Intrinsic value of Klondex Mines Ltd. - KDX

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$4.69

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$4.69

 
Intrinsic value

$0.39

 
Up/down potential

-92%

 
Rating

str. sell

 
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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of KDX stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2015), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2015(a)
   2016
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  40.94
  40.90
  37.31
  34.08
  31.17
  28.55
  26.20
  24.08
  22.17
  20.45
  18.91
  17.52
  16.27
  15.14
  14.13
  13.21
  12.39
  11.65
  10.99
  10.39
  9.85
  9.36
  8.93
  8.54
  8.18
  7.86
  7.58
  7.32
  7.09
  6.88
  6.69
Revenue, $m
  210
  296
  406
  545
  715
  919
  1,159
  1,438
  1,757
  2,117
  2,517
  2,958
  3,439
  3,960
  4,519
  5,116
  5,750
  6,420
  7,125
  7,865
  8,640
  9,449
  10,293
  11,171
  12,085
  13,036
  14,024
  15,050
  16,117
  17,225
  18,378
Variable operating expenses, $m
 
  237
  325
  436
  572
  735
  927
  1,151
  1,406
  1,693
  2,014
  2,366
  2,751
  3,168
  3,615
  4,093
  4,600
  5,136
  5,700
  6,292
  6,912
  7,559
  8,234
  8,937
  9,668
  10,429
  11,219
  12,040
  12,893
  13,780
  14,702
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  173
  237
  325
  436
  572
  735
  927
  1,151
  1,406
  1,693
  2,014
  2,366
  2,751
  3,168
  3,615
  4,093
  4,600
  5,136
  5,700
  6,292
  6,912
  7,559
  8,234
  8,937
  9,668
  10,429
  11,219
  12,040
  12,893
  13,780
  14,702
Operating income, $m
  36
  59
  81
  109
  143
  184
  232
  288
  351
  423
  503
  592
  688
  792
  904
  1,023
  1,150
  1,284
  1,425
  1,573
  1,728
  1,890
  2,059
  2,234
  2,417
  2,607
  2,805
  3,010
  3,223
  3,445
  3,676
EBITDA, $m
  76
  115
  158
  212
  278
  358
  452
  560
  685
  825
  981
  1,153
  1,340
  1,543
  1,761
  1,993
  2,241
  2,502
  2,776
  3,065
  3,367
  3,682
  4,011
  4,353
  4,709
  5,080
  5,464
  5,864
  6,280
  6,712
  7,161
Interest expense (income), $m
  2
  1
  3
  5
  8
  11
  15
  20
  25
  31
  38
  46
  55
  64
  75
  86
  97
  110
  123
  137
  151
  166
  182
  199
  216
  234
  253
  272
  292
  313
  335
Earnings before tax, $m
  46
  58
  79
  104
  135
  173
  217
  268
  326
  392
  465
  545
  633
  728
  829
  938
  1,053
  1,174
  1,302
  1,436
  1,577
  1,723
  1,876
  2,035
  2,201
  2,373
  2,552
  2,738
  2,931
  3,132
  3,341
Tax expense, $m
  16
  16
  21
  28
  37
  47
  59
  72
  88
  106
  126
  147
  171
  196
  224
  253
  284
  317
  352
  388
  426
  465
  507
  550
  594
  641
  689
  739
  791
  846
  902
Net income, $m
  30
  42
  57
  76
  99
  126
  158
  196
  238
  286
  339
  398
  462
  531
  605
  684
  768
  857
  951
  1,049
  1,151
  1,258
  1,370
  1,486
  1,607
  1,732
  1,863
  1,999
  2,140
  2,286
  2,439

