# Valuation of gold stocks

In today’s post I want to look at valuation of gold stocks.

The last few days I’ve been trying to wrap my head around how to value Gold Stocks.

It’s not as easy as just valuing a normal manufacturing company with Debt to equity, Price to earnings or by Price to book value because of the resources in the ground.

This makes it inevitable to normalize all the values according to either production or reserves.

The first thing that we will look at is how to calculate the Cash cost per ounce produced.

#### Calculating the cash cost per ounce.

The cash cost is calculated by subtracting Operational Cash Flow from Total revenue:

Cash cost = Total revenue – Operational cash flow

To get to grips with what this means we can visualize the subtraction like this:

Figure 1.Total cash cost is calculated by deducting Operational cash flow from Total revenue.

Which is equivalent to this:

Figure 2.Net cash is calculated by deducting Cost of sales from Total revenue.

Then calculate the Cash cost per ounce we divide with the total production for the year:

Total cash cost per ounce = Total cash cost / Total production

#### Estimated operational cash flow

The next thing that we will look at is an estimate of how much money can come into the company through sales of the metal.

#### Conclusion:

In today’s post we have been looking at the valuation of gold stocks as a function of their production and reserves in the ground.

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This post first appeared on LJ Nissen Investments, please read the originial post: here

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Valuation of gold stocks

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