Turning and turning in the widening gyre   

The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;

Mere anarchy is loosed upon the world,

The blood-dimmed tide is loosed, and everywhere   

The ceremony of innocence is drowned;

The best lack all conviction, while the worst   

Are full of passionate intensity.

William Butler Yeats, “The Second Coming”

Despite widespread claims of speculative excess, gold prices are supported by a durable macro regime characterised by geopolitical fragmentation, fiscal constraint, and elevated tail risk. In such an environment, historically high gold prices are not aberrational, they are structural, and they enable select gold miners to generate sustained economic profits while still trading at very attractive valuations. In a year in which the SPDR Gold Shares (GLD) has risen by nearly 64%—the biggest single-year gain since 1979—and the iShares MSCI Global Gold Miners ETF (RING) has shot up by more than 156%, it is easy to conclude that gold, and by extension, gold miners, are unlikely to be market beaters in the year ahead. The Bank of International Settlements (BIS)—”the bank for central banks”—said in its final report for the year, that gold and stocks, which exhibited “explosive behaviour” in 2025, are both in a bubble. It was this very framing and Dongshuai Zhao’s forecast of gold’s correction a month ago that caused me to sell Greatland Resources Limited (ASX:GGP), K92 Mining Inc. (TSX:KNT) and DRDGOLD Limited (JSE:DRD); and Apex Mining Co., Inc. (PSE:APX). However, in the period since, I have evaluated the sustainability of this “bubble”. In his book, The Alchemy of Finance, George Soros speaks about fertile errors, and the exploiting of bubbles to earn excess returns. Moreover, the BIS noted that, “during the development phase of the bubble, investors jumping on the trend could still benefit from further price increases”. Those who, for instance, have decried the valuations of Tesla, Inc. (TSLA), or NVIDIA Corporation (NVDA), for example, have to endure years of fantastic returns by these stocks. I, for instance, am of the view that the S&P 500 is likely to deliver returns in the low single-digits in the decade ahead, as a consequence of the U.S. equity preference—the share of the aggregate portfolio allocated to equities—, but, if one traded purely on equity preference, over time, the S&P 500 would come out the winner. It is not enough for an asset to be in a bubble, there must be a powerful catalyst for its bursting. Rather than near-term catalysts for a crash—gold remains expensive because uncertainty is expensive—, one sees support for elevated prices, and in this environment, Apex Mining and Greatland Resources are very attractive bets.

An Age of Uncertainty

We are living in a geoeconomic moment, a time in which the tools of economics—such as tariffs, regulations, asset seizures, and export controls—are deployed in pursuit of security goals. This is an age of a great backlash against the neoliberalism of Reagan and Thatcher and Keynesian internationalism. It is an age of polarization, in which the populist right is in ascendancy, and only the populist left is a viable challenger, an age of contested policies, in which, “the centre cannot hold”. In our age, free trade is giving way to mercantilism; and the pax Americana is giving way to competitive bipolarity—wherein China’s manufacturing hegemony is at odds with America’s financial hegemony, and the two superpowers compete for tech hegemony. Despite a discourse of deglobalization, this is an age in which integration is deepening, leading to more fragile systems. Ours is an age of uncertainty, an age deeply favourable to gold, with the World Gold Council finding that “risk & uncertainty” was the single largest contributor to gold’s 2025 performance. 

The increasing frequency of tail-risk events can be seen in rising S&P 500 kurtosis and persistently elevated Cboe SKEW Index. In such an environment, gold’s role as portfolio insurance and a diversifier against fat-tail outcomes becomes structurally valuable, supporting a higher equilibrium price even outside acute crises. 

Source: World Gold Council

In the paper, “Mining Gold for Regimes”, Suvak et al show that gold exhibits three distinct regimes—acting at times as a real asset, a commodity, or as a stable currency—and that this structural flexibility is why it deserves a place in strategic allocations, especially in environments where traditional carry and valuations are shifting. Gold’s capacity to behave differently across regimes (e.g., inflationary, deflationary, or uncertainty-driven) underpins its long-term case. In periods of heightened geopolitical risk, fiscal excess, and inflation pressures, gold displays the characteristics of a stable currency and serves as a meaningful diversifier rather than a speculative commodity. Vineer Bhansali, the chief investment officer (CIO) at LongTail Alpha, argues that gold’s long-term valuation is shaped more by entrenched structural uncertainty and evolving macro regimes than by short-run cyclical factors alone.

