St George Mining or Western Areas for Nickel?

A recent description of St George Mining, one of Australia’s most exciting exploration companies, as “the next Western Areas” was intended as an accolade but the comparison might be construed as faint praise for the reasons outlined here. (VIEW LINK) The comparison does raise a question about how investors should choose between the two nickel exposed companies at the current point in their respective corporate life cycles. Risk aversion would normally favour Western Areas, according to conventional wisdom. St George is clearly the more volatile but that means more frequent trading opportunities. The chart of their relative share prices shows their returns intersecting frequently since the beginning of 2011. Which company has done better depends very much on when the music stops. The chart suggests buying Western Areas and selling St George presently for a reversal of the current 60 percentage point performance differential. The chart also suggests that becoming “the next Western Areas” may eventually cost St George (and others similarly positioned) its current trading appeal as the more mundane and expensive task of mine building overtakes the discovery excitement.