There's a lot to like about Aris, increasing scale and operational diversification as well as some longer term growth projects. I haven’t done the full work on their valuation so I’ll defer to you on that, but I have a couple of concerns with your note. Having said that, as you note even under more conservative assumptions this could still be a solid investments:
-The use a 5% discount rate seems very low, I’ve more frequently seen analysts use NPV6 or NPV8. To me. I think a higher discount rate is warranted given that this is company operating exclusively in Colombia.
-While the contract mining partners program is great for government/community support, it limits the company’s upside to an extent. They pay the contract miners (I believe the program has been around forever, they just used to call them "artisinal" miners) a % of the spot gold price, so as the gold price rises so do costs. This 40-50% of production at Segovia, and I believe they will be doing the same program for the Marmato upper mine once the lower mine is operational.
-The peer valuation is a bit misleading as at least two of the miners are undertaking expansion projects of their own. Eldorado is developing the Skouries gold/copper mine in Greece, and they’re projecting ~650koz of gold production and 50 mlb of copper production in ’26. IAMGold just opened their Cote mine in Canada which is expected to be producing >350koz of gold by 2026. Can’t comment on Lundin as I haven’t looked at them.
-Another additional risk is the refinancing of their $300M bond. I’m sure they can get it done in this gold price environment, but something to monitor.
Reader (TL2C24) comments from Reddit
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There's a lot to like about Aris, increasing scale and operational diversification as well as some longer term growth projects. I haven’t done the full work on their valuation so I’ll defer to you on that, but I have a couple of concerns with your note. Having said that, as you note even under more conservative assumptions this could still be a solid investments:
-The use a 5% discount rate seems very low, I’ve more frequently seen analysts use NPV6 or NPV8. To me. I think a higher discount rate is warranted given that this is company operating exclusively in Colombia.
-While the contract mining partners program is great for government/community support, it limits the company’s upside to an extent. They pay the contract miners (I believe the program has been around forever, they just used to call them "artisinal" miners) a % of the spot gold price, so as the gold price rises so do costs. This 40-50% of production at Segovia, and I believe they will be doing the same program for the Marmato upper mine once the lower mine is operational.
-The peer valuation is a bit misleading as at least two of the miners are undertaking expansion projects of their own. Eldorado is developing the Skouries gold/copper mine in Greece, and they’re projecting ~650koz of gold production and 50 mlb of copper production in ’26. IAMGold just opened their Cote mine in Canada which is expected to be producing >350koz of gold by 2026. Can’t comment on Lundin as I haven’t looked at them.
-Another additional risk is the refinancing of their $300M bond. I’m sure they can get it done in this gold price environment, but something to monitor.