By your question, I think you would like to know how I use cash flow to value a company relative to its market cap? If so, then here is my approach:

DVM's valuation ratio = [stock price x (basic shares outstanding + in the money derivatives assuming exercise + newly issued shares from financing) - working capital - cash from in the money derivatives assuming exercise - cash from newly issued financings + major capital cost items if applicable] / gross profit

Target price = cash flow multiple / DVM's valuation ratio x stock price

Using PTQ as an example:

1. Stock price as of Dec 12 2010 = $1.12

2. Basic shares outstanding as of Aug 31st 2010 = 125,381,951

3. In the money derivatives assuming exercise as of Aug 31st 2010 = [786,000 + 118,800 + 300,000 + 100,000 + 37,500 + 3,150,000 + 100,000 + 493,750 + 487,500 + 350,000 + 65,000 in options] + [2,100,042 + 12,716,780 + 3,595,300 + 7,051,720 in warrants] = 31,452,392

4. Newly issued shares from financing = 810,262 in options repricement + 30,000,000 in private placements = 30,810,262

5. Working capital as of Aug 31st 2010 = $6,256,356 current assets - $33,421,167 current liabilities = ($27,164,811)

6. Cash from in the money derivatives assuming exercise as of Aug 31st 2010 = [(786,000 x $0.54) + (118,800 x $0.26) + (300,000 x $0.52) + (100,000 x $0.39) + (37,500 x $0.62) + (3,150,000 x $0.23) + (100,000 x $0.84) + (493,750 x $0.87 +(487,500 + $0.57) + (350,000 x $0.53) + (65,000 x $0.48) in options] + [(2,100,042 x $0.85) + (12,716,780 x $0.65) + (3,595,300 x $$0.65) + (7,051,720 x $0.65) in warrants] = $19,377,721

7. Cash from newly issued financings = $39,950,000 from DB gold loan + (810,262 x $1.05) in options repricement + (30,000,000 x $1.00) in private placements = $70,800,775

8. Future major capital cost items if applicable as of Aug 31st 2010 (ex. costs to build a mine, close hedgebook, close notes outstanding) = $25,860,251 in senior notes + $42,844,425 in convertible notes = $68,704,676

9. Forward gross profit estimate for calendar 2011 = [($1400 spot gold - $600 cash cost) x (125,000oz - 4,400oz hedged) + ($1290 hedge price - $600 cash cost) x 4,400oz hedged] = $99,516,000

DVM's valuation ratio = [$1.12 x (125,381,951 + 31,452,392 + 30,810,262) - ($27,164,811) - $19,377,721 - 70,800,775 + $68,704,676] / $99,516,000 = 2.17

Target price = 8 / 2.17 x $1.12 = $4.13

Note 1: Cash flow multiple varies depending on the amount of resources a company has in order to sustain ongoing operations. A lower multiple can be applied to factor in risk and/or unapplied costs such as interest and exploration expenses.

Note 2: DVM's valuation ratio is a variation of the price to cash flow ratio. In order to compare one company vs its peers however, there are various cash flow items that are excluded. For instance, cash inflow items such as revenue from non-core assets (sale of shares in another company) are not included. Also excluded are cash outflow items such as interest expenses (too tedious to compute) and capital expenditures (cost ratio to maintain operations and exploration are assumed to be equal for all companies in order to save time).

Hope this answers your question. Clearly I have too much time on my hands.

Unfortunately not much is disclosed about Azuero since it is private. My thoughts are that Fifer held claim to these lands and made a JV with PTQ on the basis that we get 49% as long as we help fund half or all the exploration costs (about $50M over 5 years). The fluffy rumours has it that the lands Azuero holds claims to could be one day worth $80B! I think we stand to benefit if even if less than 1% of that amount is true.

Upon further review, the PP is necessary and the benefits from it outweigh the cost of dilution. Going back to the balance sheet, working capital (current assets less current liabilities) as of Aug 31st was -$27.2M. Non-current senior and converible notes totaled $68.7M. The DB gold loan shaved $39.5M from the notes leaving $29.2M to bear interest. Upon closing the outstanding note principals + 5 months interest (18% annual), the final cash outflow in February would be ~$31.4M. The PP will elimate $30M of this amount. Assuming all of the $0.65 warrants are exercised, PTQ will get $17.9M. However, even with the cashflow from operations + the PP + the exercise of warrants, PTQ would still have a working capital deficit.

