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Author: TMFSandman Big red star, 1000 posts Feste Award Nominee! Old School Fool Coverage Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 2203  
Subject: Re: Buffett - Return on Equity Date: 7/3/2011 12:00 AM
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Ryan,

I don't know anything about HWD in particular, I was just skimming the 40-F for ya. But here's a couple things in general that you might want to look out for when looking at a mining/drilling company (this goes for oil and gas e&p's, gold miners, etc.).

One is how many years of production they have based on their estimated resource base size and how good they are at securing new resources. If they only have 10 years' worth of production based on their current production rates, how certain are you of applying any terminal growth rate beyond zero after 10 years? It all depends on how knowledgeable you are on the company and industry as well as your level of optimism/pessimism.

The second thing to look at is what their cost of production is. For example, not all gold mines are created equal. Some might have a cost of production of $350 an ounce and some might have a cost of $700 an ounce. The fixed costs for mining are fairly high. If the price of gold drops from $1,500 an ounce to $1,000, the $350 mine still has a nice fat margin, not so much the $700 mine.



Mike
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