[00:28] The first one is market cap per oz of production. Market capitalization is simply the number of shares the company has times the price. So you multiply the two together that’s the total value of the company is valued by investors. If we divide that by the number of ounces of company produces in a year we get the market capital per oz of production and right now those numbers average around four thousand dollars an ounce.

[00:54] Market cap per ounce of reserves of PnP reserves. Proven and probable reserves are the highest definition reserves can have. That’s what you build mines on, proven and probable reserves. So market cap per oz of proven and probably reserves is the same thing, in a sense of a mine typically has 10 times the number of reserve balances it produces in a year then this number usually is that going to end up around three or four hundred dollars an ounce were as productions around four thousand dollars an ounce.

[01:24] Operating cash flow to market cap. Operating cash flow this is the key because it tells us how profitable of mine is. Operating cash flow is simply you take the gold price and you subtract from what are called the cash cost of producing an ounce of gold. That’s the labor, the power, the steel, everything that goes into getting an ounce of gold out of the mine on an ongoing basis. It’s not the cost of building the mine, it’s the ongoing cost of operating the mine. So if we divide the market cap by the operating cash flows that the mine generates every year, that’s subtract the cost of production from the gold price multiplied by the number ounces a year that gives us the OCF. If we divide the operating cash flow into the market cap we get an OCF multiple and over time that number [MC/OCF] runs around 6 to 7 times average in the industry.

[02:16] So we’re looking for companies that are below the average of production and reserves and operating cash flow multiple. That means that the company is being undervalued by the market. Those are the companies we want to look at. We’re not so interested in companies that are overvalued because they don’t have so much left in the upside.

Source: https://www.youtube.com/watch?v=RGFhRw1ZLjI

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