The attempt to establish the value of one share of a small, privately held corporation is in essence an exercise in assessing one’s self-worth. I’m up to it. The amount when finally determined is a measurement of my own effort, commitment, cash out-lay, and luck.
Río Suerte S.A.’s mission statement recites, “capitalized at USD$ one million worth of share value.” Why this sum? Why with one million shares outstanding does the value of one share come to equal USD $1.00, the asking price of the now privately held shares. Value has been created.
Río Suerte S.A. has paid out the initial funds to cover the expenses of early organization, exploration, asset acquisition, and people assemblage of the team specific to the mining tasks involved. When the numbers are summed, the amount comes to less than $1.00 now currently asked. The difference is the capital creating act. The willingness of shareholders/investors to acquire an interest in a company in an amount greater than the originating costs and people efforts extended is the capital act. Simply stated, a sum is paid in excess of what went in. I hope in the paragraphs to follow to demonstrate that such capital accretions are indeed deserved. Price discovery must travel all the turns of the river.
A willingness to acquire an interest in a company at a price greater than origination expenses and the talent and effort expended is the heart of the capital creation act. The act always raises the question of quantity? Of how much?
How much? Rio Suerte extracts gold. The company is ahead of what many believe will be one of the biggest precious metals runs of all time, through all history. Gold will soon begin to again rapidly rise in price. The arguments for this rise in price are many: the coming hyper-inflation, failure of paper money, changes in investor choice of how to preserve wealth, etc. The company’s shares will be favored under these advancing conditions. The shares will perform like a call on the POG, price-of-gold . They offer investors an opportunity to acquire gold at a relatively fixed price based on the company’s production costs, a call on the future. Compania de Minas de Lea is positioned to be in play in the next “bubble”, Aurum at a price. What is it worth to be in the specific production for a commodity soon to be highly prized? How much? Let’s create value! Give the company 10 cents!
How Much? What is it worth as an entry point on opportunity? Rio Suerte is a closely held stock corporation compliant with all of Guatemala’s government regulations. The company shares will be sold by private placement until the anticipated IPO when the shares will be taken public and listed on Guatemala’s stock exchange: the BVN, the Bolsa de Valores de Nacional. We are native to Guatemala, not just getting off the plane, and the company knows how to protect share holder interests. How much is the proven ability to operate in Guatemala worth? Let’s create value! Give the company 10 cents for this demonstrated country specific quality.
How much? There is a lot of personal wealth in the country but outlets for investment are few. Formerly much of country’s savings was transferred to the banking system of the United States. The financial crisis of the North has now called this flow into question. Real estate and construction remain strong. The Q, quetzal, like all fiat has its own strengths and weaknesses being a currency after-all. We believe that the company in an emerging could be a legitimate conduit, fulfilling the contact point between the public’s savings and investment opportunity, a legitimate alternative to now existing choices. Early, privately acquired, share holders can exit in the public market for their capital appreciation. How much is the addition of a wider group of potential investors worth? Let’s create value, grant the company another 10 cents to the capitalized bottom line of the value per share.
How much? The company’s geological confidence in the region is high. Guatemala doesn’t have an extensive mining history, the country remains basically unexplored . The geology is fabulous, various tectonic plate intersections, heat, magma, water, movement. All the ingredients, to which the geology speaks favorably. In mining parlance, a greenfield project implies a company is alone on the scene, newly exploring in a region without a mineral history. Rio Suerte encounters no neighboring operation, no like-mindedness in the region. Such positioning in a greenfield project gives the company a legacy, every ounce of gold theoretically possible becomes the province of the company, an early presence in a promising geology . A frontier value is generated by computations of quantities which are not presently known. The company makes a guess: there is gold and the company constructs some possible parameters, establishes the resources, what might be available as a result of its exploration activities. With a million shares outstanding , capitalized at a $1.00 per share, and an expectation of encountering a mineralization of a minimum of 1-million ounces, a frontier value is generated: dividing our gold resources in the ground by the capitalization means that our gold is valued at a $1.00/oz. Let’s create value, apportioning some number of cents to the capitalized share value on the basis that a one-million ounce gold resource is available and its whereabouts is known. This frontier attribute has value. Grant the company another 10-cents to the capitalized bottom line of the value per share.
