This is where the rubber hits the road. The question of finding a quantitative valuation for a mine that may become a producer and throw off CAD$20m or CAD$30m per year in profits for ten years. Or a lot more for longer, or less for less. Or may not ever open. The profit potential is clear enough but for my taste any positive free cash flow from Kiena is too far in the future to base a valuation for the asset as things stand today, so the only way forward is to find an asset value for the mine. And the major problem here is this equation:
NAV = MSU
(Net Asset Value equals Make Shit Up)
It’s one of my major pet hates of the mining anal ysis world, anal ysts who pick any old number out the sky to value “A Thing” in order to justify their preferred target price for the stock. It’s way waaay too easy and way waaaay too common to see subjective “because I say so” valuations at the top of an equation that magically turn into some kind of objective demonstration of logical truth once the math has been applied and a target price generated at the bottom of the stack of numbers. It grates on me like no other subject, it’s the whoredom of sell side anal ysis writ large...and now I’m about to use the same type of guesses to value Kiena and eventually WDO.
UPDATE: Reader 'R' sends in this cartoon, which is perfect: