Well that's the difference between you and me. I don't want to be buying NCM at $42 when the tide turns, I want to have bought NCM at the low tide under $8. Let's wait and see where we are at in 5 years. Long life assets don't just fall out of the sky they need to be discovered drilled and built which is a process that can take the best part of a decade. It just seems logical to me to buy at the very start after the building phase is practically complete. So I might need to wait another year or two see the actual completion and the full benefits flow through but as that time goes by some of these other companies you mention aging assets will be further depleted, will be reaching depths that start to impact on capital spend and operating costs, while if all goes well at Syama the mine will be practically operating on auto-pilot spewing out consistent and reliable cashflow. You can do all the fancy summation about why stock prices go up but in the end a gold stocks price won't go up and stay up unless they are producing reliable free cash flow. The term winners are grinners comes to mind. The downside risk with overvalued stocks is when the free cash dries up because they have been understating their operating costs and the amount of sustaining capital that they need to keep that free cash flowing through the door. The abilty to produce consistent free cash flows is simply a function of the quality and mine life of the deposit.
For example take NST's EKJV which hasn't been the backbone along with Jundee and Paulsens of that companies success in the last 5 to 6 years. Those that follow the story of NST's partners TBR/RND will know that the MD of that company had hoarded all the gold production of that operation in gold bullion stored at the Perth mint until recent circumstances forced the sale of the gold and the payment of most of the gold out in a special dividend.
The dividends to TBR and RND shareholders represented the after tax value of the gold that had been accumulated from that operation that started in 2000 and has produced between about 100koz and 200koz on average over 18 years. The mines that formed the EKJV have been generally recognised by industry to be some of the highest grade and most profitable gold mines in Australia.
TBR shareholders were paid a total of $3.90 in dividends and RND shareholders a total of $1.45 in dividends in the 2018FY. The companies have about 50M and 60M shares on issue respectively, which puts the total payout value at $282 million. I estimate that the companies may have invested an additional $30 million maximum in other investments including property, shares and exploration in Africa over this time so half the value of the retained profits from these high quality high grade mines which might have produced 150,000oz/annum (total on average) over 18 years is about $312 million (total $624 million over 18 years). The actual return if the the gold has have been monetised as it was produced would have been a lot less as the price of gold over the last 18 year since has beaten the CPI by quite a big margin.
I think you can use this roughly calculated example as a bench mark for the actual upper end profitability of this industry. The much larger absolute Tier one gold mines running on bulk scales and low costs might have other profit metrics but for your run of the mill pedestrian gold mines this is the best and most quantifiable long term example/experiment out there.
ie 150koz/annum of high quality long life and very high grade gold in the ground buys at absolute maximum (if the gold is retained as gold and not money so as to weather the effects of inflation) $35 million per year in after tax and after inflation FCF and this is for the most exceptional high grade mines. The rest of the stories these companies tell you is BS. Most companies won't even make close to half this much from that level of production if you average that production over 18 years (decades) as they are constantly spending more and more money replenishing reserves and finding new capex to develop those reserves.
Your best bet as an investor IMO is to find the biggest, longest life, lowest cost deposits you can find and stick with them unless you are good at chasing your own tale riding short term spikes in companies performance and share prices.
I'm not smart enough to be sifting through all that BS. Esh
(20min delay)