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  80
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  384
  428
  588
  788
  1,034
  1,329
  1,678
  2,082
  2,543
  3,063
  3,642
  4,280
  4,977
  5,730
  6,540
  7,404
  8,321
  9,291
  10,311
  11,383
  12,504
  13,675
  14,896
  16,167
  17,490
  18,865
  20,295
  21,780
  23,324
  24,928
  26,596
Adjusted assets (=assets-cash), $m
  304
  428
  588
  788
  1,034
  1,329
  1,678
  2,082
  2,543
  3,063
  3,642
  4,280
  4,977
  5,730
  6,540
  7,404
  8,321
  9,291
  10,311
  11,383
  12,504
  13,675
  14,896
  16,167
  17,490
  18,865
  20,295
  21,780
  23,324
  24,928
  26,596
Revenue / Adjusted assets
  0.691
  0.692
  0.690
  0.692
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
Average production assets, $m
  235
  331
  455
  610
  800
  1,028
  1,297
  1,610
  1,966
  2,369
  2,816
  3,310
  3,848
  4,431
  5,057
  5,725
  6,434
  7,184
  7,973
  8,801
  9,668
  10,574
  11,518
  12,501
  13,524
  14,587
  15,692
  16,841
  18,035
  19,275
  20,565
Working capital, $m
  85
  20
  27
  36
  48
  62
  78
  96
  118
  142
  169
  198
  230
  265
  303
  343
  385
  430
  477
  527
  579
  633
  690
  748
  810
  873
  940
  1,008
  1,080
  1,154
  1,231
Total debt, $m
  35
  68
  122
  190
  274
  374
  492
  629
  785
  961
  1,158
  1,374
  1,610
  1,866
  2,140
  2,433
  2,744
  3,073
  3,419
  3,782
  4,162
  4,559
  4,973
  5,404
  5,852
  6,318
  6,803
  7,306
  7,830
  8,374
  8,939
Total liabilities, $m
  112
  145
  199
  267
  351
  451
  569
  706
  862
  1,038
  1,235
  1,451
  1,687
  1,943
  2,217
  2,510
  2,821
  3,150
  3,496
  3,859
  4,239
  4,636
  5,050
  5,481
  5,929
  6,395
  6,880
  7,383
  7,907
  8,451
  9,016
Total equity, $m
  272
  283
  389
  521
  684
  879
  1,109
  1,376
  1,681
  2,025
  2,408
  2,829
  3,290
  3,788
  4,323
  4,894
  5,500
  6,141
  6,816
  7,524
  8,265
  9,039
  9,846
  10,686
  11,561
  12,470
  13,415
  14,397
  15,417
  16,477
  17,580
Total liabilities and equity, $m
  384
  428
  588
  788
  1,035
  1,330
  1,678
  2,082
  2,543
  3,063
  3,643
  4,280
  4,977
  5,731
  6,540
  7,404
  8,321
  9,291
  10,312
  11,383
  12,504
  13,675
  14,896
  16,167
  17,490
  18,865
  20,295
  21,780
  23,324
  24,928
  26,596
Debt-to-equity ratio
  0.129
  0.240
  0.310
  0.370
  0.400
  0.430
  0.440
  0.460
  0.470
  0.470
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
Adjusted equity ratio
  0.632
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661
  0.661

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  30
  42
  57
  76
  99
  126
  158
  196
  238
  286
  339
  398
  462
  531
  605
  684
  768
  857
  951
  1,049
  1,151
  1,258
  1,370
  1,486
  1,607
  1,732
  1,863
  1,999
  2,140
  2,286
  2,439
Depreciation, amort., depletion, $m
  40
  56
  77
  103
  136
  174
  220
  273
  333
  401
  477
  561
  652
  751
  857
  970
  1,091
  1,218
  1,351
  1,492
  1,639
  1,792
  1,952
  2,119
  2,292
  2,472
  2,660
  2,854
  3,057
  3,267
  3,486
Funds from operations, $m
  63
  99
  134
  179
  234
  300
  378
  468
  571
  688
  817
  959
  1,114
  1,282
  1,462
  1,655
  1,859
  2,075
  2,302
  2,540
  2,790
  3,050
  3,322
  3,605
  3,899
  4,205
  4,523
  4,853
  5,196
  5,553
  5,924
Change in working capital, $m
  -1
  6
  7
  9
  11
  14
  16
  19
  21
  24
  27
  30
  32
  35
  37
  40
  42
  45
  47
  50
  52
  54
  57
  59
  61
  64
  66
  69
  71
  74
  77
Cash from operations, $m
  64
  110
  127
  170
  223
  287
  362
  450
  550
  663
  790
  929
  1,082
  1,247
  1,425
  1,615
  1,816
  2,030
  2,255
  2,491
  2,738
  2,996
  3,265
  3,546
  3,838
  4,141
  4,456
  4,784
  5,125
  5,479
  5,847
Maintenance CAPEX, $m
  0
  -40
  -56
  -77
  -103
  -136
  -174
  -220
  -273
  -333
  -401
  -477
  -561
  -652
  -751
  -857
  -970
  -1,091
  -1,218
  -1,351
  -1,492
  -1,639
  -1,792
  -1,952
  -2,119
  -2,292
  -2,472
  -2,660
  -2,854
  -3,057
  -3,267
New CAPEX, $m
  -62
  -96
  -124
  -155
  -190
  -228
  -269
  -312
  -357
  -402
  -448
  -493
  -538
  -583
  -626
  -668
  -709
  -750
  -789
  -828
  -867
  -905
  -944
  -983
  -1,023
  -1,063
  -1,105
  -1,149
  -1,194
  -1,241
  -1,290
Cash from investing activities, $m
  -48
  -136
  -180
  -232
  -293
  -364
  -443
  -532
  -630
  -735
  -849
  -970
  -1,099
  -1,235
  -1,377
  -1,525
  -1,679
  -1,841
  -2,007
  -2,179
  -2,359
  -2,544
  -2,736
  -2,935
  -3,142
  -3,355
  -3,577
  -3,809
  -4,048
  -4,298
  -4,557
Free cash flow, $m
  16
  -26
  -53
  -62
  -70
  -77
  -81
  -82
  -80
  -72
  -59
  -41
  -17
  12
  48
  90
  137
  190
  248
  311
  379
  452
  529
  611
  696
  785
  879
  976
  1,077
  1,182
  1,290
Issuance/(repayment) of debt, $m
  -26
  42
  54
  68
  83
  100
  118
  137
  156
  176
  196
  216
  236
  255
  274
  293
  311
  329
  346
  363
  380
  397
  414
  431
  448
  466
  485
  504
  523
  544
  565
Issuance/(repurchase) of shares, $m
  33
  0
  104
  127
  150
  172
  194
  213
  228
  239
  246
  247
  242
  230
  213
  189
  159
  123
  81
  34
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  5
  42
  158
  195
  233
  272
  312
  350
  384
  415
  442
  463
  478
  485
  487
  482
  470
  452
  427
  397
  380
  397
  414
  431
  448
  466
  485
  504
  523
  544
  565
Total cash flow (excl. dividends), $m
  18
  16
  1
  6
  13
  23
  37
  54
  77
  104
  137
  175
  219
  268
  322
  382
  448
  518
  594
  674
  759
  849
  943
  1,042
  1,144
  1,252
  1,363
  1,480
  1,600
  1,726
  1,856
Retained Cash Flow (-), $m
  -48
  -82
  -106
  -132
  -162
  -195
  -230
  -267
  -305
  -344
  -383
  -422
  -460
  -498
  -535
  -571
  -606
  -641
  -675
  -708
  -741
  -774
  -807
  -840
  -874
  -909
  -945
  -982
  -1,020
  -1,061
  -1,102
Prev. year cash balance distribution, $m
 
