Gold Mining Npv

Introduction

Agnico-Eagle Mines Ltd. (AEM) is a Canadian gold mining company which operated only in one mine site: the LaRonde property. The company's share price dropped dramatically on April 30, 2002 with a strong performance during previous months. We want to find if the share price of AEM is overvalued through the fundamental valuation of its equity in the report.

Part 1

Discounted cash flow (DCF) methodology has been adopted for the valuation. As indicated in the case, seven-year free cash flow forecast from the company's operating asset have been prepared by the National's research department and adjusted by Acker's team which is shown in exhibit 8. Moreover, a Canadian financial consulting company, A-G Financial Consulting, has estimated the weighted average cost of capital (WACC) of AEM which reflect the opportunity cost of all capital holders.

Some assumptions are also needed to make the valuation more intelligible and reliable:

1. Only the operating asset's value is considered, and the value of other non-operating assets, marketable securities and off-balance