The answer lies in the question itself, since what you actually want to value are the 30 million ounces in resource/reserves. However, you cannot just multiply those with the market price for gold to get the market value, as the 30 million ounces of gold are still in the ground and they cannot be sold tomorrow.

In terms of absolute valuation you should focus on the net asset value (NAV) method. The more common discounted cash flows (DCF) method cannot be used to value a natural resource company because the basic assumption behind DCF valuation is that the underlying asset or firm would generate income indefinitely and there will be a terminal value associated with the same. However, this is not the case with GOLDY, as an investor/buyer would only pay the monetary equivalent of the current assets (NAV) and will not assume the firm to be a “going concern” given that the underlying asset (gold in this case) is a finite resource.

The valuation of GOLDY would grossly depend upon 4 main factors:

Stage of Production: We need to look at the stage GOLDY is in, which can be exploration, mining or production. Resource/ reserve estimates of GOLDY can be measured with higher certainty if GOLDY is in production stage than if it is in mining or in exploration stage. And, as the famous Wall Street quote goes, “the market doesn’t value uncertainty”, so GOLDY is worth more per ounce if it is in production than if it is in mining stage.

Actual time to production: The closer GOLDY is to production, the higher the company is valued per ounce by the investors. Even if two companies are in the same mining stage, the one that is closer to production will be worth more per ounce, as the market will use a lower discount rate. For example, if GOLDY is supposed to get into production in 2013 and another firm called “Lazy Gold” in 2015, one can easily say that cash flow for firm GOLDY will start one year earlier so the discount rate used would be lower.

Resource estimates: The value of a firm is not only dependent upon amount of resource and reserve estimates but also the type of estimates. There are 3 types of estimates:
a) Inferred resources
b) Measured and Indicated resources:
c) Proven & probable reserves

As a firm moves from closer to production, the amount of proven & probable reserves increases at the expense of indicated and inferred resources. The market puts a higher per ounce valuation on proven & probable reserves than on inferred and indicated resources. A mining company would have higher proportion of proven & probable estimates than an exploration firm, for example.

Price of resource (gold in this case): Although GOLDY is not currently selling gold, its value would be directly proportional to the price of gold as market expects them to sell gold at a higher price in the future –even if it is 10 years from now-. In fact, if you were to place the price chart of GOLDY and the one for gold side by side, you would find a very strong correlation.

This is why many people see big mining companies as a “macro call”. And this is why in many buy-side firms it is the senior portfolio manager who makes the calls on the Rio Tintos and BHP Billitons of this world, just as they do with banks, for example.

1. Blackstone – $3.6bn (total compensation pot in 2010), $810,717 (average staff payout)

2. Greenhill & Co – $159.9m, $551,379

3. Deutsche Bank (investment bank only) – $8.07bn, $510,474

4. Lazard - $1.7bn, $501,415

5. Goldman Sachs – $15.4bn, $431,000

6. UBS Investment Bank – $6.95bn, $418,009

7. J.P. Morgan (investment bank only) – $9.7bn, $380,000

8. Credit Suisse (investment banking) – $297,944

9. Morgan Stanley - $16.0bn, $256,000

…

?. Royal Bank of Scotland Global Banking & Markets – Average bonus payout of $76,900

Sources: Bloomberg, Reuters and The Wall Street Journal

…you yell at your girlfriend for being shitty at excel.

…you see your Blackberry blinking on saturday morning and get in a cab to the office before you actually read the message.

…you write your valentine’s day card in bullet points.

…it’s 9pm on an amazing summer day in July and your boss asks you not to work too hard and go enjoy the summer sun.

…passing out cold after three and a half minutes of sex constitutes “quality time” with your girlfriend.

…after a night of heavy drinking and sub-par sex, you wake up next to an very ugly girl and try to hit “Ctrl + Z”.

…you actually know the difference between sales, trading, research and investment banking.

…you think you’re a significantly better catch than anyone else does.

…you know what a ‘league table’ is.

…you know you’re smart enough to actually contribute to society, but get no ‘warm glow’ from doing so, and are perfectly happy to sell your soul for a few hundred grand a year.

