XSO (ASX) The Brains Trust

Originally posted by mainholm ↑

Hi Orwell. Here is part of a post I made last September about NST. It might be helpful to you for grasping the most important fundamentals regarding NST and provide some facts for your father to consider.

"It is very hard for a miner to become an 'investment grade' stock, especially a long term investment. More so for a gold miner. NST is achieving this rare feat and there are plenty of market players who are yet to realise that important factor.

Investors with long term outlook horizons will be richly rewarded IMHO, but DYOR etc etc blah blah. Anyway here are 8 major considerations that I attribute as huge positives supporting the great investment case into this stock.

1. NST is a Sector Leader in all financial metrics and has the strongest Balance Sheet of all goldies... if not all miners. Points I rate highly are:
- $326m cash and cash equivalents as at 30 June 16. That is an 85% increase YoY and NST is pumping out more FCF month on month.
- No debt!!!! Significant increases in FCF continuing with $224m underlying FCF in FY16.
- Paying at fully franked divvy every year with recent gross yield at 2.5%. That doesn't count the recently announced Special divvy either. Better than most Term Deposits at most banks.
- The ROE in FY16 at 39% and ROIC at 28% is outstanding and amongst the best on the ASX.
- NST is an ASX 100 with financial metrics up there with the best. The Total Shareholder Return has averaged 52% over the past 5 years with the av ROE being 30%. The so called experts view anything above 10% ROE as a good investment.

2. NST is a top 25 'global' producer with the "lowest" capital intensity in the 'global' gold sector. That is outstanding and here are a few considerations I rate highly to support this fact:
- Reserves have increased by 33% even after factoring in depletion and the cost of conversion is amazingly cheap at $50/oz. In comparison the average cost of gaining extra resources at the moment is $500/oz.
- The average cost of discovering new gold resources is $252/oz, which goes to show how well NST is doing in the field.
- Production of global majors is forecast to decline 50% by 2026. NST is growing to 600k oz by CY18 with potential for upside growth in production.
- NST has asset diversity with current margins of $750/oz. That provides substantial risk mitigation for mining incidents and also fluctuations in POG.

3. NST has a proven track record of replacing production depletion whilst growing the Reserve and Resource Inventory from organic sources. This fact makes a mockery of anybody that uses the misguided value metrics such as EV/Reserves or EV/Resources. Those that use that metric do not understand how capital is employed to maintain/sustain mine inventory for underground gold operations. Further points in this regard are:
- NST has 4 discoveries yet to be included in the current Reserves and Resources Statement, which is 9.25m oz at present. So replacement of production depletion is obviously going to continue this FY.
- NST has allocated a budget of $130m this FY for increasing resources and expanding production. It is highly likely that this capital spend with improve the bottom line for NST's mine inventory.

4. Jundee is a Tier 1 asset that keeps on keeping on. NST are advising the market of the following outcomes or possibilities regarding Jundee:
- Potential for increase in mill capacity.
- New and recent discoveries will be brought into production soon.
- Studies are underway to develop satellite open pits.
- There is potential to source third party opportunities.

5. Kalgoorlie is a Tier 1 production hub and will expand production with a very low AISC in this current FY. Some noteworthy points recently advised by NST are:
- The 3 mines in the EKJV will join up at depth providing a strike length of about 2km.
- Kanowna Belle is being extended at depth and the new Velvet discovery is getting ready to be mined. Together these developments have refreshed what was thought to be a mine coming to end of life into a reliable producer for many years to come.
- NST is developing new discoveries at Millenium and Carbine that are 100% owned and will improve the bottom line production outcomes for the Kalgoorlie hub.

6. Paulsens continues to deliver YoY and looks like doing so for a few more years yet. Notwithstanding, I do hold some apprehension about the long term future. NST has extensive holdings of tenements in the region and also the rights to gold on FMG ground. So, I do look forward to hearing some news and plans for the future. Hopefully, not too long in the future for news though! haha

7. The Tanami Region provides blue sky for NST production and looks exciting for future operations. Some factors that resonate with me are:
- The Groundrush deposit has the potential to produce up to 150k oz pa in CY18 and NST will own 60% minimum.
- NST recently acquired control of numerous tenements in the Tanami Region and around Groundrush. This presents significant opportunity to grow the NST production hub in the future.

8. NST has proven to have a strong management team.
- Based on performance this team is arguably the best in the business.
- The team has wide ranging experience of most gold mines in Australia due to their extensive experience gained from providing contractor and mining services in this Sector.
- Additionally, I have gleaned that the Board is on watch for all and any acquisition opportunities, but their track record indicates a conservative/careful approach in order to avoid over paying."

Cheers

Expand

Mainhold, really great analysis. I respect people putting in the real research work on these stocks, not just punting. Makes me want to buy NST myself.

Just on your point 2 that average cost of further acquistion of ounces at $500. Sounds way too high, but if they're prepared to pay that could you send the directors along to Cardinal CDV to have a look over, myself and other shareholders have a 4million oz bargain for them!!!.