Thanks @plough for pointing out that there is literature on how...

Thanks @plough for pointing out that there is literature on how to value a mine ...

I have been giving this some thought.

One relevant thing to consider might be to consider NST's most recent mine purchase pre-Hemi ...

If I recall correctly the free cash flow from Pogo in just the one year last year was more than NST paid for the mine originally.

So who was valuing that mine, and on what basis, when NST bought it?

Did they read the literature you mention?

Would they have said NST paid too much?

If it turns out that Hemi does produce 700,000 per year at $1400 AISC ... it is not certain it will ever generate the $4 billion purchase price in one year, ... but it could easily potentially generate 5 billion every 2 years, and it could do that for 16 years or more potentially.

So, although I am no expert, I would say that it is proven that NST did not pay too much for Pogo, ... and it looks likely they did not pay too much for Hemi if it ends up performing as projected.

So, how do we value a mine? ...


Let's think about NST's KCGM operation ...

If we believe NST is 'under-valued' ... how do we prove that?

What do we believe the KCGM asset is really 'worth'?

Let's say these are the numbers (for round numbers sake)

1,000,000 ounces per year
$1,500AUD AISC
$5,000AUD POG
40 years operation

These seem to be reasonable.

It might be slightly worse. It might be a lot better.

When I say it might be a lot better, NST found 10 million ounces last year, and they've doubled the known resources at KCGM (despite depletion) in quite a short time really, and it appears there is enormous scope for finding more ounces, ... so the 40 million ounce resource might realistically be expected to end up being substantially higher.

Instead of studying company valuation ... I resorted to ChatGPT ...

Question:
If you had a company generating 3.5 billion AUD and you believed it would continue to do this for the next 40 years with the return increasing to match inflation each year, what would be a fair market cap for this company today?

✅ Answer:

A fair market cap today for this company would be approximately 60 billion AUD, assuming:

• 3.5B AUD in annual cash flow,

• Continues for 40 years,

• Grows with inflation (i.e., constant real value),

• 5% real discount rate.

  
  
  So if NST owned only KCGM then 60 billion would not be an unreasonable market cap ...
  
  50 billion if you account for 30% corporate tax.
  
  Obviously this does not include any value for Yandal, or Pogo, or Hemi.
  
  My theory that we are owed a minimum 3x for NST from here (which was arrived at by separate logical process) seems supported by this approach to valuation ...
  
  I would suggest that the combined value of Yandal plus Pogo plus Hemi ought to at least be the equal to the super-pit alone, so we move to a valuation for NST of 100-120 billion ... which gives us the 5x multiple others have been suggesting recently might be coming.
  
  Comments?