How to Value Junior Gold Shares - Troy Schwensen

When investing in anything, it pays to have a sense of value. Let's say, for instance, you were looking to buy a house in a suburb you like. For starters, you could just charge in like a wounded bull and purchase the first house that takes your fancy. I think many of you would agree that this approach is fraught with danger.

If you were somewhat smarter, you would probably do what most people do and look at as many houses that are for sale in that suburb first and try and establish a sense of value before making a purchase (giving you peace of mind).

The savvy investor may even take this process one step further and establish a value on what all these properties have in common, the answer of course being land. They may work out a value that they are paying per square meter of land for each property inspected. Next, they would compare this with an average for the suburb compiled from recent historical sales data.

Now valuing a property by looking at the valuation of the land is of course only half the battle in establishing whether you are getting reasonable value for money. Why?

Because every house built on that land obviously differs in various ways. The house could be bigger in size and better equipped. The land itself could be located in a more desirable part of the suburb, such as on a hill or by a lake or river where there may be a view and breezes. The list could obviously go on but I think you get the general idea.

All these other factors are variables that you would take into account in order to establish what you think that particular property is worth. But your starting point would be the value of the land and you would build on your analysis from there, based on a comparison of these other variables.

How to find precious metals stocks are reasonable prices

When buying shares in a precious metals company, do you go through a similar process in order to determine whether the company you are buying shares in is reasonably priced? For most, the thought of going through this process is much too daunting. It is much easier to get your stock broker to perhaps recommend a company.

In my experience there is no substitute for being able to personally assess value, even if it is at just a basic level. There is also nothing wrong with receiving stock recommendations from newsletter writers or stock brokers on the proviso you have the ability to check these companies out yourself.

This is what will give you the conviction to buy and hold which brings me to a concept I want to introduce to you today. It is a relatively simple but practical method of comparing similar precious metals companies and establishing a sense of value.

Enterprise Value per Ounce

Let me start by defining what an Enterprise Value (EV) is. An EV is simply the Market Capitalization of a company (number of outstanding shares multiplied by the current share price) adjusted to eliminate the effect of a company's financial assets and its financial obligations (liabilities). You subtract the financial assets which would include items such as (not an exhaustive list):

Cash and Cash Equivalents
Accounts Receivable
Inventories (If a producer)
Listed and Unlisted Investments where you can readily establish a fair value
Derivatives (Bought Options and favorable Forward Sales Agreements)

And add the company's financial obligations including (not an exhaustive list):

Accounts Payable
Interest Bearing Liabilities
Derivative Obligations (Unfavorable Forward Sales Agreements and written option contracts)
Retirement Obligations


What remains is essentially the value the market is attributing to the company's non-financial assets or its projects. If you were to look at this diagrammatically it would appear as follows:



To calculate an EV per ounce, you simply add up the total number of ounces attributable to the company via its projects and divide this number into the Enterprise Value.

The concept of EV per ounce is by no means a new valuation methodology and it certainly has its critics. Like land is the common denominator in our real estate investment example, gold in the ground is obviously the commonality when looking to compare gold related companies.

Now critics of the EV method will tell you that when using this method you are incorrectly assuming that all metal in the ground is created equally. This is of course a valid criticism if and only if your analysis was to simply stop there. It would be like saying property A is better value than property B because I can pick up the land for a cheaper rate per square meter without taking anything else into account.

Obviously this technique would be completely flawed. For instance, you can't conceivably take a producing gold mining company and compare its EV per ounce with an exploration company and come to the conclusion that the exploration company offers better value. You would be excluding the costs associated with the development of the mine, not to mention the premium a company receives in the market for successfully developing the project.

My question to the critics of EV per ounce would be why on earth would you stop at just this first step? This limitation can be quite simply overcome by having a large enough number of companies to compare, so that you can isolate the ones that have the most in common (similar development stages) and generate the additional information required to consider the applicable variables. These might include:
The size of the deposit. Bigger deposits tend to attract a premium due to the higher probability of being developed based on better economies of scale.


Different resource classifications dependent on drill spacing and economic viability. Reserves both Proven and Probable (supported by economic studies) versus just a resource (no supporting feasibility study work).


