TBR and RND are similar companies with cross shareholdings and a share in the same Australian gold producing asset, the EKJV. There are also some differences relating to their respective African exposure.
Looking that the chart below I note that since RND's iron ore option announcement (Dec 2010) it has underperformed vs TBR. This is particularly evident since mid 2013 when a material divergence has emerged between TBR and RND's share prices:
My assumption is that:
(1) TBR's exposure to gold in Ghana is positive for TBR's share price (2) RND's option agreement for iron ore in Liberia is providing a downside drag on RND's shareprice in that investors who want exposure to gold don't necessarily want exposure to iron ore right now.
The Option Agreement that RND has signed - if taken up - would, at today's share prices mean an initial transfer of $75m in value to the current owners of the iron ore tenements (related party to Directors) and the possibility of another 288m RND shares and 240m RND options being issued.
An analogue for the market's perceived value in African iron ore assets would be to look at CFE's share price relative to RND:
This shows, IMO, the drag that the potential iron ore asset is having on RND's share price:
TBR (gold exposure) is performing better than RND (gold and potentially iron ore) which is performing better than CFE (iron ore).
The arbitrage risk of investing in RND vs TBR is that you invest in what you think is a gold company but it turns out to be an iron ore company...
Cheers John
TBR Price at posting:
$3.19 Sentiment: None Disclosure: Held
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