Cash inflows:
+39.5M from gold loan
+$17.9M from exercise of warrants
+$???M from operating cashflow
+$30M from PP
-----------------------------------
+$87.4M

Cash outflows:
-$27.2M working capital deficit
-$68.7M in notes
-$2.2M in interest on notes
-$???M for capital expenditures
-----------------------------------
-$98.1M

Assuming all operating cashflow offsets costs for the plant expansion, heap leach project, and exploration activities, PTQ still would have a -$10.7M working capital deficit. Without the PP, it would be -$40.7M and more interest expense at 18%. Much like dilution, negative compounding interest squeezes earnings. Institutions would prefer a better capital structure going forward than a couple of more pennies per share. A company that's in better financial shape tends to earn a higher multiple.

PS: I am not a fan of the P/E model of valuating companies and believe there are way too many flaws with it since it does not account for several important variables. I prefer looking at cashflow models since cash is king.

All I know is that Azuero operates as a private subsidiary of PTQ with Fifer owning 51% and PTQ with 49%. It is my understanding that PTQ funds a portion, if not all, of the exploration costs to maintain its 49%. The exploration program is targeting regions all over Panama outside the Ley Petaquilla concession.

"Perhaps they are withholding information in case the share price falters toward $1.00"

Didn't they release a rosy production update prior to the lackluster FYQ1 earnings? I think they are indeed keeping some aces up their sleeves to safeguard the SP from dropping in the short term.

And thanks for answering post #5798 for me. I think the plan of action, packet, and proxies must be given to sedar by Jan 1st. I'm curious to see if we will get any other items in the next 18 days because some of us here think so.

Sorry to bring back an old discussion, but I'm in the MJK, Ric, and VB camp. The upcoming special meeting on Jan 31st still feels like there is more than meets the eye. Calling a meeting to approve a PP offering is unusual. For example Brigus Gold, which lists on both the TSX and AMEX, announced a PP on Sept 28th. They filed a preliminary prospectus on Oct 4th and a final prospectus on Oct 13th. The transaction closed on Oct 19th but they did not hold a special meeting to approve their PP of 39M shares + 9.75M warrants of 179M shares outstanding.

Now I'm just speculating here, but 1BP may be correct in that a corporate transaction could be imminent. The voting to approve the PP may just be one of several items for approval. Perhaps it will relate to the PDI spinoff, Azuero JV, Inmet JV, or a transaction with a new party.

If there was ever a time for SP manipulation, then it is now. The AGM results were announced on Nov 30th which also started the current streak of 10 consecutive trading days over $1.00. Should prices hold above this level to the end of Jan 10th, which it likely will, then an additional 14,969,604 warrants will be callable for $9.73M. The release of these funds may help play a factor towards outcome of the special meeting. I think that we have strong price support from now to the end of January. Under my assumption, there doesn't appear to be much downside risk and the upside potential is still huge with much anticipation from the upcoming news flow. I try to be level headed, but Ricnat's targets are achievable if all things line up well including FYQ2 results.

We longs are all serious to park our capital here. I don't usually disclose the number of shares I have since I trade around positions and my timeframe varies from others. Fwiw, I have averaged more than 23,000 and less than 796,000 shares in my accounts.

I just ran through the numbers on page 15 and noticed that the "Au ounces recovered from milling" actually represents a discount of 9.7% to the projected figures.

Taking Sept-10 for example:

30 days x 2600 tpd x 3.00 average grade x 92% operating time x 84% recovery time x 0.0352739619 grams per ounce = 6379oz

(6379oz / 5814oz) - 1 = 9.71% discount

As long as the tonnes milled/day, average grade, operating time, and recovery ratio are in line or exceed actual results, then the 5814oz figure and all figures that follow are pretty conservative.

I have to agree with Loj here. The projections given for FYQ2 should be close to actual results since management had plenty of time to analyze the data during the quarter. I don't think there is an over-estimation here since they decided to note "corporate base case" in the heading. If there are surprises, then I suspect the numbers will be better. What I would like to know is why does management provide guidance through their presentation instead of a news release?