The depth of the deposit. Is it shallow enough for cheaper open cut mining methods? (Generally 150m-200m or ideally shallower) Are there large amounts of overburden that need to be stripped away adding to the cost of mining (stripping ratios).


The average grade of the deposit. Generally speaking, higher grades are cheaper to produce and attract a premium. If you are mining underground, higher grades become essential due to the additional capital cost associated with underground mining.


Different economics (cash costs, construction costs, ongoing capital expenditure etc) Useful by-product credits can in turn lower the net cash costs of production. The availability of infrastructure lowers construction costs. For example, access to grid power versus the requirement for diesel generators in remote regions (more expensive). Access to ready built roads and ports versus having to build this infrastructure. Underground mines have higher ongoing capital costs associated with the continuation of underground development.


The metallurgy (recoverability of the metals). Sulfide deposits generally have lower recovery rates than oxide and require a more complicated extraction process.


The political risks. A deposit in Zimbabwe would obviously trade at a substantial discount to say the same type of deposit in Australia or Canada.


The exploration potential on the properties and the probability of future expansion of the deposits.
The precious metals sector is emotionally charged. When you study EV per ounce information on a large scale it becomes very apparent just how much influence market sentiment can have on a company's valuation.

A simple way to avoid this risk is to have a basic sense of value. Perform a quick EV per ounce calculation and see what you are paying. Compare this to some of the company's peers and establish whether what you are paying is reasonable. Don't be the chump that is buying shares off the people that were fortunate enough to get in at the ground level and are cashing out.

One of the single largest limitations with the EV per ounce method is having enough comparable companies and all the associated information you need available to make the process of comparison easy and effective. For the average investor, you may be able to undertake this process for a handful of companies but it is not realistic to compile all the necessary information yourself.

If something like EV per ounce sounds like it appeals to you, my advice would be to find a reliable information service that does the grunt work for you at a reasonable price. Most importantly, you need to find a group that actually use their own information and can properly articulate the optimal way of using it.

Jaguar Inflation - Robert Prechter

I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let’s try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone’s delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can’t afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars -- at best -- returns to the level it was before the program began.

The same thing can happen with credit.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit-production plants all over the country, called Federal Reserve Banks. To everyone’s delight, these banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so they lower the price to one percent. People return to the banks to buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit. Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay the interest on their debt to the banks so the banks can keep offering more credit. If credit stops moving, the economy will stop. So the banks begin giving credit away, at zero percent interest. A few more loans move through the tellers’ windows, but then it ends. Nobody wants any more credit. They don’t care if it’s free. They can’t find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can’t afford to pay interest on their debts, so many bonds deteriorate to worthlessness. The value of credit -- at best -- returns to the level it was before the program began.

See how it works?

Is the analogy perfect? No. The idea of pushing credit on people is far more dangerous than the idea of pushing Jaguars on them. ... I hate to challenge mainstream 20th century macroeconomic theory, but the idea that a growing economy needs easy credit is a false theory. Credit should be supplied by the free market, in which case it will almost always be offered intelligently, primarily to producers, not consumers. Would lower levels of credit availability mean that fewer people would own a house or a car? Quite the opposite. Only the timeline would be different. Initially it would take a few years longer for the same number of people to own houses and cars -- actually own them, not rent them from banks. Because banks would not be appropriating so much of everyone’s labor and wealth, the economy would grow much faster. Eventually, the extent of home and car ownership -- actual ownership -- would eclipse that in an easy-credit society. Moreover, people would keep their homes and cars because banks would not be foreclosing on them. As a bonus, there would be no devastating across-the-board collapse of the banking system, which, as history has repeatedly demonstrated, is inevitable under a central bank’s fiat-credit monopoly.

Jaguars, anyone?

Your Home is Not an Investment - Neville Kennard

One of the underlying causes of the Global Financial Crisis was a government-induced over-investment in houses and property. Governments found it to be politically convenient to make special concessions and incentives to people to own their own home. In the USA, for example, home interest-payments have been tax-deductible. In Australia a home has been Capital-Gains Tax Free. Many countries have relaxed-lending criteria for home-ownership leading to people spending and borrowing more than is prudent on their home.

All this has lead to an over-investment in houses. On top of this the house-market in many places has been buoyant, leading people to think they have made a "good investment" in their home.

