At the core of this discussion is whether it is better to buy TAS than EDE.
Nursery's ratio simply describes the current relative price of TAS to EDE, which is virtually the inverse of the calculated relationship based on the actual value of the EDE shares wholly owned by TAS and its subsiduaries. So logically, TAS is a very heavily discounted entry to EDE.
The question that has to be answered is why is it so heavily discounted? If we correctly understand the reason, maybe we can make a prediction about the future relationship and profit from it.
Nursery's (and others) answers have been
1. The market thinks the Solomon's will waste any profit from the EDE stake on future irresponsible or fruitless mineral prospecting, i.e. the mining rights currently held by TAS are a liability
2. The Solomon's will not pass on profits from EDE to TAS shareholders for other reasons
3. Profits to shareholders via TAS attribtable to EDE will be be exposed to double taxation before they are received by shareholders
I disagree with all the above, but I am not sneering at Nursery.
Firstly, the inversion in the price ratio between TAS and EDE only happened after excitement over Edencrete came about. This suggests to me that it has everything to do with investors identifying EDE with Edencrete, and ignorance of the relationship with TAS.
Secondly, the mineral deposits covered by the mining rights that TAS holds probably have considerable value, and are not a liability. In any event, there is no immediate proposal to explore them, since TAS operations are dedicated to supporting EDE in the Edencrete project.
Thirdly, there are no dividends and never have been and are not likely to be any for the next decade, so the dividend argument is irrelevant.
That leaves only point number one, which is that investors outside of this thread have no idea that TAS effectively owns 45% of EDE, and is dramatically undervalued on that basis, let alone its potentially significant other assets. Those that do are wary of investing too heavily in TAS rater than EDE, since EDE is far more liquid and tends to lead the price appreciation, with TAS following after.
My view is as the Edencrete 500 project expands and becomes more profitable, it will emerge from being a brokers spec stock to an ASX200 stock and get so expensive that investors start looking for a cheaper entry. And brokers will start recommending TAS for exactly that reason. Once it gets into the media that you can essentially buy EDE for half price through EDE, TAS will probably close the gap to its calculated value very rapidly.
For that reason I hold both shares, as I don't want to miss out on that windfall.
As for Nursery using his "ratio" to trade back and forth, I just don't see it as any better than simply trading the highs and lows of either stock individually. Maybe he just feels more comfortable describing or viewing it that way, using the proportion he has set aside for trading.
GLTA
(20min delay)
