Kasbah Leverage Should be Celebrated not Hidden
Kasbah Resources, currently suspended pending an announcement, claims that its Achmmach tin project feasibility study confirms the project's “robust” economics. The mining industry bandies this adjective around unthinkingly. ‘Robust’ should mean little change in financial outcomes over a wide range of potential conditions. The Kasbah feasibility study implied an investment outcome equivalent to a bond with a modest 8.5% yield. A 10% tin price rise would boost the yield-equivalent outcome to 13.5%. A credible 20% price increase would push the yield above 18%. Kasbah’s project is leveraged to changing conditions, not robust. Kasbah’s case is simply illustrative. Executives generally should put aside the meaningless spin to think more clearly about what they are offering investors. Near the top of a cycle, ‘robust’ is a desirable quality, if it exists, to be highlighted. Near the bottom of a cycle, ‘leverage’ is a more prized attribute. If an investor was looking for stocks likely to benefit from cyclically improved metal prices, Kasbah should be near the top of the list from which to choose and its leverage celebrated not denied or concealed.
John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...
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