Vision is Not a Four Letter Word

Analysis without vision is like logic without imagination.

We all know of situations where a lack of understanding leads to losses. Buying or selling assets based solely on tips comes to mind. Ah yes – such action is foolish, and we are much savvier than that. We buy assets when they are “undervalued” based on the available data, and quickly sell when they are “overvalued” based on the same data. However, this analysis without vision of what will likely come to be serves a long-term investor very poorly. When we understand the general conditions and the fundamentals of specific assets, in combination with the vision to see what would likely come to be, we can ride the big moves while adding on during the major dips.

A case in point that is relevant to the ongoing long-term bull market in precious metals is the present down-turn in some high quality junior gold explorers. One example is Rubicon Minerals (AMEX: RBY), which has a large land package in the prolific Red Lake gold district in Ontario, Canada, in addition to properties in Nevada and Alaska.

Rubicon has already hit significant gold grades during their core drilling of their Phoenix Project in Red Lake. Currently, the market values the company at around $800M. Our estimates indicate that the combined zones of the Phoenix Project may hold a total of about 10M ounces of gold. Our discounted cash flow estimates range from $2B to $3B, for 10M ounces, production costs based on similar neighboring mines, and the current price of gold at slightly under $1,300. We believe that gold prices may double or triple within a few years, which is supported by long-term historical data and fueled by the general lack of confidence in major currencies (namely the USD and EUR) and overvaluation of certain assets classes (namely real estate, bonds, etc.). That would imply that our upside valuation for Rubicon is between $4B to $9B, which is a 5- to 12-fold increase from the current market valuation. Granted, these are our upside estimates, but our downside estimates for in-ground gold of about 3M ounces is between $600M and $900M, which is Rubicon’s current market value. So the market is presently valuing the company based on our worst case scenario and estimates.

Speaking of vision, let us not forget that Rubicon owns other properties in the Red Lake district. As shown in the map above, Rubicon has claims to multiple properties that have some promising markers. Nothing is a given, but our vision requires that we at least consider the possibilities.

We are betting on vision and patience, and letting the trading platforms cannibalize themselves.
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