As to how they came up with future projections, there are several assumptions that could explain it. Perhaps grades, dilution, and milling rates for the future mine plan play a factor. Communication and transparency seems to still be an issue, but it is improving.

Been reading more about the flooding situation in Panama and I hope the folks down there are able to cope with the disaster. These acts from mother nature are very sudden and unexpected. The timing seems incredibly unfortunate considering that the country is reforming and progressing both socially and economically. However, every cloud has its silver lining and I believe that the Panamanians will be able to turn this negative situation into a positive one. Through the destruction caused by Hurricane Katrina for instance, New Orleaners were able to persevere, rebuild, and things have gotten better some 5 years later. The people of Panama have an opportunity to rebuild and improve infrasture within all parts of the country. This attracts jobs, creates civil unity, and should make the country even stronger in the future. I would like to extend my thoughts and prayers to those that have been affected by the flooding and wish them for a happy recovery.

It's only been one week since I started looking into the EU situation and those bureaucrats have it all wrong. Farage provides an excellent voice of opposition and I think he is on the money with most of his comments. Btw, I will be traveling to Italy and France this summer. Hopefully there won't be any nationalistic uprisings at that time.

A lot of volume today and yet the price action has been in a relatively tight range. I suspect there may be some short sellers in this $1.14-1.17 area betting on a double top pattern especially after gold's recent pullback. If my suspicions are correct, then getting above $1.22 could trigger a lot of buy stop orders.

It was FDR who ordered the confiscation of gold. If such a scenario were to play out again, then you can forget about locking gold up in a bank's safety deposit box. Last month I ordered 300 1oz silver coins and will just stash it under my mattress. There's no insurance quite like bullion and it comes at a low one-time premium. I plan to buy more in the coming months once PTQ provides me with more cashflow :P

Down the road, options would be to a) default on the debt b) monetize the debt by printing more dollars c) go to war with the debt holders or d) go back to a gold standard

Option a) may correlate with c) and is bad for the world. Option b) is bad for US citizens, but combining it with option d) could help ease the loss of purchasing power; assuming the US still has over 8,000 tonnes of gold in its reserves that is. Option d) would mean gold and silver need to be repriced higher to nominally offset the amount of debt owed through money printing. POG would need to go to $xx,xxx/oz

Gold and silver are the most misunderstood forms of currency. All these Keynesian economists somehow think paper money can retain its purchasing power through neverending growth. They don't realize that at some point, the game needs to come to an end before it can restart again.

Precious metals got slammed today yet PTQ is showing great relative strength. Certainly one of the few gold stocks not in the red today. Looks like it wants to test $1.22 soon.

As long as $0.96 isn't taken out, we have a bullish pattern of higher highs and higher lows showing on the daily chart.

Nice find this morning. Market seems to have picked up on the filing and could very well be for the spin-off.

Absolutely. The point of the safety of margin approach is to analyze downside risk. Even under extreme measures, a stress test if you will, it seems that PTQ is highly undervalued presently and more so under future conditions.

We all know about the upside potential and stock price expectation, but how would you quantify the risk?

Using the margin of safety approach, I like to think we have downside protection with "the Inmet put." IMN already bought the Cobre project from PTQ for $410M (capex for project of $4.2B) and would likely be open to consolidating all the properties on the Ley Petaquilla concession. Not only would Inmet gain access to the gold, but would also have the Molejon facility to process them. Having an existing operation means that there would not be much more capex needed to fund it. There are a lot of other good synergies that would exist in such a deal. How much do you think Inmet would offer for PTQ as a low ball bid?

Margin of safety:

Let's assume Inmet requires an IRR of 33% or payback period of 3 years. Using 100koz of annual production, $1300 spot gold, and $600 cash costs, the free cashflow would be $70M per year or $210M for the entire period. On 230M fully diluted shares, the low ball offer would represent $0.91 per share. This of course does not include premiums or value from cash reserves, PDI, exploration prospects, tax credits, and other assets. In theory, the downside risk is negligible if we can apply the Inmet put and a margin of safety.

Note: the Inmet put could be substituted for any M&A company. This theory may not hold true in practice, but serves as way to gauge risk.

Ever since joining this board, you guys have had numerous discussions about almost everything PTQ related and provided me with many good insights. However, I do not recall of a discussion on Molejon grades and the long term sustainability off of current resources which would affect costs and bottom line profit. Do you think our valuation gap persists due to a lack of known high grade resources and uncertainty of finding more?

