Afterpay: An interactive valuation
Introduction
2021 saw a crowded IPO market for gold companies. Medallion Metals (ASX:MM8), was one of those new listings which may present potential upside at its current valuation. Medallion Metals is a minerals exploration company focused on high grade gold at its 100% owned Ravensthorpe Gold Project situated south-east of Perth, Western Australia. While currently only an explorer, Medallion Metals is confident its Ravensthorpe Gold Project will grow to support a long-life, low-cost mine.
Ravensthorpe is located in a historically proven mine field in a Tier 1 jurisdiction. A 45,000mm drill program is underway with a 100kozpa, 7-year development scenario in management’s sights. Medallions Metals focus is exploring for gold, therefore we have decided to compare it gold explorers with similar characteristics. These peers include Black Cat Syndicate (ASX:BC8), Classic Minerals (ASX:CLZ), Alto Metals (ASX:AME) and Genesis Minerals (ASX:GMD).
We've put together an interactive valuation that compares these peers based an Enterprise Value to Resource ratio.
The outputs above summarise Medallion Metals current share price and market cap. This will stick to the top of your screen as you scroll further down the page. As you 'interact' with the Enterprise Value to Resource ratio, this valuation will update in response.
Enterprise Value to Resource Valuation
Enterprise Value to Resource (EV/Resource) is the ratio of market value of a company's shares over the total resources contained in the ground. It’s used as a measure of how expensive a company is compared to its resource. The ratio doesn’t consider the capital cost to build the mine or extract the resource.
Medallion Metals trades at 56.6x Enterprise Value/Resource, whereas its peers trade at an average of 122.3x. Given this, we think Medallion Metals is undervalued relative to its peers and argue it could trade at a 1-2x higher EV/Resource, in line with those peers.
Decide for yourself by adjusting Medallion Metals Enterprise Value/Resource ratio, remembering to keep an eye on valuation at the top of your screen.
At the time this article was published, Medallion Metals last traded at 22 cents per share. Based on your input Enterprise Value/Resource, Medallion Metals should trade at $
Why does Medallion Metals trade at a discount to its peers?
Metals explorers can be difficult to value accurately given that there is a chance they may never produce metals. Given this, there is a high degree of variability between views on valuation.
Bull Case
The case for the success of Medallion Metals and subsequent upside includes:
· Strong momentum of recent results resulting in increased news flow
· Experienced board and management
· High grade resource
Bear Case
The company is classed as an explorer, meaning they do net yet produce gold. Less than one percent of exploration projects typically progress to establishing a mine. There is a chance that Medallion Metals will not produce gold or any other metal and therefore will not realise the Enterprise Value/Resource multiple of its peers.
Summary
At the time of writing this article, Medallion Metals valuation was $23m or 21 cents per share. You arrived at a valuation of
Methodology:
The valuation of Medallion Metals Limited was derived using a peer based valuation methodology, based on enterprise value ratios for the selected peer group. All data is sourced from public market annoucements. Some data may be sourced from third party data aggregators. The information provided on this site is general in nature, not financial product advice. Your personal objectives, financial situation or needs have not been taken into consideration.
All enquiries to mharper@moderninvestor.com.au.
