To estimate Steppe Gold’s stock price if gold reaches $4,000 per oz, we'll take into account several key factors including production growth, costs, and valuation multiples. Here's how we can approach it:
### Key Assumptions:
1. Future production (2026 target): 150,000 oz annually from the ATO and Boroo mines.
2. Gold price: $4,000 per oz.
3. AISC: We'll assume an average AISC of $1,000 per oz (considering Boroo’s low cost of $850 and expected improvements).
4. Steppe’s share of production: Steppe retains 75% of production after fulfilling the gold stream deal (assuming no further major dilution).
5. Debt: They have a $150 million loan.
6. Current market cap: ~$150 million.
7. Current share count (FD): 108M shares.
### Step-by-Step Calculation:
1. Revenue at $4,000 gold:
- 150,000 oz * $4,000/oz = $600 million in annual revenue (at 100% production).
- Steppe’s share (75% due to the gold stream deal): $600 million * 0.75 = $450 million in revenue for Steppe.
2. Cost of production:
- 150,000 oz * $1,000/oz AISC = $150 million in annual production costs.
- Steppe’s share: $150 million * 0.75 = $112.5 million in costs.
3. Pre-tax Profit (EBITDA equivalent):
- $450 million (revenue) - $112.5 million (costs) = $337.5 million in pre-tax profit.
4. Estimation of Free Cash Flow (FCF):
- Assuming 70% of pre-tax profit converts to FCF:
- $337.5 million * 0.7 = $236.25 million in annual free cash flow.
5. Valuation multiple:
- Let’s apply a 5-10x FCF multiple, given the high gold price and potential re-rating. We’ll use an 8x multiple for this calculation:
- $236.25 million * 8 = $1.89 billion market cap.
6. Stock price calculation:
- If Steppe Gold achieves a market cap of $1.89 billion, the stock price would increase proportionally based on the share count:
- $1.89 billion / 108 million shares ≈ $17.50 per share.
### Conclusion:
If gold reaches $4,000 per ounce and Steppe Gold successfully expands production to 150,000 oz annually with an average AISC of $1,000, the stock price could potentially rise to around $17.50 per share, assuming no major share dilution and a re-rating of the company.
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