…you sigh every time you that that NOTORIOUS Blackberry “bleep”, even when it’s not coming from yours!

“These are the stocks to own in 2011,” they’ll say. “They’re the ones our analysts recommend most strongly right now.” Then they’ll tell you all sorts of compelling reasons their analysts love the stocks, possibly coupled with impressive “price targets” for the year.

Should you take their advice?

Before you do, take a look at how their recommendations fared last year. And the years before that.

I thought I’d do just that.

So I contacted Thomson Reuters, which tracks the recommendations of Wall Street analysts.

I asked them for the 10 stocks that analysts rated most highly a year ago. That meant the stocks in the Standard & Poor’s 500 index with the most “buy” and “strong buy” recommendations, the fewest “sells” (let alone “strong sells”) and the best average rating overall.

These stocks were the cool kids on the Street. The ones everyone wanted to hang with. The stocks that fund managers brag about owning when they’re at the squash club.

The names ranged from chemical companyFMC and printer R.R. Donnelley & Sons to tobacco company Lorillard.

How did they do?

Not bad. If you’d invested $1,000 in each one a year ago, your $10,000 stake would have grown to nearly $12,400 today—an impressive 24% return. By contrast, the S&P 500 overall gained just 13%.

So far, so good, right?

I also asked Thomson Reuters to send me the names of the 10 stocks that Wall Street analysts liked the least a year ago.

If the top 10 were the cool kids, these were the dorks. The nerds, the geeks, the losers. The stocks no one wanted to be seen dead with. The ones eating alone in the cafeteria every day and walking around the hallways with “Kick Me” signs stuck to their backs. The ones the analysts thought would do the worst.

How did they do?

Their gain: 32%. No kidding. They knocked the stuffing out of the stock-market index overall as well as the cool kids.

Last year’s dorks included bailout baby American International Group (up 92%), real-estate investment trustApartment Investment & Management (up 65%) and Jack Daniel’s distiller Brown-Forman (up 35%).

So much for the year’s “hot” stock tips.

OK, so these were the results from just one year. Then I took a look at the results for the previous year, 2009. Again, Thomson Reuters gave me the 10 stocks that analysts recommended most highly at the start of that year, and the 10 they rated the lowest.

If you’d bought the analysts’ favorite stocks at the start of the year, you’d have made a 22% profit.

Not bad.

But if you’d just invested in the S&P 500 index instead you’d have made 26%—four percentage points more.

And what about if you had gone completely against the grain, and had invested in the stocks that the analysts hated the most?

You’d have made an incredible 70% profit.

No, really. Sears Holdings, the most-hated stock of all, more than doubled. Ford Motor, which was the fourth most hated, quadrupled.

OK, so that’s only two years’ results. And both were up years for the stock market. But what about in a slump? You’d expect that analysts’ top picks would protect you in a crash, right? After all, they’ve really kicked the tires on these babies.

So I had a look at the favorite picks of January 2008, and how they fared over the following 12 months, when everything fell apart.

That year, the S&P 500 plummeted 39%. For anyone trusting the index, it was a total disaster.

But if you’d stuck to the analysts’ 10 favorite stocks instead, you’d have only lost, er, 48%.

In other words, you’d have done nine percentage points worse.

I also had a look at how the most-unpopular stocks did that year. A word of caution: As we go further back in time, the results for the lowest-rated stocks run the risk of “survivorship bias.” Thomson Reuters data relates to the current S&P 500, so a stock that collapses so completely it vanishes from the index will be omitted. (This is a widespread problem that affects most stock-market indices as well.)

With that caveat, the most-hated stocks that are still in the S&P 500 today fell 51% in 2008—just three percentage points worse than the top picks.

I also checked some of that year’s more-spectacular blowups.

Lehman Brothers? At the start of 2008, 17 analysts covered the stock. Of them nine had it as a “hold,” five as a “buy” and two—amazingly—had it as a “strong buy.” Given that one of the smartest things anyone could have done with their money, ever, was to sell Lehman stock at the start of 2008, how many analysts actually issued that recommendation?

One. Out of 17.

