Jipangu’s mining business, which consists of production and exploration, is unique in Japan in terms of its specialization in gold mining. In addition, since the method used to evaluate mining companies is different from that for other types of companies, it might be difficult for investors and market to understand its true value.
To help you understand Jipangu’s business and its value in more detail, I would like to explain how mining companies are evaluated, using the following document.
“Mining companies are valued not according to earnings so much as assets, and so factors such as material reserves and production must be taken into account.”
(Quoted from a White Paper published by Compustat, a database service provider for Standard & Poor’s, one of the world’s leading credit rating agencies)
The document states that the value of mining companies cannot be evaluated in the same way as other companies. When it comes to analyzing mining companies, two factors–Reserves and Production–must be taken into account. The paper also mentions Reserve, Cost, and Valuation as three factors for analysis.
There are many mining companies that are listed on overseas markets such as the New York Stock Exchange, Australian Securities Exchange, and Toronto Stock Exchange. Compared to Japan, overseas markets see the concept of reserve, including the linguistic definition, quite differently: a reserve is regarded as one of the key figures for measuring the attractiveness and value of mining companies.
The number of years that a company can continue mining is calculated based on its reserves. An increase in reserves enhances the company’s value while a decrease reduces its investment value. The company’s total reserves divided by annual or projected actual production is called “mine life,” and is an important element in analyzing the value of the company.
Reserves at Florida Canyon and Standard Mine, both owned by Jipangu, are 823,400 oz (25.6 tons) and 242,600 oz (7.5 tons), respectively, with total reserves of more than 1 million oz. Reserves are assessed by independent agencies. Our disclosed reserves are based on reports prepared by Nevada-based Mine Development Associates, which operates under the N143-101 stipulated by Canadian Securities Act. In comparison with other major gold mining corporations, our reserves are still small. Our plan is to accelerate the increase of our current reserves and resources by actively launching exploration projects.
The paper explains that if two mining companies have the same reserves, the company with more efficient gold production capability and lower costs is the better investment.
There are two ways of analyzing mining cost. One is called “total cash cost,” which is the total direct cost of producing an ounce of gold for a given period. Total cash cost is an important figure in projecting a breakeven point. As long as a company’s cash cost is below the gold’s sales price, it can continue generating a profit. The other type of cost is called “gold reserve average ore grade.” This figure is provided in grams per metric ton. The better the grade of ore, the more cost effective it is to produce gold.
In terms of cash cost, there is a wide gap between Jipangu and other mining companies listed in the article; Jipangu’s cash cost is US$874.00 while the average cash cost of mining companies is US$293.00. However, the latest report prepared by each mining company shows that Barrick Gold is US$570.00 and Anglo Gold is US$638.00. Therefore, if Jipangu can cut its costs by 20%, it will be on an equal footing with large global producers. We are currently implementing cost-cutting measures to reduce infrastructure costs such as office rent for the administration division in the United States and outsourcing costs in Japan.
The article states that there are two ways of evaluating mining companies: market capitalization per ounce of gold reserve and market capitalization per ounce of gold production. Market cap per ounce of reserve is equal to market cap divided by Proven Reserves and Probable Reserves. The figure tells investors how much the market is paying per ounce of gold. The lower the figure, the better the value.
Market capitalization per ounce of production is equal to market cap divided by gold production. This figure tells us how much the market is willing to pay for each ounce of gold.
The current market cap of Barrick Gold is about 4 trillion yen (82 yen to the dollar). With the figure divided by its reserves, the market cap per ounce of reserve is about 30,000 yen. As for Jipangu, its market cap was about 5 billion yen as of April 20th, 2011. This is only 5,000 yen if divided by reserves, which indicates that despite the fact that gold prices are globally fixed, Jipangu’s gold is valued at only one-sixth the value of gold produced by Barrick Gold in the Japanese market.
For gold mining companies that are listed on overseas markets, Jipangu might be a very attractive acquisition target in terms of reserves, valuations, market capitalization, and other factors. We believe that Jipangu’s most pressing need right now is to publicize the value of Jipangu’s business more actively, act on each factor mentioned above, and demonstrate the potential to achieve remarkable growth.
We regard reserve, costs, and valuation as key issues and initiatives. By focusing our resources, we will work to generate outcomes that exceed your expectations.