For many people their home, the house or apartment they live in, is the single biggest purchase they make in their life. People tend to keep their home for a long period, sometimes changing and moving as needs and wants change. Quite often the value of their home increases over their life or ownership period. This is often due to inflation, where it just seems to increase in value, but doesn't in real terms. Sometimes supply and demand pushes the price up, or down. Actually it is mostly the land on which the house sits that increases in price or value; the house itself mostly depreciates with age and declines in value.

With the house we live in we mostly have a loan to finance it and we pay it off over a longish period. It is a means of saving - a forced or disciplined saving regime for us. So after ten or fifteen or twenty years our house may be paid off, and when we choose to cash in and sell, it gives a nice lump sum, probably tax-free, that has kept up with inflation, and we can take our nest-egg and perhaps buy something less expensive, with something leftover to invest or play with.

Thus it seems like it has been a "good investment". But the Global Financial Crisis has caused the house mal-investment chickens to come home to roost and house prices are dropping in many places.

There is another side to home ownership which puts the purchase of a house in a different light.

A house/home is really a "long-term consumer-durable"; it is like a refrigerator or appliance. It will last twenty years or more years and serve us well. It will have running costs, such as rates and taxes, maintenance. It will need to have leaks fixed, plumbing maintained, paint and various repairs over its life. It will depreciate; it will get old and out of date.

And a home will not give a financial return over its life; it will cost quite a lot to own. The land under the house may go up (or down) with supply and demand, but a vacant block of ground will not give a return; rather it will cost money to keep.

Now this is not to say that one should not buy and own a house to live in. Quite the opposite, owning your own home is an attractive and desirable thing to do and most people do it. It can be shelter and accommodation; it can be a source of self-expression with decorating and furnishing. You can alter and change and expand your home when you need or want to. And it is "home". It is more of a "home" when you own it rather than rent it. And there is a sense of pride and satisfaction and security in "owning your own home".

But it is still not a Financial Investment. If you rented your home instead of buying it and put the money into a business or the stock market or even an income-producing property you would most likely come out well ahead.

The property market has swings. Prices go up and down. Should you be skilful or lucky enough to buy when prices are low, and then sell when they are high, it will look like a good investment. But this then turns it into a speculation. And mostly we buy a house when we want or need to, and sell when we want or need to. There are often other factors at play that push us into buying and selling our home - family, job or just because it's what we want to do.

Look upon your home as a long-term-consumer-durable. Own it, pay it off, make it the way you want it, move and swap when you want or need to, and look for other things for your Financial Investments. Look for investments that will hold their value or increase in value (in real terms) and give a return. A business, shares, investment property may do this. Enjoy your home, and if it does actually give you a financial return when you sell it, look upon that as a bonus.

Over-investment in housing and home-ownership has meant less investment is available for business-investment and more productive uses, Let's hope the home-ownership binge is behind us. Politicians can't be trusted to make good investment-incentive rules, so we must each think for ourselves and choose what is in our individual long term interest

Tips For Creating an Extraordinary Year - Siimon Reynolds

A few weeks ago, in a moment of wild enthusiasm, millions of people set their New Year’s goals.

How many do you think will actually achieve them?

Well, a research study by the USA Today newspaper showed that after 12 months, on average only 4% have achieved their goals.

So, how can you be amongst that 4%?

How can you design your New Year’s goals so that your dreams actually become realities?

Here’s my 5 step formula for making your goals come true:

1. Write your goals down.

Incredibly,The USA Today study showed that people who actually wrote their goals down had a 44% chance of succeeding with them- that’s, an improvement of 1100%! And yet it take only a few minutes to do it.

2. Only have a few of them.

It’s been my experience that the more goals i set, the less i achieve.

This year, try having just 3 major goals that you work on.

It’s a virtuous circle: The less goals you have, the more time you devote to each one. The more time you devote to them, the more progress you make. The more progress you make, the more motivated you become. The more motivated you become, the more you work on your goals.

3. Stay conscious of them.

I believe that one of the primary reasons people don’t make progress with goals is that they are not thinking about them all day long.

I’ve found that you tend to get what you focus on. If you think about your goal only occasionally, you won’t be driven enough to achieve it.

I try to read my goals each morning before i start work and have trained my mind to re- focus on them at several other times during the day. The more i think of them, the more actions i take to achieve them.

