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I just saw a Larry Lepard post about Newmont being a double at $3,000 gold – but I had remembered some calculations I did awhile back in Excel on this. Let’s face it, however, share prices are of value based on what people will pay for them. There’s a lot of things that can go into the share price, but what I wanted to do here was perhaps take a look at earnings and use a reasonable P/E ratio to then extrapolate what market cap might be.

Let’s first look at the numbers for Newmont. Everything here will be ballpark, as I don’t have a ton of time here and I am not privy to their secret sauce. Meaning, I don’t know precisely what mix of Newmont’s earnings are gold, silver, copper, base metals – etc. so I will attempt to use the best numbers I can with a gold equivalent ounce. It will not be precise, but get you somewhere in the ballpark.

First, Newmont…

Current market cap: $35.17B (I had seen this over $60B once)

P/E ratio: 36. Higher than I’d like it, but this is shareholders anticipating higher gold prices, liking the dividends.

If you look at the above, you can see revenues are good – as in they perhaps mined more ounces, but you can also see profitability dinged by almost DOUBLE the operating expenses. If you then look at the 1.166B profit, that is divided by the 800m shares to get you the earnings per share.

The situation with Newmont is that they talk about AISC of about $950 or so per gold oz. That fluctuates obviously with higher costs, but that is a MINE cost, not counting all of the overhead of having 300 GEOs, a president, HR department, exploration, etc.

I’d have to say a lot of these companies have a “break even” at like $1200-$1300 gold for majors. I’m going to use $1200 here for simplicity of the calculations I’m about to do. Let’s say Fortuna is about $1500 gold.

Now, this past year we have seen crazy high expenses eat into profits, so I’m going to still with the base case of $1200 for Newmont and $1500 for Fortuna.

At $1800 gold price, Newmont is making $600 profit, per ounce. If we do NOTHING except change the revenues for gold to $2400 per ounce, you are seeing the profit per ounce goes from $600 to $1200. If Gold then goes to $3,000, you can see the profit going to $1800 per ounce.

So with the profits at 3x, one could reasonably assume (that in a NORMAL year with normal fuel prices) that earnings per share could be $10 per share. Assuming a P/E ratio of 18, you could think that the market cap could get to $144B. That’s roughly a 4x, but to be conservative, let’s use a 3x.

With Fortuna, it’s a little more wild.

If Fortuna has a break-even price of $1500 and a $300 per ounce profit, one can see that at $2400 gold, profit is 3x. At $3,000 gold, you are seeing perhaps 5x profits. The current market cap of Fortuna is 1.01B with a P/E ratio of 31x. However, FSM is not even trading at tangible book value.

Meaning, today you could sell FSM for spare parts and make 30% profit lol.

With FSM, you need a little artistry and projections. They took over Roxgold in 2021 and with this, their revenues have exploded.

You can also see higher operating expenses as they are building a mine. You obviously have a higher operating income, which negates the share dilution they did to buy Roxgold.

So from 2019, you see perhaps almost double the share count, but also more than double equity and double the revenues. One could reasonably see Earnings Per Share go from $.24 to perhaps $1.25. It could even be higher if expenses were mostly normal.

However, if we use EPS at $1.25 and assume an 18x PE ratio, with about 300m shares, you are looking at $375m in earnings and 6.75B mkt cap. If the current market cap is 1.01B, you are looking at a 7x from this point – or perhaps a $24 share price.

Something else to consider, is that when gold prices start marching much higher, these trades can get really crowded and people may pile into the most popular names, expecting higher and higher earnings.

Meaning, a P/E of 18x I would consider a “normal” trading range, but I could see a P/E ratio of damn near double this. Meaning, you could see a P/E ratio at 36x, which could have Fortuna having a market cap near $13B. This means the “conservative” projection for Fortuna at $3,000 gold at a 7x is actually closer to a 14x.

This is why I also like the mid-tiers. You have a lot of leverage with higher prices of gold but without a lot of the risk of going to zero with juniors. I think with $3,000 gold, you will also have a ton of juniors making bank.

Another thing to consider – these miners tend to mine less profitable grades when prices go up, which can stunt earnings. This crushes my soul when I see it, but I get it. Mine operators are getting ounces out of the ground, and if you could get profits of $500 per ounce all day long, they might mine the worse grades to still capture the $500 per ounce profit. I don’t like it, but I get it.

So at $3,000 gold, you can see a NEM easily getting a 3x, perhaps higher with a 40-50x P/E ratio, but then if you account for the worse grades they mine with the higher gold prices, a 3x is a reasonable goal with NEM at $3,000. Likewise, if FSM can project a 14x with a 36x P/E ratio, “conservative” would put that at a 10x, or perhaps $30 share price.

Caveat – one thing I have learned about the juniors and mid-tiers which pisses me off? I am expecting 5x’s from some of these juniors and mid-tiers, and then you see an announcement that they are being sold for 35% premium to share price. I’m not in this game for a 35% on my FSM, I’m in this to play for the 10x. I think every CEO needs to understand this as we are getting to a point where talking about $3,000 coming isn’t insane. IF, at the peak, you want to sell for 35%, knock yourself out. But here? This is where we are all acquiring your shares to ride the waves up.

Edit: If we are seeing $10-$20 diesel down the road, this also can be a catalyst for $3,000 gold, but you would see significant increases in the operating expenses. While gold miners would still be very profitable, you have to temper expectations due to staggeringly high costs to extract the metals. The models used here were with a static operating expense that did not account for stupid high inflation, hyper inflation, or energy costs at $20 per gallon diesel. This article was meant to demonstrate some of the upside we see with gold and silver miners and is not to be used as investment advice.