  71
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  18
  75
  136
  201
  270
  343
  419
  498
  580
  665
  753
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  5
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  8
  11
  13
  14
  13
  12
  11
  9
  7
  6
Current shareholders' claim on cash, %
  100
  100.0
  89.2
  80.5
  73.5
  67.9
  63.3
  59.5
  56.4
  53.9
  51.8
  50.1
  48.7
  47.6
  46.7
  46.1
  45.6
  45.3
  45.1
  45.0
  45.0
  45.0
  45.0
  45.0
  45.0
  45.0
  45.0
  45.0
  45.0
  45.0
  45.0

Klondex Mines Ltd., together with its subsidiaries, acquires, explores, develops, and produces mineral properties in Nevada, the United States. It explores for gold and silver deposits. The company holds 100% interests in the Fire Creek Property covering approximately 17,000 acres located in Lander County; and the Midas mine and mill covering approximately 30,000 acres located in Elko County. It also holds 100% interests in the Hollister mine, and the Esmeralda mine and ore milling facility located in the State of Nevada. The company was formerly known as Attila Resources Limited and changed its name to Klondex Mines Ltd. in October 1974. Klondex Mines Ltd. was founded in 1971 and is based in Vancouver, Canada.

FINANCIAL RATIOS  of  Klondex Mines Ltd. (KDX)

Valuation Ratios
P/E Ratio 21.8
Price to Sales 3.1
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 10.2
Price to Free Cash Flow 327
Growth Rates
Sales Growth Rate 40.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 51.2%
Cap. Spend. - 3 Yr. Gr. Rate 128.3%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 9.6%
Total Debt to Equity 12.9%
Interest Coverage 24
Management Effectiveness
Return On Assets 8.6%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 10.1%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. 3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 27.1%
Gross Margin - 3 Yr. Avg. 18.9%
EBITDA Margin 41.9%
EBITDA Margin - 3 Yr. Avg. 28.7%
Operating Margin 17.6%
Oper. Margin - 3 Yr. Avg. 12.6%
Pre-Tax Margin 21.9%
Pre-Tax Margin - 3 Yr. Avg. 14.5%
Net Profit Margin 14.3%
Net Profit Margin - 3 Yr. Avg. 9.7%
Effective Tax Rate 34.8%
Eff/ Tax Rate - 3 Yr. Avg. 22%
Payout Ratio 0%

KDX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KDX stock intrinsic value calculation we used $210 million for the last fiscal year's total revenue generated by Klondex Mines Ltd.. The default revenue input number comes from 2015 income statement of Klondex Mines Ltd.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our KDX stock valuation model: a) initial revenue growth rate of 40.9% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for KDX is calculated based on our internal credit rating of Klondex Mines Ltd., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Klondex Mines Ltd..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of KDX stock the variable cost ratio is equal to 80%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for KDX stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4% for Klondex Mines Ltd..

Corporate tax rate of 27% is the nominal tax rate for Klondex Mines Ltd.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the KDX stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for KDX are equal to 111.9%.

Life of production assets of 5.9 years is the average useful life of capital assets used in Klondex Mines Ltd. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for KDX is equal to 6.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $272 million for Klondex Mines Ltd. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 175.424 million for Klondex Mines Ltd. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Klondex Mines Ltd. at the current share price and the inputted number of shares is $0.8 billion.


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Stock chart of KDX Financial statements of KDX
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The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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