Consensus Expectations Imply Historically Elevated Gold Prices

The World Gold Council’s Gold Valuation Framework shows that even under consensus macro assumptions—global growth at roughly the high-2% range; the Fed delivers around 75 bps of additional easing as core inflation slows by about 40 to 60 bps by year-end, and the U.S. dollar firms modestly while yields stay broadly flat—, gold remains rangebound at historically high levels, within ±5% of the November 2025 LBMA PM benchmark. Elevated prices are no longer dependent on crisis conditions, rather, they are consistent with a “steady-state” macro environment shaped by uncertainty rather than overheating or collapse. 

Source: World Gold Council

While real rates and the dollar are still cyclically high, the balance of risks points toward policy easing rather than tightening in most plausible scenarios. Federal Reserve Chair Jerome Powell has overseen a cautious rate cutting regime that, if President Donald Trump’s call for more aggressive interest rate cuts is met by action on the part of the next Chair, will, at the very least, be maintained. In both the “shallow slip” and “doom loop” scenarios, lower rates and a softer dollar materially boost gold. Even in the consensus scenario, the absence of meaningfully higher real yields limits downside. Only a successful reflationary boom with higher rates and a much stronger dollar generates a sustained bearish outcome—and even then, prices remain historically high.

In a recent note Dr. Juergen Michels of BayernLB, estimated that the yield curve will steepen from June 2026 while two-year Treasury yields continue their decline, and U.S. fiscal deficits and resulting high Treasury issuance lead 10-year Treasury yields higher. In his estimation, 10-year Treasury yields will rise to 4.4% by the end of 2026, as short-term rates fall. A steepening yield curve driven by falling short-term rates and deficit-induced upward pressure on long-term yields is neutral to bullish for gold, unless it produces a sustained rise in real yields. More likely, it reinforces the macro backdrop of policy constraint, fiscal stress, and elevated tail risk—conditions under which gold tends to remain structurally supported rather than undermined.

A Goldilocks Scenario Supports High Gold Prices

Nouriel Roubini—so correct in his analysis of the U.S. economy this year—believes that there are three scenarios for the U.S. economy in 2026: (i) a baseline “Goldilocks” scenario in which the “US will suffer a growth recession (meaning below-trend GDP growth) for a few months, followed by a recovery and a gradual decline in the inflation rate toward the US Federal Reserve’s 2% target” (ii) a second scenario in which the “economy experiences a shallow recession for a few quarters, followed by a slower return to growth than in the first scenario”, and (iii) a “no-landing” scenario in “which growth remains strong but inflation does not fall toward the target rate”. Roubini’s baseline rests on a moderation of tariff shocks; and a mid-2026 recovery supported by monetary easing, fiscal stimulus, “strong household and corporate balance sheets; easy financial conditions”, and “and the strong tailwinds from capital expenditures (capex) relating to AI”. Under Roubini’s baseline Goldilocks scenario, the implications for gold are broadly consistent with the World Gold Council’s macro-consensus case. A brief period of below-trend growth followed by recovery, easing monetary policy, and a gradual disinflation toward target imply declining or capped real rates rather than a sustained rise, while policy and geopolitical uncertainty remain unresolved. In this environment, gold does not require crisis conditions to perform; instead, it retains its role as a portfolio stabiliser and store of value, remaining rangebound at historically elevated levels rather than entering a sustained drawdown. The Goldilocks outcome, in other words, is not a gold-negative regime, but one in which gold consolidates its gains as macro stability is achieved through continued policy accommodation rather than a restoration of pre-crisis monetary normality.

Central Bank Demand Provides a Durable Structural Floor

In their June 2025 survey of central banks, the BIS found that 95% of respondents expected central bank gold reserves to increase in the subsequent 12 months, with 43% expecting their own reserves to increase. No respondent planned to decrease their gold reserves. Furthermore, 73% of respondents expected the share of U.S. dollar holdings to decline over the next five years, with other currencies and gold increasing as a share of global reserves. Subsequent data shows that central banks have continued to purchase gold. In October, the last month for which we have data, central banks bought 53 tonnes of gold, up 36% month-over-month (m/m). In the year-to-date (YTD), central banks have made 254 tonnes of net purchases of gold. Even so, gold purchases in 2025 trailed those of previous years. 