Bank of America and Citigroup both cratered in 2008. But if you think the analysts would have warned you away from them at the start of the year, think again. Both started the year pretty popular with analysts. They had plenty of “buy” recommendations and few “sells.” At least Washington Mutual, which collapsed into bankruptcy later that year, started 2008 unpopular.

How would you do longer term if you followed Wall Street’s top recommendations each year? The future, of course, is unknowable. But I looked back over the past five years. I asked how you would have done if you bought the analysts’ top 10 favorite stocks at the start of each year, held on for 12 months, and then sold and spent the money buying the new year’s picks.

If you had started with $10,000 at the start of 2006, invested $1,000 in each stock and reinvested any dividends, today you’d have $10,950. That’s before trading costs and taxes.

But if you had just ignored Wall Street analysts, put that money in the SPDR S&P 500exchange-traded fund—which tracks the entire Standard & Poor’s 500—and left it alone, you’d have $11,190: slightly more. And you’d have saved a lot on trading costs and capital-gains taxes as well. Overall, you’d have ended up considerably better off.

As for the unpopular stocks? Thanks to survivorship bias, we can’t be completely certain. But if you’d just bought the most-hated 10 stocks (in today’s S&P) each year you’d have an astonishing $16,430 today.

That’s in just five years.

That beats the most-popular list, and the index, hands down.

Even allowing for the few (like Washington Mutual) that don’t get counted because they went bankrupt, the results are eye-opening.

Yes, we’re only looking at a small sample, a handful of years. One can’t draw universal conclusions. But these findings are no accident either.

Investors frequently forget that stock-market predictions aren’t like, say, weather predictions, because in the case of the stock market the predictions actually change the weather. If everyone on Wall Street already likes a stock, they probably already own it. And if that’s the case, they’ve probably already driven up the price higher than it should be. Meanwhile, if everyone hates a stock—and especially if its reputation has fallen so low that professional fund managers are actually afraid to own it—there’s a good chance it has already fallen too far.

Low-rated stocks find it pretty easy to beat expectations. The favorite stocks, meanwhile, have to jump higher and higher hurdles.

What about this year? Thomson Reuters says the most-popular stocks are scientific equipment makers Thermo Fisher Scientific and Agilent Technologies, Apple, Halliburton and IT companyCompuware. The least-popular include Sears, insurer Cincinnati Financial, Warren Buffett’sBerkshire Hathaway, natural-gas distributor Nicor and pharma company Eli Lilly. The full lists can be seen above. Make of them what you will.

When your broker calls to offer you his analysts’ “top picks” for 2011, maybe you’d be better off asking him which stocks his analyst hates. Or you could just let the phone ring.

Industry Study

• Is this a good business? What are the key success factors to superior performance in this industry?  (Value Added Research “VAR”)
• Define the market opportunity.  How do competitive products address this opportunity?
• What are the barriers to entry (“moats”)? (VAR!)
• What is the relative power of: (VAR)
  • Customers
  • Suppliers
  • Competitors
  • Regulators
• Who controls industry pricing?  Does the company/sector have any pricing power?
• How (and how much) can a good company differentiate itself from a bad one in this industry?
• Do you understand this business?  Test yourself and describe it to a ten year old.  DO THIS!

Business Model (VAR)

• What is the selling model:  razor/blades? services? one-off contracts?
• What are the economics of the base business unit?  How does it stack up against competitors?
• Why is the company good (or bad) at what they do?  Can they sustain it?
• Is this company growing by acquisition?  How sustainable is that?
• Be able to easily describe the entire sales process – from order to fulfillment.

Management (VAR)

• What is their background, and what do their former colleagues, investors, classmates, say about them?  Have they been successful in the past?  (Very important)
• How are they compensated?  Are their interests aligned with shareholders?
• Have they been good at allocating capital?
• Are they buying or selling stock?  How much as a percentage of their holdings, and why?

Company/Cultural Issues (VAR)

• Is this a great company?  Is it built to last?  What could change this assessment?
• Can you imagine holding stock in this company for twenty years?
• If you had access to unlimited capital, how would you feel about your chances of successfully competing against this company?
• Compare to a weak competitor in the same industry.  What is the difference and why?