4.. Be accountable to someone.

Many of the best coaches in the world believe that the number one way to improve performance is to be accountable to somebody. Performance ALWAYS improves when you know that you’ll soon have to report your progress to another person Someone who won’t let you off the hook, or put up with excuses.

Take a moment now to think of somebody you could use as your mentor or accountability partner, then arrange a time each week for you to update them on the progress you’re making towards your goals.

5. Take action every day.

Great achievement does not occur in one grand moment. It’s always the culmination of hundreds, even thousands, of small steps.

If you can just discipline yourself to take one step towards each of your 3 goals every day, at the end of the year you will have taken over 1000 steps towards your dreams! Think about that for a moment – after 1000 steps forward, you’ll either have achieved all three goals and massively improved the quality of your life, or be well on your way to doing it.

So that’s the 5 step formula to super achievement in 2011.

Give it a try.

It may just transform your entire life.

Invest Successfully in Emerging Market Real Estate - Ronan Mcmahon

Today, I'm revisiting my "Five Golden Rules for Buying Pre- construction." I find this a useful process whenever a pre-construction project I have invested in or recommended is delivered.

To remind you, buying pre-construction is where you buy into a development before it has been constructed. You are relying on a set of architectural plans. Frequently, developers will offer substantial discounts to buy off-plan. Often the best units go to "insiders."

Developers do this because they need investor funds to finance the project. That's a strong incentive to create simple and profitable investor terms. Moreover, bank finance for construction costs will typically be dependent on a certain level of pre-sales. The developer will want to hit that number as soon as possible. The developer will also want to share some of the risk by selling pre-construction. He knows he is giving a good deal based on today's prices - but who knows what the market will be like when the units are delivered in two years time?

Buying pre-construction makes more sense for the investor than for someone buying for personal use. For the investor, the unit doesn't have to meet your own taste, and you probably don't mind that it will take a few years before you take possession of your unit, as long as the market is seeing appreciation.

When you buy a unit pre-construction, however, it should be a property that a large portion of the general public wouldn't mind owning or renting. You are buying the unit to eventually sell or rent to an end user, and you want to make sure the property will be attractive to as many end users as possible.

The end user may be a long-term renter, a first-time homebuyer, a short-term vacationer, or even another investor. That will depend on where and what you are buying. Analyze who the end user will be before you put your money down, as you will want to make sure there will be a big enough market to sell or rent your property to. Plus, pay attention to how much similar supply is in the pipeline in the area.
You get a discounted price to compensate you for taking on some of the early development risk, but the real incentive to buy pre-construction comes from leverage. While the terms of the payments vary from project to project, no matter what the terms are, you are leveraging your returns to some degree. A typical deal will start with a small down payment...say, 5%...and work through various stage (progress) payments during the construction period, until you have paid anywhere between 5% and 80% of the purchase price. The balance is due when the keys are turned over.

Let's walk through a sample deal to show how leverage works when buying pre-construction. You purchase a $100,000 condo with a 10% down payment. The balance is due on completion in two years. A 20% increase in price during the build period means a 200% return (net of fees) if you were to flip. Of course, leverage, like buying an option, can work in two ways; a 10% fall in price means that you are down your entire investment.

Buying pre-construction is a strategy that will maximize the retail investor's ROI in the early to mid-stages of a market appreciation cycle. Buy pre-construction at the top of the market and you risk losing your entire investment...and maybe even more than you have invested, if you are contractually bound to complete and that clause is enforceable. All the benefits of buying pre-construction are tied to a rising and active market. Without a rising and liquid market, pre- construction almost never makes sense.

If there isn't activity in the market, you run the risk that the project you buy into won't be completed. Or if it does get completed, half the building will be empty. This can be a big problem when it comes to maintaining communal areas or amenities and security.

White-hot pre-construction markets can frequently overheat. Too much supply becomes a problem. Prices rise too fast. If prices rise to the point where there is no expectation of future price increases, the market will stall. Five years ago, Panama was one of the hottest pre- construction markets I have seen. Today, as you know, it's a different story.

As I said...you want to play the pre-construction market in the early to mid-growth stages of the market. The market punishes late arrivals who think prices will continue to rise as they have been rising all along.

