To estimate Orezone Gold’s stock price if gold reaches $4,000 per oz, we will consider several factors such as production growth, costs, and potential valuation multiples. Here’s the step-by-step process:
### Key Assumptions:
1. Future production (2027/2028 target): 225,000 oz annually.
2. Gold price: $4,000 per oz.
3. AISC: Let’s assume a $1,200 AISC post-expansion, as costs are expected to decrease.
4. Orezone’s share of production: 90%.
5. Current debt: $62 million (paying back $10M per quarter).
6. No major share dilution in the meantime.
### Step-by-Step Calculation:
1. Revenue at $4,000 gold:
- 225,000 oz * $4,000/oz = $900 million in annual revenue (at 100% production).
- Orezone’s share (90%): $900 million * 0.90 = $810 million in revenue for Orezone.
2. Cost of production:
- 225,000 oz * $1,200/oz AISC = $270 million in annual production costs.
- Orezone’s share: $270 million * 0.90 = $243 million in costs.
3. Pre-tax Profit (EBITDA equivalent):
- $810 million (revenue) - $243 million (costs) = $567 million in pre-tax profit.
4. Estimation of Free Cash Flow (FCF):
- Assuming 70% of pre-tax profit converts to FCF:
- $567 million * 0.7 = $397 million in annual free cash flow.
5. Valuation multiple:
- Let’s use a 5-10x FCF multiple, depending on market conditions. For a gold price of $4,000, we’ll assume an 8x multiple:
- $397 million * 8 = $3.18 billion market cap.
6. Current market cap:
- Orezone Gold’s current market cap is approximately $340 million.
7. Stock price calculation:
- If the company reaches a $3.18 billion market cap, the stock price would increase proportionally. Assuming no major share dilution, we can estimate the stock price as follows:
- $3.18 billion / $340 million ≈ 9.35x current stock price.
If Orezone’s stock price is, for example, $1.50 today:
- $1.50 * 9.35 = $14.03 per share at $4,000 gold.
### Conclusion:
If gold reaches $4,000 per ounce and Orezone achieves its long-term production target of 225,000 oz annually with a $1,200 AISC, the stock price could potentially rise to around $14 per share, assuming current valuations and no major share dilution.
How well do narratives help inform your perspective?
Disclaimer
The user RockeTeller has a position in TSX:ORE. Simply Wall St has no position in any of the companies mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The author of this narrative is not affiliated with, nor authorised by Simply Wall St as a sub-authorised representative. This narrative is general in nature and explores scenarios and estimates created by the author. The narrative does not reflect the opinions of Simply Wall St, and the views expressed are the opinion of the author alone, acting on their own behalf. These scenarios are not indicative of the company's future performance and are exploratory in the ideas they cover. The fair value estimates are estimations only, and does not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that the author's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
