How to Value a Gold Mining Company (revisited, with Excel template).

In How to Value a Gold Mining Company, I explained how to determine if a gold mining company is undervalued or overvalued relative to physical gold. However, I’ve been unhappy with what I wrote in that article ever since.

One of the problems I see with the article is that it only explains the “Enterprise Value and Cost Per Ounce” method. But in order to get a clear grasp of a gold mining company’s value, an investor needs to also take into account two other variables:

  1. The Net Present Value of the company
  2. How the Net Present Value will change over time based on an expected growth in the price of gold.

In this article, I’m going to try to combine all three of these methods (enterprise value and cost per ounce, net present value, and change to NPV based on a future gold-price forecast), so that we can get a better understanding of the value of gold mining stocks.

At the end of this article, I will post an Excel template that can be used to make this valuation easier.

So here is, step-by-step, how to value a gold mining company.

  1. Determine the AISC of the company. This is the total cost to the company to mine one ounce of gold out of the ground. This info can usually be found on the company’s website.
  2. Determine the price of gold. This can be found by looking it up on or other, similar websites.
  3. Determine the Total Reserves and Resources of the Company. This is a statement on how many ounces of gold the company owns, both above and below the ground. It usually can be found on the company’s website.
  4. Determine the cash profit per ounce. Subtract the AISC from the price of gold to determine how much profit the company makes for each ounce it digs out of the ground.
  5. Determine the gold profit per ounce. Divide the cash profit per ounce by the price of gold to determine the gold profit per ounce. This is the amount of physical gold that could be bought using the cash profits per ounce. Mining for gold costs gold in the sense that the mining company is foregoing the opportunity to buy gold because it is spending the currency on mining equipment, employees salaries, etc. instead. So if this number is negative, it means the company isn’t profitable and you’d be better off investing in gold rather than buying shares of this company.
  6. Determine the Total Gross Profit. Multiply the total reserves and resources of the company by the gold profit per ounce. This tells you the total amount of gold profits to be made over the course of the mine’s lifespan if the price of gold remains the same from today until the time that the company runs out of gold to mine.
  7. Determine a Proper Discount Rate. Gold mining is a risky business. So you shouldn’t invest in it just because it offers a better rate of return. You should weigh the added gains to be made against the risk of losing your gold (or losing cash that you could’ve used to buy gold). You can do this by coming up with a discount rate that can be used to evaluate an investment. How much greater return (as compared to physical gold) do you require in order to compensate you for the risk of investing in a gold mining company? Is it 3%, 5%, 7%? Figure it out and then write it down.
  8. Determine the Net Profit After Discounting. Multiply the total gross profit by the discount rate to get the net profit after discounting. If this number is negative, then this company probably isn’t a good investment for you if the gold price stays the same (we’ll take a forecast of the future gold price into consideration later).
  9. Determine the Market Cap of the Company. This can be looked up on various financial websites, such as
  10. Determine the Cash on Hand, Cash Owed to the Company (“receivables”) and Total Liabilities. These can be found on the balance sheet. How To Value A Gold Mining Company explains how to do this in more detail.
  11. Determine the Enterprise Value of The Company. Add the liabilities to the market cap. Subtract the cash owed to the company and cash on hand from this total. This is the value of the company if we don’t count its cash assets.
  12. Determine the Number of Shares Outstanding. This can be looked up on various financial websites.
  13. Determine the Enterprise Share Price. Divide the enterprise value of the company by the number of shares outstanding. This is the cost you have to pay for each share of the company, not counting the price you pay for the company’s cash assets. Another way of putting it is to say that this is the share price minus the non-enterprise part of the company’s value.
  14. Determine the Gold Enterprise Share Price. Divide the enterprise share price by the price of gold. This is how much gold it costs you to own a share of the company, not counting what you pay to own its cash assets.
  15. Determine the Net Profit Per Share After Discount. Divide the Net Profit After Discount (Step 8) by the number of shares outstanding (step 12). This is the gold profit you will make per share after discounting for risk, not counting what you pay for the share itself.
  16. Determine the Profit Per Share After Paying for Share. Even if the company is profitable, it doesn’t mean you will be profitable when you buy the company. As an investor, you have to take into account not only the costs of the company but also the cost to you of buying it. The Profit Per Share After Paying For Share takes this into account. To find it’s value, simply subtract the Gold Enterprise Share Price (step 14) from the Net Profit Per Share After Discount (step 15). This is the total profit per share you can expect to make over the course of the mine’s life if the price of gold stays the same.
  17. Determine Your Forecast for The Future Price of Gold. How fast do you think the price of gold will rise per year? 10%, 20%, 30%? Determine what you think the answer is and write it down.
  18. Determine the Percent of Resources Mined Each Year. Look at the company’s statement for how much gold it mined last year, then compare it to previous years to see if last year was out of the normal range. Divide the Total Reserves and Resources (step 3) by last year’s mining output or by a number you think represents the “average” mining output per year from this company. The number you get as a result of this division is the percent of its resources the company depletes each year.
  19. Determine the Expected Gold Earnings for the Current Year. Multiply the Profit Per Share After Paying for Share (Step 16) by the Percent of Resources Mined Each Year (Step 18). This is the gold earnings you can expect in the first year after you buy the company’s shares.
  20. Determine the Gold Price for the Second Year. Multiply the current price of gold (step 2) by the expected growth rate (step 17), and add this to the current price.
  21. Determine the Expected Gold Earnings for the Second Year. Repeat step 19, but use the new gold price you determined from step 20.
  22. Rinse, Repeat. Repeat steps 19-20 until you reach the final year of the mine’s lifespan.
  23. Find the total lifetime earnings of the company. Add up all of the results from steps 19-22 to find the total earnings you can expect to make over the course of the mine’s lifespan if the price of gold rises as quickly as you expect it to.

Now that you’re brain is hurting from all of these calculations, here’s an Excel file that will let the computer do this all for you.

Click here for the Excel template!

This file also allows you to do one more calculation that I didn’t mention, which is the “Gold Earnings (in ounces) Per Ounce of Gold Invested, Current Year”. This final calculation will allow you to compare how many ounces of gold profits you can earn from a mining company per ounce of gold invested. This is a great way to compare investing in a mining company vs. hoarding physical gold.

You will notice that some of the cells have #DIV/0! listed as their values. You do not need to enter values into these cells. Just enter values into all of the cells that do not have this error message and the spreadsheet will change #DIV/o! into whatever it is supposed to be after calculating the correct value.

Another thing you will probably notice is that some of the values are expressed in terms of “mAU”. An mAU is 1/1000th of an ounce of gold. This is a convenient way of expressing small gold values because it is close to one USD, GBP, EUR, CHF, or 100 JPY in value. For example, 0.84 mAU is worth 1 USD, 0.8 GBP, 0.94 EUR, 1 CHF and 115 JPY at the time this article is being written.

I got the idea of “mAU” from FXChoice. It is the basic unit of the gold-denominated forex account they offer.

If you can’t figure out how to use this spreadsheet, send me an e-mail at and I will do all I can to help.

Blog format changes.

This is the last general-info article about gold that I am going to do for a while. In the future, I’m going to continue my once a week market updates, but will only do general information articles like this one once a month. This is to allow me to spend more time marketing this blog to get more of an audience instead of spending all of my time writing.

Be sure to check back Sunday for my latest market analysis.

And please, comment below if you like (or hate) this technique for valuing gold mining companies.

I use GoldMoney to buy my gold at half a percent over spot. Click here to find out how to get up to a half a gram of free gold.