The "right deal" should always follow all five golden rules, below. To illustrate the essentials of investment in pre-construction projects, let's look at the Sian Ka'an project near Tulum on the southern edge of Mexico's Riviera Maya.

1. An appreciating market in the early to mid-stages of growth. Sian Ka'an is set in the Riviera Maya, home to Mexico's best beaches. It's close to the site for a new international airport, and is positioned directly in the path of progress.

2. A developer with a strong track record who is financially stable. Sian Ka'an's developer, Benjamin Beja, has built and/or sold 1500 homes across Mexico, mostly to the North American market.

3. Supply constraints - a lack of developable land, for example. Sian Ka'an is in a location with a lack of developable land. The Sian Ka'an biosphere and other preserved land close by on this section of coast cover 1.5 million acres, and can never be developed.

4. A market with an abundant supply of end users. Benjamin conceived Sian Ka'an in response to a supply shortage of hotel rooms. Sian Ka'an is in the Gran Bahia Principe resort, which has 2,700 hotel rooms...but it needs 3,000. So Benjamin built Sian Ka'an, with 300 condos.

5. A liquid market with a large volume of transactions. More than 400 sales in less than two years at Sian Ka'an alone, tells us that this is a liquid market.
Pre-construction success isn't a fluke. Good fortune is always welcome but the key to pre-construction is following these five golden rules. They are simple, easy to follow...and should stand you in good stead.

Do what you Love, Love what you Do

The clearer and more meaningful your purpose the greater will be your direction and feelings of inspiration for life. People who are inspired and committed to fulfilling their dreams grow, while those who do not, tend to decay mentally, emotionally, and physically. In other words, if you’re not fulfilling your life’s mission and doing what you love and loving what you do, then you are not really planning to live an inspired life. You are simply living a quiet life of desperation.

The first step towards discovering your purpose is making the decision of what you would love to be, do and have in all areas of your life.

If you knew you couldn’t fail, listened to your heart and soul, and wrote down what you would love to be, do and have in all areas of your life, what would they be? Take the time to write it all down. A short pencil is greater than a long memory. Any detail you leave out is a detail that others may determine. Assume you are the captain of your ship and the master architect of your destiny.

No matter what we decide to be, do and have in our lives, if it comes from a place of inspiration, it does in some way make a difference. Whether it is in business, the arts, at home or a spiritual quest, everything we do is another piece to the puzzle of life and if there are any pieces missing we do not have the whole picture.

The second step is the questions we ask ourselves on a daily basis. To live an inspired rather than a despired life there are skills to be mastered, and one such skill is the ability to ask yourself inspiring, quality questions. The quality of your life is determined by the quality of the questions you ask, so don’t say to yourself, I’d like to do that, but do I have enough money? because it creates a mindset that assumes you can’t. Ask yourself, “How can I do what I love and be magnificently paid for it?” Don’t stop looking until you find the answer, and get an entirely different outcome. Just reframing the statements you make to yourself offers tremendous power. This allows your vacation to become your vocation.

Finally the third step is being grateful for everything in life. Those who count their blessings, who are grateful, have more blessings and fulfillment in life than those who do not. This is a simple principle. Yet it has the power to change your life. Gratitude is the key to growth and fulfillment.
Imagine if you dedicated your life to your dream and let nothing stop you, and I mean nothing. If you let no person on the planet, any challenge, obstacles, fears or emotions stop you from being exactly what you dream about, how could it not come true? There’s nothing more inspiring in my life than to speak to people who are willing and receptive to discovering their magnificent potential.

The pain of regret far outweighs the pain of discipline, so don’t spend your life on little dreams when you have something magnificent inside that is just waiting for expression

The Unemployed Genius

I saw an amazing thing this week.

A small poster on a telephone pole, written by somebody asking for a job.

Now we’ve all seen a million of those, but this one had one important difference.

The headline was as follows:

FIND ME A JOB AND I’LL PAY YOU $1000.

Isn’t that brilliant?

In just 9 words he had shown how special he was.

He showed he was highly creative.

That he was super keen to work.

That he understood advanced communications.

That he believed in himself enough to put his money where his mouth is.

And perhaps most importantly, he showed that he understood one of the great principles: that in this world, if you want to get something you have to give something first.

I’m sure that guy thought he’d just written a job ad.

In fact, he wrote a superb lesson on how to be successful in life.