculated is close, but I have no idea how they are calculating "earnings from mine operations." My guess was that it was: revenue from mining operations - costs from mining operations. They give the revenue figure of \$46,079,000, but what about the costs? Shouldn't they be calculated as: gold equiv. produced * cash cost for gold equivalent = 27,450 * \$641 = \$17,595,450.

Then, earnings from mine operations would be revenue- costs =  \$46,079,000 - \$17,595,450 = \$28,483,550. However, this isn't even close to the figure they give of: \$22,170.

Fools, what am I missing here? My guess is somehow these things are calculated differently and it is just my lack of mining knowledge.. any help here?

Thanks,

XMFConnor

#### 2 Comments – Post Your Own

#1) On January 01, 2012 at 4:18 PM, XMFSinchiruna (26.58) wrote:

Hi Connor,

Glad to see you taking an interest in mining shares.

Operating expenses were close to your back-of-the-envelope approach, at  \$16.99m. But you appear to have overlooked depreciation and depletion; a significant item for all miners. D&D came in at \$6.92m, and those two items together resolve revenue to mine operating earnings.

As to your earlier question about a good general reference, I'm afraid I have not encountered a good primer on investing in the space. I may undertake to publish one myself.

Please review this 3-part discussion "7 Secrets to Profitable Gold Investing"

You also asked about EV / asset value as a valuation tool. The metric does indeed exist, but is more appropriately employed in relation to specific projects or operations that state their NAV within the feasibility study / mine plan. To remain vigilant, NAV must be updated per sensitivities to prevailing market prices, mine expansions, new discoveries, etc.

Costs would enter the equation within a DCF analysis so I find EV / reserves a helpful tool to focus in a more elemental way upon the valuation of metal in the ground company-wide. Cost structures can help explain part of that dynamic, but cost structures are themselves highly variable over time, and vary by project.

Thorough valuation work will draw from EV / NAV, EV / Reserves, EV / Total Resource, DCF analysis, and even P/E provided the context for P/E among miners is properly understood.

Start poring over as much information as you can relating to the companies that interest you. It won't be long before you develop a working knowledge regarding grades, terms, etc.

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#2) On January 02, 2012 at 7:53 PM, XMFConnor (97.06) wrote:

Hey Chris,

Thanks a bunch for the helpful answer. I am going to continue digging (hehe) on Primero and attempt to run a few basic valuation scenarios.

Thanks for your help.

Foolishly,

Connor

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