NST is part of my private Aussie miners portfolio. I look at it as one of the most stable and reliable companies. When I read your comment the thought goes through my mind that you are a perfect example of the feelings towards POG and the miners of the last few weeks. Not only feelings, but also the action in the last two weeks are a perfect match with these kinds of thoughts. There is no denying there. First let me start why I like Gold and miners. The biggest problem for me it the unrealistic debt-burden hanging over the world today. The very low interest rates of the last few years where in the beginning to activate the economy. But Central Bankers after a few years turned towards the real threat. Governements can't handle the debt any more (except for a few countries like Switserland; Germany and my own country The Netherlands) and need low interest rates to service their debt. Off course they can print as much money as they want (and the FED did, take a look at their balance sheet), but this will lead eventually to hyper inflation and their people not trusting them anymore. So low interest rate is key for now. This need for low interest rates also makes it so difficult for the FED to do the right thing. Inflation rates (and their direction) and the state of the economy demands higher FED Fund rates. You see them struggling with this. It is my belief that inflation will force the FED to higher rates in the next 18 months. I think the FED fund rates will go to 1,75% to 2%. Because the 10 years yield on treasuries are around 2,50 - 2,60% already, I think the yield curve will flatten a bit.I see the 10 years rate at 3,0 - 3,25%. . For gold it is not so much the nominal rates what counts but the real rates, meaning nominal rates -/- inflation. In this context the sky for gold is clear, or at least no threat for for gold (this does not mean that there is no volatility surroundings Fed meetings like next week). So the macro's are good for investing in gold and miners, at least that are my thoughts. This thoughts are reinforced by the turnarounds you see with the miners. the bigger ones, like NST have all lowered their costs base. You will find it difficult to find other non-mining companies with better gross margins than miners when they sell their product. Also the deleveraging of the balance sheets of big miners is supportive of their business model (NST has a cash position of more than A$ 300 mln, wow). So how is NST doing is this environment. for this I will look at the FY 2018. NST has said that they will produce some 600.000 OZ for tat year. Because they do not state their AISC-figures I will go by the FY 2017 figures of A$ 1000-1050,- per OZ and will deduct some A$ 50,- for higher production in 2108 (be my guest and use your own thoughts on this). So this will give a AISC of A$ 1025 (FY2017) -/- A$ 50,- = A$ 975,- per OZ. The POG is off course unknown. I will stick to the current A$ 1600,- per OZ. This will generate a free cash-flowf 600.000 x (1600 -/- 975) = A$ 375 mln. per annum. There are some 605 mln shares outstanding, leading tot a free cash-flow per share of 375/605 = A$ 0,62. The cash position of A$ 300 mln means a cash flow per share of A$ 0,50 ct. What will be the valuation of a company like this. Because NST is a big stable company, I calculate with a cash-flow PE of 10 (meaning a yield of 100/10 = 10% per annum. for NST this will lead to a valuation of A$ 0,62 x 10 = A$ 6,20 plus the A$ 0,50 per share they have in cash. Bringing the total to a fair valuation of A$ 6,70. Off course this is based on a production of 600.000 OZ which is not the case for this year. Next to that NST is paying a nice dividend every year. Because I believe in the product they are selling (see my explanation above for the macro difficulties in the world because of the debt-burden), their healthy balance sheet, high gross merging etc. I believe in the business case for NST. I also don't like the current volatility in the POG and the miners, but I have a strong believe in the product and NST. That is why I do not pay to much attention to the current downturn and look forward to the next few years. If I didn't have any exposure to miners in general and NST in specific, I would be buying in the coming weeks for sure. Perhaps I will buy some more to take advantage of today's levels.
NST Price at posting:
$3.75 Sentiment: Hold Disclosure: Held
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