Net Present Value Calculation

source: http://en.wikipedia.org/wiki/Net_present_value

"t

- the time of the cash flowi- the discount rate(therate of returnthat could be earned on an investment in the financial markets with similar risk.); the opportunity cost of capitalRt - the net cash flow (the amount of cash, inflow minus outflow) at time t. For educational purposes, R0 is commonly placed to the left of the sum to emphasize its role as (minus) the investment."

T = 10 years
I = Discount Rate
R = Net Cash Flow

The Discount Rate

The discount rate should be equal to the recovery rate, as this is the risk in processing. Dilution is also a major risk, as is currency fluctuations, but for the most part the recovery rate is the risk set by the discount rate. The company chose the recovery rate of 93%, which is highly likely meant to conform with a 7% discount rate, rather than the real recovery rate of the mill. The mill has concentrators, so if they achieved this rate of recovery, they must either have the concentrators completely switched off, or they pulled this number out of a hat.
Moreover, using a 7% discount rate will grossly underestimate the Net Present Value of the company using the above formula. The discount rate should be -10%, as the gold price has advanced 17% yoy since the last 10 years. So the sum of the discount rate is only .9.

If you assume now that the company will produce gold @10g/t, @700tpd, 365 days a year, then you get a figure of 82,154 oz./yr. Over 10 years the accumulated earnings of ~82K oz. per year @$1444CDN/oz, will give you a figure of $1, 186, 308, 681.67.
Minus $38,000,000 startup costs and ~$527/oz. operating costs.(adding 200/oz. developmental costs.) over 10 years. Gives you a total of $715, 352, 180 Take this sum total of cash flow minus costs and divide it by .9, the discount rate.
You get $794, 835, 755 over 10 years. Divided by 10, you get $79, 483, 576. Divide this by the total number of shares in the float, you get .23¢/share.At 1P/E, the company is trading at .23¢ per share. @ 10 P/E, the company is trading @ $2.30.
So there is a possible 7.66X multiple ROI here. This only includes advances in the gold price and does not include improvements to grade control, or processing rate.

-F6