Excerpt from BNN Transcript - April 20, 2007 -note underlined portion - full link at the bottom of this piece.

How to value companies and model share prices?

When you are looking at gold companies, they can at different stages in their life cycle, they can be pure exploration play, they could be more in the development stage like an Osisko or a Detour where they have a project of merit which is going to take them several years to develop and you can get into the companies that are producing gold. So when you are looking at each of those stages of production you are looking at different evaluation techniques. You start out conservatively at the junior end if even have enough information, when you have a development do a discounted cash flow analysis. You can pick a gold price, a discount rate of your choice; you can factor higher or lower depending on political risk or development risks so and so forth. However when you get into the larger companies that are actually in production, you will notice that a lot of these companies when you do a discounted cash flow analysis they actually trade at huge premiums to that and you start to scratch your head and go why is this the case. I think the way the market is trading these companies that are in production as option value pricing techniques which is different from discounted cash flow (DCF), almost the opposite of DCF. So you are actually going to pay up more and more for each year of mine life call it and that’s based off of the optionality that you have embedded in owning a share of this company. So for example if you have a company that produces 100,000 ounces a year and they have a 10 year mine life and no future discoveries or growth, you are effectively buying a strip of 10 100,00 call options. 1 year call option at no early exercise, 2 year call option at no early exercise and so on. So you have effectively bought a strip of call options, so like in the stock market when you price warrants, they use the Black Scholes formula you can apply the Black Scholes formula to this. It’s just like buying any strip of call options or if you could buy a call option on gold but the difference here is that your exercise price is more related to your all in cost of production is, including tax and everything. So that is what gives rise to these big premiums to Net Asset value. So, when your looking at something like an Osisko or Detour which are not yet in production, if you think about it for the long term, you start out with discounted cash flow, as the project advances you eventually go to zero discount and eventually when it goes into production, it will command a premium. So these are the type of stocks that you want to buy now and hold on to for 5 years because you will get all kinds of re-rating without a significant change. Likewise when you have these smaller companies (Osisko, Detour) that are one project companies, you add 20% to your resources through drilling, in both cases you have aggressive drilling programs particularly Osisko, you will add ounces.

Full link to article including his comments on SGR: http://please-dont-take-me-seriously.blogspot.com/2007/04/fund-manager-and-analyst-robert-cohen.html