Financial Measures First Step:  Check against all the accounting shenanigans in Howard Schilit’s book (Financial Shenanigans: How to Detect Accounting Gimmicks & Fraud in Financial Reports, Third Edition)

Balance Sheet

• What is the company’s capital structure, and how does it compare to its peers?
• What are the trends in inventory turns, days payable/receivable, and working capital?
• What are its coverage ratios on interest payments?

Cash Flow

• What are the company’s capital requirements and cash flow characteristics?
• How is the company choosing to invest its capital?  CapEx?  Buybacks?  Acquisitions?
• Does the company need to access the capital markets?  How soon/often?

Earnings/Profitability

• Regarding the company’s sales model, how visible are earnings quarter-to-quarter, and year-to-year?
• Is this a fixed or variable cost business?  How much cost leverage?
• Do earnings grow as a function of unit sales growth, price increases, or margin improvement?  How sustainable is this growth?

Valuation

• Looking forward, what is the company’s valuation in terms of:
  • Market Value/Earnings
  • Enterprise Value/EBITDA
  • Free Cash Flow Yield (After-Tax Free Cash Flow/Market Value)
  • Market Value/Sales
• What is the company’s growth rates in terms of earnings, EBITDA, and FCF?
• What are consensus earnings  estimates, versus your own expectations?
• What are the key leverage points in our own and the street’s earnings models?  What has to go right, and where is the most chance for surprise?
• Are their accounting policies conservative and in line with their peers?

Risks

• What are the big unknowns?  How much can the company control/influence these risks?
• What could cause this investment to be a total disaster?  How bad could it be?

Other (Timeline/timing issues) DO A TIMELINE!

• What are the catalysts (triggers) for the company’s proper valuation to be realized?
• What good news, and what bad news, will affect the company in the coming year?
• Who owns the stock?  Momentum funds?  Big mutuals? Hedge funds?
• How difficult is it to build a significant position (float, volume)?
• Draw a time line of expected events and dates.  What might go wrong and when?

Investment Framework:  Short Questions

1.  Is this a bad business?

• Who has the power – customers, suppliers, competitors?
• What are the barriers to entry?
• What kind of reinvestment of capital is needed to grow?
• How is the business changing?
• What is the historic and current rate of success in this business?
• What are the major risks to the business plan?

2.  What is the major misperception?

• Why does it exist?
• Who is responsible for it?
• What stakes do the various parties have in keeping the stock price high?
• How popular is the industry?  rising tides lift all boats – for awhile.

3.  Assess management

• Industry reputation?
• Past history of success or failure.
• Straightforward or cunning?
• Check out insider ownership and selling.

4.  Ratios:

• EBIT/EV as a percentage.
• (EBITDA-CAPEX)/EV as a percentage.
• Growth of inventories to cost of goods sold – are inventories rising faster?
• Growth of AR to sales and AP to sales.
• Any accounting changes – smaller reserve for bad debt, revenue recognition, etc.
• Cash flow/Int. expense.
• Review Howard Schilit’s red flags

5.  Sentiment:  Are more people bullish or bearish on the stock?

• Do full media search for articles.  Make list of analyst recommendations.
• Short Interest?  SIR (remember, the stock that is already short is potential buying power)  Be careful if there is universal bearishness.

6.  Timing

• What is the expected trigger on the misperception?  Do a time line.
• Who owns the stock – long term or short term, momentum investors?
• Has the souffle already risen once?
• Can the rising stock price be self-fulfilling for awhile (financing opportunities, etc)?
• Where does the company stand in terms of the fantasy, transition, reality paradigm?

7.  Add when the story starts to unfold — regardless of stock price.

• Watch for earnings warnings, excuses, etc.  Where there’s smock, there is often fire.
• Is the company or wall street analyst group in denial of the problem?
• Watch the ratios, insider selling etc.
• Even if the stock down significantly from its high, if answering all these questions convinces you that it is still a short, do not cover and consider adding.  See below
• Does waiting for the new financials feel like waiting for Christmas?  IF “YES”  —–> ADD.