The old 2007 NI 43-101 seen in the iBox shows we have 756,586oz M&I @ 1.50g/t weighted average before production. Currently we are mining at around 3.00g/t. A few years out, this would mean we are left with lower grade ounces at presumeably higher costs. Sideline investors, who would otherwise bid up the stock, are probably still waiting for more high grade resources for long term sustainable profits.

If we started with 15,726,667 tonnes @ 1.50g/t, then a 5,000tpd operation would last for 8.62 years. The average annual production would be ~91,734oz @ 95% recovery rate. Production looks solid for our market cap still, but how would the average grade affect costs? The more rock processed means that the impact from fixed costs go down. However, the lower grades carries higher total variable costs. I think it would be correct to assume that cash costs would be significantly greater than $600/oz @ 1.50g/t and this could be why sideline investors are still uncertain on buying the stock.

Fortunately for us, this scenario is pretty bleak and only serves as a base case model and quite frankly would still be profitable. I did not include the heap leach operation, new resources since 2007, nor any exploration upside. The main point is that I think we need to find more high grade resources to sustain head grades around 3.00g/t. The market seems to be pricing us at the base case scenario and production capacity isn't the main issue.

Global resource update and more drill results could be the main events that move the stock price.

Am I the only one who's salivating the production guidance on pages 15 and 16 especially when "corporate base case" is noted? If this guidance had been in a news release this morning, then the stock would have popped a lot. Opportunity to load up some more shares here before others wake up and realize what's going on.

Maybe this will be it as per FYE2010 MD&A? "Independent consultants Geovectra completed the design of the open pit and respective life of mine plan and a 43-101 statement on mineable reserves will be issued in the second quarter of fiscal 2011."

Of course this may be delayed and released during the global reserve update for Q3/Q4 of fiscal 2011.

Looking forward to more ODN results.

Thank you very much. I'm curious to know if Salman led the surge on Tuesday as well. I read once that some firms can analyze market depth to find out who is shorting and subsequently trigger a squeeze at opportune times. Generally volume bottoms around the lunch hour and may be a time to catch others off guard. Going to start googling now to see if there's more info on this for my own education.

Would anyone here be able to post the market depth since 11:30est on November 23? Buying pressure had occurred in the mid-to-late hours of both days. Basically PTQ went from $0.87 to $1.10 (26.4%) in just 11 trading hours. A lot of blocks had been crossed as some big buyer(s) kept scooping shares at the asking price. Could the new buyer(s) know something bigger than the PP will happen soon and anxious to pull the buy trigger? Or are some traders on the long side playing games with the stock and forcing a short squeeze? Very interesting action going on.

Happy Thanksgiving folks :)

Management could be more transparent by giving us a cost figure for exploration programs and developing the heap leach project. I suppose we can only assume that this is where the warrant money and cashflow is going towards.

DB deal was one of the best financings I have ever seen. Management avoided dilution, and default, when the stock was trading at under $0.50 and the delivery of 68koz over 5 years is very small. I would have preferred a similar deal for the $30M, but equity placement at $1.00 sure beats under $0.50. The warrants are priced well out of the money. Financing was necessary and dilution has been relatively minimal IMO. Would you rather be paying 18% per annum in interest?

If you want to see a real case of heavy dilution, then please check out AUN and you may come to like our financings.

I tip my hat to those who predicted for a NR before the AGM. This financing news is very good since all doubts of the debt being repayed are now crushed. PTQ won't have to pay 18% interest on the outstanding debt. The $30M can also earn 4 months of interest before it is applied to elimate the debt given our grace period into March. However, management may decide to close the debt before November 30 just to make the balance sheet look clean for FYQ2 earnings. Either way, PTQ can now promote itself as a debt free 100koz+ producer. Dilution of 30M shares is not that big and now cashflow from Molejon can be reinvested for heap leach and exploration. It seems PTQ will now have sufficient working capital going forward.

The pricing @ $1.00 is very nice considering that it could've been priced lower several months ago with more dilution. Management did well for shareholders by being patient and waiting for the stock price to rise. I also like the pricing of the $1.45 warrants too.

