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NST TBR comparison

  1. eshmun

    9,375 Posts.
    1,155
    Hi JID,

    I thought I would move our discussion onto the NST threads as you started comparing the two companies and more people follow this thread.

    You say

    “My time horizons, however, have been much shorter”

    Thanks for admitting that.

    I won’t bother putting up charts, but If you take the share price appreciation of the two companies from their lows at inception (that is their share price lows when both companies were in exploration stages) to their closing values on Friday, you get the following.

    TBR 2.1c to 315c share price appreciation is 14,900%

    NST 7.9c to 198c share price appreciation is 2,400%

    I admit this measure isn’t that reliable as it is highly dependent on how low each company’s share price fell in the exploration stage and it also doesn’t take into account any dividends NST may have paid during its trading life, so I’ve also looked at the 180 day exponential moving averages for both companies over the following time periods 1y, 3y, 5y, 10y and all data available. The appreciation of these averages over the various time periods are good metrics for analyzing both company’s long term share price performance. The approximate results are below.

    TBR 1y (34%) NST 1y (73%)

    TBR 3y (40%) NST 3y (109%)

    TBR 5y (228%) NST 5y (4533%)

    TBR 10y (275%) NST10y (1150%)

    TBR ALL (2150%) NST ALL (1150%)

    So both companies have shown very good levels of appreciation using these metrics, with NST outperforming over the 1&3 year periods, dramatically outperforming over the 5&10 year periods and underperforming over the life of trading period.

    So there are the statistics. So which company from here and why?

    I don’t want to get involved in detailed analysis of the two companies, so I’ll just offer you my general thoughts and why I favour TBR, as it fits in with my core, longer term, lower risk, investment strategy.

    I know most people love the NST story and I applaud the company for showing cunning and grit (at a low time in the gold mining industry) to take back gold mines that for a long time had been lost to foreign hands.

    The problem with NST in my opinion is that they have signalled risk through some of their recent actions.

    Firstly the large budgeted exploration expenditures devoted to replacing reserves, which are coming out of their cash flows, reflect the fact that many of their recent mine purchases encompass ageing mine environments. As such, the ongoing future profitability of NST will depend on what is found at the end of a drill bit. TBR’s profits on the other hand, over the medium term at least, are only dependant on a few already well defined and high grade resources that now exist at Kundana. You will also know that out of all of NST’s mines, Kundana has the lowest AISC by a long shot. TRB gets the benefit of very high margins from every attributable ounce that comes out of the JV, where as NST has the burden of its other mines which pull its average AISC up.

    IMO NST is also signalling risk by puttinga hedging program in place. NST’s profits are far more exposed to macro-economic factors than TBR’s due to their higher average AISC. Hedging strategies are dangerous for a number of reasons. For example if macro factors suddenly move in favour of AUD gold, you just end up lining the pockets of savvy bankers with shareholders money, as NST looked to have just done. If macro factors move strongly against AUD gold, your hedging strategy can become very dangerous indeed if your mines stop performing for what ever reason and you can’t deliver gold into the futures contracts. Anyone who has been around long enough will remember how Sons of Gwalia went bankrupt. But please don’t worry, if this ever happened to NST they could always come to their friendly JV partners Tribune for a gold loan to help cover shortfalls in their gold deliveries, although they would still need some money in the bank to pay and that loan wouldn’t come cheaply. You get the picture. I’m not saying NST have dangerously high levels of hedging as I’m no expert, but I believe companies that adopt hedging strategies need to clearly annunciate their strategies, as hedging is not completely risk free for investors. Also companies that stack their balance sheet with hedging often find it difficult to access capital from markets due to the risks outlined above. In my opinion, TBR in contrast provides substantial downside protection to investors under all macro conditions due to its low AISC and the fact its enterprise value is back-stopped by one of the largest non-central bank gold hoards in the southern hemisphere.

    My personal share investment style involves a mixture of long term holdings (of which TBR has formed a large part) and some more minor speculation and trading, as such, and this is my personal opinion only, I am willing to forgo NST’s better share price performance for the comfort of knowing that my investment is secure, being backed by the tangible gold assets that Tribune holds. Each to their own, I suppose. Also I personally believe in gold’s ability to store wealth and outperform less tangible asset classes which is particularly pertinent now with the large imbalances that are occurring in the world economy due to unconventional monetary policies of central bankers. TBR not only mines gold, but it also invests in gold by never monetizing more gold than it needs to cover costs. I like this. It seems like an unconventional strategy but it is working so far and we will have to wait and see what happens when the central banker’s easy money casino finally shuts its doors.

    As per your comments about TBR’s share buy-back, the company hasn’t forced any shareholder to sell their shares.

    JID, just a short personal word of advice. When you run with the pack, you live AND die with the pack.

    Good luck to all and we will see how those moving averages compare in a couple of years.

    Eshmun

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