Source: World Gold Council

The National Bank of Serbia expects to nearly double their gold reserves to 100 tonnes by 2030, while Madagascar and South Korea are planning to increase their gold reserves as well. Central banks are expected to continue being net purchasers of gold in 2026, even if they believe that gold is in bubble territory. This is driven by gold’s superior performance in times of uncertainty. 

If gold prices remain rangebound at historically elevated levels rather than reverting, the relevant question shifts from directionality to operational leverage and capital discipline among producers.

Gilded Profits

In the current regime, Apex Mining and Greatland Resources have earned attractive profits. In my initial thesis on Apex Mining, I said that the company was a “child of the bull run”, observing that,

Present-day Apex Mining was given new life by this bull run. In its Q1 2025 filing, the company reported an ore grade for the Maco Mines of 3.16 grams of gold per tonne of ore (g/t Au), a grade that is not what one would deem high-grade. When I started, 6g/t was generally considered workable, and the mine often reached 12g/t, and never lower than 7g/t. If the current grade reflects realities in 1991, it is likely the reason why the mines had to be mothballed.

Management has expertly exploited this bull run. Since 2020, Apex Mining’s revenue has compounded by 25.65% a year, from ₱6.32 billion in 2020 to ₱19.76 billion in the last twelve months (LTM), compared to a global mean and median 5-year sales CAGR of 6.9% and 5.2% respectively. Since 2020, Apex Mining’s net operating profit after tax (NOPAT) has compounded by 36.37% a year, from ₱1.63 billion to ₱7.7 billion. NOPAT margin in that period averaged 31.18%, rising from 25.85% to 38.92%. Apex Mining’s rising NOPAT margin has occurred in tandem with an improvement in its balance sheet efficiency, with invested capital turns ticking up from 0.55 to 0.69 in that time. The result of rising NOPAT margins and invested capital turns has been a marked swelling in Apex Mining’s return on invested capital (ROIC) from 14.25% to 26.94%. In that period, Apex Mining’s incremental ROIC has averaged 147.81% and has always been positive, last dipping below 5% in 2021, and currently standing at 51.6%. 

In my initial thesis on Greatland Resources, I observed that the acquisition of the Telfer Mine had been transformational, saying,

Seven months after the acquisition, Greatland had produced 198,319oz gold, and 8.43kt copper at an all-in-sustaining-cost (AISC) of A$1,849/oz Au, net of copper credits, selling 180,570oz of gold at an average realised price of A$4,785, and lifting [NOPAT] from -A$26.56 in FY 2024 to A$319.23 million in FY 2025, and NOPAT margins to 33.34%. Despite invested capital rising nearly six-fold, the firm’s balance sheet efficiency rose, with invested capital turns rising from 0.00 to 1.21. As a consequence, Greatland Resources’ [ROIC] shot up from -19.20% to 40.44%. Such has been the success of the acquisition that within those first seven months, cash flow from Telfer’s operations, A$601.1 million, had exceeded the A$541 million upfront acquisition consideration for both Telfer and Havieron.

These are the sorts of numbers that one would normally expect from asset-light aggregators and platforms, not from asset-heavy gold mines.

Value Creators

Since Alfred Marshall’s Principles of Economics, economists have known that value is created when returns are in excess of the cost of capital. Both Apex Mining and Greatland Resources are value creators. Since 2020, Apex Mining has compounded economic profit—(ROIC-WACC)*average invested capital—by 45.13%, from ₱702.13 million to ₱4.52 billion.

Having gone public earlier this year, Greatland Resources has generated A$250.68 million in economic profit for FY 2025.

Apex Mining is Trading at Near-Economic Book Value

At the current share price, ₱11.92 at time of writing, Apex Mining has a price-to-economic book value (PEBV) of 1.04, implying that the market expects just an at-most 4% increase in its NOPAT from current levels. 

Using my reverse discounted cash flow model (DCF), I teased out the expectations implied by the current share price. 

In the first scenario, I determined the hurdles revenue and NOPAT growth must meet to justify the current price. There,  

• revenue compounds by 15% a year, and  
• NOPAT margin remains at 38.92%. 