Theoretically every ounce of gold in the country is Rio Suerte as the frontier value. But in practicality an inquiry must be directed to the determination of how many ounces can actually be recovered at a profit. This question raises the issue of the Enterprise value of the company, of it being able to extract gold at a profitable price. Enterprise value assesses feasible projects, a known mineralization with known extraction costs and known operating costs for delivering the gold. Enterprise value entertains the notions that the gold is there, in measurable quantities, and the expenses/costs of extraction of such gold is determinable ahead of time; a quantity of gold available at a specific price. The determination of what percent of the resources is available at a price is the company’s reserves. Gold at a profit, is different from gold just being there. Enterprise estimates an in-situ value: that gold is available but only at a price less than the prevailing price of gold. What are the chances of Rio Suerte realizing its projects at a profit, the enterprise value gives us such numbers as it establishes the reserve estimates. Does the market assign a price for such probability? What is a resource? What is a reserve? If the frontier value establishes resources, Enterprise established reserve estimates, the difference between the two lends value to the bottom line of the capitalization of the share value. How much for these given characteristics? Rio Suerte knows its extraction costs. What proportionate contribution, what kind and how much of a premium can be granted for the company’s knowing where the gold is and its costs?
Theoretically every ounce of gold in the country is the company’s, as a frontier value. But in practicality, an inquiry must be directed to the determination of how many ounces or what amount of gold can be recovered at a profit. This attempt at quantification raises the question of the Enterprise Value of the company. Enterprise value assesses feasible projects: known mineralization with known extraction costs/operating costs for delivering the gold. E.V. entertains the assumption that the gold is there, in measurable quantities, and the costs of extraction determined,. A quantity of gold at a price: extracted at a cost less than the prevailing market price of gold marks the company’s reserves. The company knows where and company knows its costs. How much does the market assign to the capitalized bottom line of the share value? How much is assigned to the probability of the company realizing its projects, gold out of the ground at price? Grant 10 cents as a proportionate contribution to the bottom line of capitalization for the company’s possessing such a venue of opportunity.
There is a boast here, a certain confidence in the control of operating expenses and other costs controlled.
Rio Suerte’s projects are alluvial in nature. Gold is taken from concentrations found in Guatemala’s rivers: nuggets, flakes, flour. The technology is dredging. Production is forthwith, now. Alluvial river gold is instantaneous in nature. There are no large infra-structure costs, no road or power or plant prerequisites. The mineralization does not have to be plotted, assayed, processed. There are few “getting ready” costs associated with what has to be done. The company extracts a near perfect gold, the mineralization is free of a matrix, no conversion costs: i.e. no crushing, processing, or refining expenses. Just immediate gold!
Rio Suerte choice of technology aids in its cost cutting approach: do it simply and economically. Dredging is a technology geared to the now, an in order to kind of thinking. The way the mining is done, the technology, locks the company into a specific kind of equipment usage. Dredging is quite simple in concept: simple machines and easily channeled energy sources. The dredge in history harkens back to the early industrial revolution in which old-time physics offer easy solutions and simple construction–nothing out of the ordinary. Dredging is a clean, simple, gravity separating process, a concert of simple machines and cost-free energy. The company can design and construct the equipment here in Guatemala. Even though the company’s initial dredging equipment was imported, the future holds its own rewards. This simple technology (LOW-BALL TECH) permits the opportunity of providing for all of its second generation equipment needs in-house. A natural cost ceiling is encountered. There is plenty of genius and ingenuity present within the country, both material and personnel. Duplication is no problem. Grant us a dime to the bottom line!
Rio Suerte is ready to go, turn-key at the river. A good play in troubled times. I haven’t done all the math but the qualities and quantities so far presented, discussed above, offer some basis for the attribution of capital value.
Robert Bookstein.
Rio Suerte 