Short Report, page-7

Hi Descriper,

Some nice analysis and these are two companies that I am following as well. Both companies have an element of risk, these being:

(1) NST need to increase their LOM through lots of exploration
(2) BDR need to get their operations running more efficiently - especially the earthmoving/ mining

One other point - BDR's debt of $84m includes a swag of 'lease obligations' that, due to accounting convention are recorded as a liability - About $12m from memory but better check. This makes the balance sheet look worse than otherwise. Lease obligations run off the balance sheet over time and are expensed - e.g. BDR may lease some earthmoving equipment and pay a lease for it. The payments get included in AISC over the life of the lease and are removed from the balance sheet.

I also think your profit figures are too high for both BDR and NST:

BDR (let's assume they hit the low end of production targets 180k oz and US$850 AISC, average US$1,260 for CY14 for sales as some was previously sold into hedge and that the AUD @ year end is 87c). Thus:

$1,260 - $850 = $410 x 180k oz = $73.8m / 87c = $84.2m/ 798.7m shares = 10.5c* per share, or a PE 3.1 (before tax)

NST reports in AUD and let's assume they hit their mid points, so 575k oz @ $1,075 AISC and that they can sell gold for AUD $1,400 (For CY14 this is theoretical as they have been ramping up production but provides a comparison for steady state in future years vs. BDR)

$1,400 - $1,075 = $325 x 575k oz = $186.6m / 587m shares = 31.8c* per share, or a PE 3.7 (before tax)

* There will be other costs included in addition to AISC that will reduce these figures. It will be less for NST vs. BDR (per oz) all else being equal as the costs are spread over more oz of production (fixed and semi fixed costs).

So it's actually the other way around. But this should be expected as NST is lower risk than BDR due to multiple mines, country of operation, etc.

Provided that:

(1) NST can find more oz (highly likely)
(2) BDR can get their earthmoving sorted
(3) POG does not materially fall from here

Both companies are dirt cheap (but could get cheaper! Is there enough blood on the floor yet? Hmmm I'm not quite sure).

Cheers
John