Portfolio +6.4% YTD, 4.7x the market since inception. Plus, seven North American mines, $2B in expected free cash flow, and a metals cycle tailwind. Is CDE still a buy after a 42% drop?
Love the detailed analysis George but I was hoping you could explain some of the numbers a little more.
Currently the market is valuing CDE at ~$17, based on their guidance of 2026 metal prices which are pretty much around where they are today.
Your model of Gold at 5500 is around 22% higher than current price. Similarly Silver at $100 in your model is ~43% higher than today, and Copper at 9% higher.
So if your model is projecting a (conservative) NAV which is 17% higher than the current market value, but relies on more significant movements in the underlying metals pricing, doesn't that suggest that it is in fact actually overpriced at todays metal prices? You mention the stock has about a 20% move for each 10% move in Gold, that would imply a much larger price increase from today (in fact if your model projects a 17% increase in stock price based on Gold being 20% higher wouldn't it just be simpler to bet on Gold?).
I know from your writing you are focused on a reasonably sized margin of safety, and 17% on the current market price doesn't seem significant enough to be a buy given the assumptions. I'd be interested to see more detail in the model on how you expect the valuation to perform under the bear case metal prices outlined, or to explain something else that I must be missing!
I think it would be flawed to use today’s metal prices or management’s guidance in a NAV model. UNLESS the company could mine all the reserve that day.
As there is a mining bottleneck and it takes years to mine the reserves, the metal prices obtained would be higher (unless you have a bearish view on the metals).
So the reason I say 5,500 for gold is conservative is that I am pretty sure that the average gold price for the next ten years (the average duration of the seven mines) will be higher than 5,500.
Thanks for the reply! I had mixed up my understanding of your model estimate of the 5500 being for a (conservative) 10 year average with the projections from analysts being only for the 2026 year end prices.
So if I understand correctly your bear case for the stock isn't if gold returns to 3500 or 2500 in the near term, but if it is sustained at that lower price.
(FYI I'm new to your newsletters. Came across your analysis when I was researching GSL, then came across KINS, and subscribed to the newsletter. Almost finished your book too!
Exactly. Of course gold prices could decline, but in reality what matters is the average gold price obtained during the 10 years. So if prices stay around today's price, the target share price would be $16.62 ($19.88 - $1.63 x 2 [as every $500 gold price = $1.63 in the share price]).
And thank you for subscribing and actually reading my book hahaha, would appreciate any feedback when you are done as I am in the process of writing the second edition which is an expanded version. Also if you could rate it in Amazon would help discovery :)
The bull case is easily between $28.50 and $32.00. That is assuming long-term gold at $6,000-$6,500, silver $120-$140 and copper $6-$9. Also, the bull case has a higher exploration success rate (in the base model, I assumed "industry-average" exploration success rates). Finally, the discount rate would be 5-6% of the global players once the operation is derisked and the latest acquisitions are fully integrated.
Love the detailed analysis George but I was hoping you could explain some of the numbers a little more.
Currently the market is valuing CDE at ~$17, based on their guidance of 2026 metal prices which are pretty much around where they are today.
Your model of Gold at 5500 is around 22% higher than current price. Similarly Silver at $100 in your model is ~43% higher than today, and Copper at 9% higher.
So if your model is projecting a (conservative) NAV which is 17% higher than the current market value, but relies on more significant movements in the underlying metals pricing, doesn't that suggest that it is in fact actually overpriced at todays metal prices? You mention the stock has about a 20% move for each 10% move in Gold, that would imply a much larger price increase from today (in fact if your model projects a 17% increase in stock price based on Gold being 20% higher wouldn't it just be simpler to bet on Gold?).
I know from your writing you are focused on a reasonably sized margin of safety, and 17% on the current market price doesn't seem significant enough to be a buy given the assumptions. I'd be interested to see more detail in the model on how you expect the valuation to perform under the bear case metal prices outlined, or to explain something else that I must be missing!
Hi Ben,
I think it would be flawed to use today’s metal prices or management’s guidance in a NAV model. UNLESS the company could mine all the reserve that day.
As there is a mining bottleneck and it takes years to mine the reserves, the metal prices obtained would be higher (unless you have a bearish view on the metals).
So the reason I say 5,500 for gold is conservative is that I am pretty sure that the average gold price for the next ten years (the average duration of the seven mines) will be higher than 5,500.
Thanks for the reply! I had mixed up my understanding of your model estimate of the 5500 being for a (conservative) 10 year average with the projections from analysts being only for the 2026 year end prices.
So if I understand correctly your bear case for the stock isn't if gold returns to 3500 or 2500 in the near term, but if it is sustained at that lower price.
(FYI I'm new to your newsletters. Came across your analysis when I was researching GSL, then came across KINS, and subscribed to the newsletter. Almost finished your book too!
Exactly. Of course gold prices could decline, but in reality what matters is the average gold price obtained during the 10 years. So if prices stay around today's price, the target share price would be $16.62 ($19.88 - $1.63 x 2 [as every $500 gold price = $1.63 in the share price]).
And thank you for subscribing and actually reading my book hahaha, would appreciate any feedback when you are done as I am in the process of writing the second edition which is an expanded version. Also if you could rate it in Amazon would help discovery :)
George, the base(/bear?) case NAV is clear, but what would be the bull case NAV / target share price?
Hi Karel,
The bull case is easily between $28.50 and $32.00. That is assuming long-term gold at $6,000-$6,500, silver $120-$140 and copper $6-$9. Also, the bull case has a higher exploration success rate (in the base model, I assumed "industry-average" exploration success rates). Finally, the discount rate would be 5-6% of the global players once the operation is derisked and the latest acquisitions are fully integrated.