This takeover deal has me very excited for the future of KSN and so I thought I would provide a very crude estimate as to the potential value of our company's new project simply using the benchmark data collected by Cipher Research. Cipher developed a median value for for an ounce of gold in the ground by researching over 250 takeovers between 1990 to 2013.
Cipher used all 43-101 resource estimates to arrive at the value and KSN's Misima resource is 43-101 partially inferred and partially indicated, so no problems with the application in that sense.
Interestingly, the takeover price per ounce has very little correlation to the spot price of gold nor the size of the resource, so, again, it should be applicable here.
Ultimately, Cipher deduced that the value of an ounce of gold in the ground is $39, based on all 253 transactions that they had analysed. Due to several factors, I believe our project commands a premium value compared to the overall median.
The Premium Evidence:
Firstly, the data collected by Cipher indicates that there is an identifiable difference in value based on geography and the value is greatest in Asia with a median value of $47 per ounce, Asia being the closest location to our PNG project. The remaining locales grouped by Cipher being Africa ($34/oz), Europe ($39/oz), Latin America ($41/oz) and US/Canada ($31/oz).
Second, at a cut-off grade of 0.4g/t the total tonnage is 71.8 tonnes for a 2.27Moz resource with a grade of 0.98g/t. If we compare that to a cut-off grade at 0.5g/t we have 56 tonnes for a 2.04Moz resource with an average grade of 1.14g/t. The tonnage has decreased by 22% whereas the total gold has decreased by just 10%. Further, the average grade of 1.14g/t remains more than double the cutoff grade at 0.5g/t. We have a quality and robust resource on our hands; further evidence that our resource perhaps commands a greater premium to the $39 per ounce benchmark.
Third, it's an extremely soft ore which has reduced historical milling costs and will reduce expected milling costs in the future. Again, this points to a significant advantage and should increase the value of our resource as compared to the per ounce average.
The Brass Tax:
After the $2.2M earn in, Kingston will own 70% of the project. 70% of the total resource provides KSN with an existing resource of approximately 1.6 million ounces. Assuming that Cipher's overall median value of $39/oz is applicable, this values our stake in the project at $62,400,000. Subtracting the $2.2M earn in leaves $60,200,000. Total shares on issue after the issue to WCB shareholders, and assuming all existing options are exercised, is 1,102,495,934. This gives a per share value of 0.055c, an increase of 205% on our current SP of .018c.
Based on my earlier statements, I'm making the assumption that our existing resource should be valued at a premium to the overall median value deduced by Cipher. Cipher found that 44% of the takeovers were valued at above $45/oz. Assuming that our resource is valued at say $45/oz (still less than the median value of Asian resources), Kingston's stake in the project is worth $72,000,000. The per share value of the project then becomes 0.065c, an increase of 261% on the current SP.
Now you're thinking, well this is all based on a resource that is only inferred and indicated which is certainly far from a proven and probable, mineable resource.
Well first, let me reiterate that Cipher's benchmark valuations are based on all NI43-101 resources estimates which includes inferred and indicated estimates. The benchmark value estimate is derived from takeover values which occurred at various stages of development and with varying degrees of confidence in resource estimates on the 253 takeovers that were analysed. Cipher's research found only a minimal difference in per ounce price between pre-production or producing and feasibility or development stage projects. The greatest variability, as discussed earlier was in geographical location.
Now, I'll entertain the concern (again, despite the fact that the benchmark per ounce values already account for this), and lets now calculate a VERY conservative estimate, assuming that we lose say 50% of our total ounces when the resource is converted to a proven and probable estimate. Well, that would leave us with total ounces of 0.8M and a total project value, after the earn in costs, of $29,000,000 or $36,000,000 using the per ounce prices of $39 and $45, respectively. These project values translate into a value of 0.026c or 0.033c on a per share basis, still a substantial value-add compared to our current SP at 0.018c. Personally, I believe the earlier estimates hold much more validity than this estimate.
I believe we are already sitting on significant value here simply with the already defined resource. We still have enormous upside potential in the high grade splay structures and the open strike to the North.
These are estimates solely of the Misima Gold Project and ignore any value of KSN's Australian lithium and gold projects.
Cheers,
Nebuchadnezzarian
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