By using the Five M’s, Miraj investor can build a simple but powerful model to initially sort through the many hundreds of upstart gold companies to find better opportunities.

1. MARKET CAP

If a junior gold company has 10 million shares outstanding at $1 per share, the company is valued at $10 million. The question any investor should ask is, “Is this company really worth $10 million?”

If the market pays $25 per ounce of gold in the ground, the company should be valued at $25 million. If the company’s market cap is only $10 million, it may look undervalued. If the company’s market cap is $50 million, it may appear to be overvalued.

For larger gold companies, an investor can measure a company’s market cap against its production level, reserve assets, geographic location and other metrics to establish relative valuation.

2. MANAGEMENT

Often the heads of junior companies are geologists or engineers who have no relationships in the brokerage business. This lack of relationships impedes their ability to generate market support.

Some of the most successful company builders in the gold-mining industry are “financial engineers” – people who have the relationships and understand the capital markets and who know how to hire the best geological and engineering teams.

3. MONEY

A gold exploration company has to deliver reserves per share to have a chance at another round of financing. It has to convince the capital markets that it is an attractive investment on a per-share basis.

The gold-equities market is efficient at judging reserves per share, so if the exploration company doesn’t come up with the results necessary to get an evaluation, investors quickly lose confidence.

There is an old rule when it comes to exploration companies: don’t pay more than two times cash per share if there are no proven assets in the ground.

4. MINERALS

Gold companies have the highest industry valuations based on price to earnings, price to cash flow, price to enterprise value and price to reserves per share.

Companies operating mines that produce gold and a significant amount of another metal (typically copper) tend to have lower valuations than pure gold companies. But at the top of a gold price cycle, copper/gold deposits end up rising to the same multiples as pure gold companies.

So when it comes to picking stocks in anticipation of an upward price move for gold, the investor’s margin for error is reduced by selecting companies with both gold and copper production.

5. MINE LIFECYCLE

First there’s euphoria over exploration results that are better than expected. The stock price rises as investors race to buy shares. Then reality sets in – this gold discovery is still years away from being an actual producing mine. At this point, there’s a huge correction in the stock price.

Assuming the company continues down the path to development, its share price drifts sideways until around six months before the first ounce of gold is expected to be produced.

At this point, the stock begins a strong new leg up when a more sophisticated set of shareholders come into the market. Eventually the price drops off and then levels as the speculative money moves on to the next hot opportunity and the company transitions from explorer to producer.

Analytical method

What the companies are really paying to produce an ounce of gold.
At Miraj we evaluates gold companies using total cash costs.And we evaluated them on what they call "all-in cost per ounce." This includes exploration, sustaining capital, and general and administrative expenses. The idea is to figure out what these companies are really paying to produce an ounce of gold.

Is to take the total resource (indicated and inferred) and determine how many ounces you as an investor are receiving per share or per dollar invested.

Capital expenditure

A mine has great capital expenditure involved in the roads, buildings, machinery, housing, power and water systems. Additionally, in most cases the exploration costs were higher because the project had to be taken to feasibility and the mine put into production.

Open pit

An open pit mine can be easier to put into production and far less capital intensive than an underground mine.

Underground mine

For an underground mine to be economic it must have much higher grades for the project to be worthwhile. what type of deposit are we looking at in any given situation.