Technical Analysis

Haven`t seen much discussion on TA so here`s my take on it using a daily chart. PTQ made its 52 week high on Nov 4, 13 trading days ago, and closed with a doji candle. Prices had been above the bollinger band (20 day parameter) for 7 consecutive days which is extremely rare. Gap fill sell off occurred the next day on exhausting volume, just under 8M shares, and confirmed a reversal pattern. Since then, the stock has made a pattern of lower highs and lower lows on diminishing volume. Support has been tested a few times now in the 0.86-0.88 range. Resistance may be found at the 20DMA at 0.94 but a close above 0.96 would negate the downtrend pattern. So far the chart is shaping up as an ABC corrective move before the next leg up. However without some buying pressure to take the stock above 0.96, we may drift lower and extend the downward pattern.

The value of the repriced options represents less than 1% of the company's market cap. I believe this amount may be deemed immaterial so no filing is necessary.

Since most of us agree this stock will not fall and stay under $0.65, the early exercise of warrants/options is excellent for PTQ. The cash will be used to fund the heap leach project (costs unknown), exploration, and/or pay down debt. Management needs every bit of cash availabe to further grow the business. Q2 should show a very nice gross profit, but EPS will likely be negative. Might be more expenses on the notes, heap leach capex, and depreciation.

It kind of depends. Early exercise guarantees further share dilution which would be avoided if the SP drops below the strike price and the derivatives expire worthless. However if the SP is anticipated to hold above the the strike price, then it is far better that they are exercised early so the company can use the cash to invest in exploration, servicing debt, or capex. Cash today is worth more than cash tomorrow because of the opportunity cost of money (investing) and devaluation (inflation).

Early exercising is a sign of strength for the company. The derivatives' holders are forfeiting some "premium" to secure shares today. I believe those who are exercising early already own the common so they already have an interest in making sure the company is well capitalized going forward.

I agree with all your thoughts and could not have said it better myself. For calendar 2011, I think 120koz is a reasonable number. All this talk about exapansion to 200koz+ has not been confirmed by Fifer nor do we have enough NI 43-101 resources to sustain those rates for 10+ years (yet).

I'm not 100% sure, but I think the 40% increase in throughput is for the heap leach project and getting it towards 50koz capacity.

The matter is of legal opinion.

"PTQ owns the right to explore and mine gold deposits (when greater than 50 percent of the present value being derived from gold or other precious metals content) on Inmets Land provided such rights do not impair or impede Inmets ability or interest to exploit the copper deposit. Inmet own the right to develop any copper deposits on the existing Molejón property. PTQ pays a total 5% NSR to Teck & Inmet on all gold produced on Inmets copper lands."

On Inmets Land, 1BP believes PTQ has the right to take any gold found in gold rich zones where copper and other base metals make up less than 50% of the tonnage. He suggested that PTQ could assign a team of miners to shadow Inmet and take away some of their gold should it fall into the above criteria.

However, it of my opinion and many others that the above statement is referring to all land outside of Inmet's Cobre deposit. I consider that PTQ would be impeding Inmets ability to exploit the copper (Cobre) deposit if they were to mine gold from it. I think the existing resources are all Inmet's, but any new zone deposits would be subject to the above criteria. Not much incentive for Inmet to be exploring unless they can identify copper rich zones.

In 3-5 years time, I speculate that Inmet will acquire the Petaquilla Gold subsidiary. Fifer probably knows that the entire Ley Petaquilla concession contains more gold than copper and will be able to take all the cookies and leave Inmet with the crumbs. I'm sure Inmet shareholders would be in outrage if/when they find this out. The Cobre projected is scheduled for 2015 production.

I'll provide a guess for Q2 earnings later next month as we come closer to the reporting date. Like you, I'm thinking it will be low after accounting for capex, depreciation, and fees. Market is going to be most concerned about operating cashflow numbers.

Wow I failed. Flagship property is in Mali not Ghana. Either way, not that bad. I used to own DMM, but the latest coup thingy in Ecuador was the last straw for me.

Need some lunch now in order to focus.

