Cejay Kim of Palisade Research - Wed, Dec 2, 2015

Gold Majors Trading at Just 4% of In-Situ Metal Value

What exactly is gold worth in the ground?
Analysts and geologist alike will tell you? it varies.
The valuation of any mineral asset is complex and depends on a myriad of factors, including tonnage and grade, mineralization, metallurgy, engineering, and of course, commodity price.

After all the hard data is compiled and processed, political risk must be factored into the equation. With party politics an always-moving target, jurisdictional risk is more art than science. A gold deposit in North America is inherently less risky than one in Africa, but what about Eritrea vs. Burkina Faso? Not so simple.

Nevertheless, analysts make a living placing a value on the in-situ value of gold — numbers that dictate the value of a project and a company. From our analysis, an international gold producer typically trades at a 20% discount to its in-situ value (reserves and resources).

However, in these bear markets; gold producers have sold off excessively:

Market Capitalizations Versus In-Situ Gold Values

In the last four years, gold has declined ~40%, however, the top gold producers have declined on average by 80%. These companies are now trading at just 4% of their in-situ gold value. The gold is still in the ground, and when prices rebound, expect companies to revert to the historical mean, which means something more in-line with in-situ values. The top gold producers stand to recover on average 600%.

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