Valuation Multiples of Minera Andes Clearly Show Undervaluation

Using market prices as of November 4, 2011, Minera Andes (MNEAF) is clearly undervalued relative to its peers even in today's depressed price environment.

Valuation multiples of Minera Andes and its peer group.  In Minera Andes** I backout the Los Azules valuation from the enterprise value (EV), using a conservative value for Los Azules (LA) of $130m, so the multiples reflect 49% San Jose only.  Revenue and EBITDA were taken as two times the 1H2011 numbers.  The EBITDA for Minera Andes was taken as two times, 49% of 1H2011 operating income plus depreciation, i.e. (2 x 0.49 x ($79.6m + $17.3m)) of San Jose mine which can be found from Hochschild Mining and I have subtracted off a further $7m ($3.5m x 2) for Minera Andes' G&A expense.

To get Minera Andes valuation up to the average multiple of its comps would require a share price of $3.80 to $5.20 when you adjust for Los Azules.  In nearly any other industry, an earnings multiple would be among the more important valuation metrics.  Yet Raymond James never used any such metric in its valuation analysis.

Notes:
Enterprise Value (EV) = Market Cap + Debt - Cash
EBITDA = Operating Income + Depreciation/depletion Non-cash Expense