I have a stake in Avion and have followed it for about 18 months. The biggest attraction comes from its exploration potential. M&I ounces have the potential to double when its resource table is updated by the end of the year. A vast majority of drills have hit high grade gold. AVR will be expanding production by 2012 with an addition of another mill and are targeting 200koz+. West Africa is a hot region full of gold mineralization. Several companies have found large high grade deposits like Semafo. AVR's flagship mine is in Ghana which is actually pretty stable. Believe it or not, Avion is undervalued which only makes PTQ way undervalued. I sold most of my AVR in early September and parlayed the proceeds into PTQ. So far so good.

Mid-year update from the Fraser Institute:

http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/miningsurvey-2010update.pdf

This just in...

Potential Suitor: I am interested in acquiring your Molejon Gold business. What was your last quarter like?

Richard Fifer: Not so good, I spent it on a phone call to my buddies at Inmet. I asked them if they had found gold yet, but they declined to comment.

Potential Suitor: No, I mean how much gold did you produce in the past 3 months?

Richard Fifer: Oh hahaha! We produced 7,143 ounces in September and 2,762 ounces from November 1-10. If you are smart, then you can simply multiply that by 3 to get 8,286 ounces!

Potential Suitor: Ummm what about October?

Richard Fifer: That's the special part. When you buy my Molejon Gold business, you will get production of 15,429 ounces and a mystery bag every 3 months. So for each year, you get 61,716 ounces and 4 mystery bags!

8500tpd mill capacity?

I noticed in the latest presentation that the mill at Troy has a milling capacity of 8500tpd, but Revett has only used up to 4500tpd thus far. With 76.2Moz of M&I silver, why hasn't there been an increase in production to fully utilize the mill especially when the resources would support it?

I am a new investor to RVM and very happy to have stumbled upon it. Still searching for more undervalued silver producers.

Elections/FOMC and Risk Management

Lots of volatility is expected to start tomorrow morning and could last for a few days or weeks. I think folks should consider their risk tolerances and strategize a gameplan accordingly whether or not equities go up or down. Am I overlevered? What will I do if my stocks go up? What will I do if my stocks go down? These are important questions to constantly ask yourself, especially when big economic news is pending. Although cash is generally a bad position with all central banks printing money, it still can serve as short term hedge. With cash on the sidelines, you can average in lower if your stocks fall or buy into other stocks where you see new opportunity. Market fundamentals tend to play out in the long run, but one has to remain solvent along the way in order to capitalize.

Fwiw, I have a downside bias and decreased my PTQ position from 25% to 20% in favor of cash yesterday among a few other stocks. It pains me to do so, but I feel that I have enough of a core position still for upside participation and there are other plays that I can jump into. Worse case is that I gave away some cheap shares, but I'm happy to share the wealth.

Baked in or not, this news was expected. The heap leach project has been updated throughout the year and the company has already stockpiled ore for it. The financial statements report that we have inventory for use beyond one year. Any guesses on cash cost is speculatory, but I'm thinking $600-800/oz long term.

I have lightened up a few of my positions today. I expect a lot of volatility and have a downside bias this week. If the stock prices of my producers break, then at least I can average in lower.

1) PTQ could refinance any outstanding debt remaining by March 15 at lower interest rates with another bank, but the rate has to be significantly lower even after finders fees for us to save money. There may be some debt covenants that would prevent us from doing this anyway, but I am not sure if that was disclosed or not in the financial statements. I think that it's more simple to just pay the debt off entirely with cashflows if possible, but we have time.

2) A leveraged buyout of another company would make sense if a) that company has little debt on their balance sheet and/or b)worth the 17% of interest payments to fund it

Personally, I would like PTQ to pay off the outstanding debt because 17% is pretty high especially when interest rates are at an all time low. If they find a company that meets the criteria in 2), then I would be for it. However, I would first like PTQ to establish itself as a cash cow first, and then we would be in a better position to take on new debt to help finance an acquisition.

You are talking about leverage which is a double-edged sword in finance. http://www.investopedia.com/terms/l/leverage.asp

The problem with our outstanding debt is that it will bear interest of 17% annually (was 15% before the DB deal). On $31M, that's a steep price to pay in my mind. I would like this amount to be reduced, if not eliminated completely, before our 6 month grace period ends.

You do make an interesting point on the potential for a merger or acquisition. More specifically, we could take part in a leveraged buyout, but I suspect it would be us being bought out if that is the case. I don't think we're financially healthy enough to take out another company unless that company were to have a clean balance sheet.