In that scenario, the company’s market-implied competitive advantage period (MICAP) is 9 years, at which point its shareholder value per share equals the current share price. In this scenario, the company earns ₱61.26 billion in revenue and ₱20.35 billion in NOPAT, by the end of 2034.   

If, however, those price-implied expectations are exceeded, and,  

• revenue compounds by 25.65%—its 5-year CAGR—, and 
• NOPAT margin remains at 38.92%, then, 

Apex Mining earns ₱118.21 billion in revenue and ₱39.26 billion in NOPAT by the end of 2034, and the stock is worth ₱25.83 today, an upside of 117.06% from the present price. 

There is evidence from VanEck that suggests that as gold prices climb, gold miners margins climb as well; and evidence from Farmonaut that investments by 60% of gold miners into new tech will likely lead to greater operational efficiency. PwC, on the other hand, have pointed to cost pressures pushing margins down in mid-2025, although, my analysis shows Apex Mining gaining in that time. Apex Mining’s investments into operational improvements, such as equipment upgrades, drain tunnel developments, and use of training simulators, should continue to boost efficiency, support ongoing production targets, and, at a minimum, weigh against the cost-pressures discussed by PwC.

Greatland Resources Still Has Upside

At the current price, A$9.68 at time of writing, Greatland Resources has a PEBV of 1.23, implying that the market expects the firm to increase its NOPAT by 23% from FY 2025 levels. Using my reverse DCF model, I determined the market-implied expectations for future cash flows.  

In the base case, where, 

• revenue compounds by 10% a year, and, 
• NOPAT margin remains at 33.34%

Greatland Resources earns A$1.87 billion in revenue and A$622.08 million in NOPAT by the end of FY 2032, and has a MICAP of six years.   

If, however, those hurdles are exceeded, and, 

• revenue rises to A$1.64 billion in FY 2026, based on a full year’s worth of production at FY 2025 prices, and grows by 10% a year thereafter, and, 
• NOPAT margin remains at 33.34%, then, 

Greatland Resources earns A$2.9 billion in revenue and A$969.48 million in NOPAT, by the end of FY2032, and the company is worth A$14.45 today, an upside of 49.28% from the current price.

When the Centre Fails, Prices Adjust

If Yeats’ widening gyre captures a world losing coherence, gold is not its anachronism but its stabiliser. In an era in which geopolitics encroaches upon economics, fiscal dominance constrains monetary normalisation, and tail risks remain persistently elevated, gold’s price is best understood not as speculative excess but as an equilibrium response to structural uncertainty. The centre cannot hold—but markets do not require order to function; they reprice the cost of stability. In this regime, gold miners are no longer simply leveraged expressions of spot prices, but conditional claims on persistence: on policy constraint, geopolitical fragmentation, and higher risk premia becoming durable features rather than transient shocks. Apex Mining and Greatland Resources exemplify this distinction. They are generating economic profits consistent with the prevailing regime, yet are valued as though a rapid return to pre-crisis normality were imminent. To label such outcomes a bubble is to misdiagnose the moment. When coherence erodes, value accrues not to conviction alone, but to assets—and firms—that can earn returns in a world where the centre no longer holds.

Closed position on 27 October, 2025, with a -8.1% return, and then re-opened the position on 17 December, 2025.

Australian gold and copper producer, Greatland Resources Limited (ASX:GGP: A$8.30 per share) joins Apex Mining Co., Inc. (PSE:APX), and Canadian gold and copper miner, K92 Mining Inc. (TSX:KNT) and South African gold miner, DRDGOLD Limited (JSE:DRD) in my personal and model portfolio, thanks to its attractive characteristics. 

In their 2025 fiscal year (FY) letter to the shareholders, the chairman, Mark Barnaba, and the managing director, Shaun Day, spoke of a “transformative period for Greatland”. Rather than a Kafkaesque metamorphosis into a monstrous verminous bug, this metamorphosis has turned a pre-revenue exploration and development company into a profitable gold and copper producer. This was achieved through the US$450 million (~A$700 million) acquisition “…of the Havieron project, Telfer mine, and other interests in the Paterson region” from the Newmont Corporation (NEM), an acquisition completed on 4 December 2024.

Source: FY 2025 Annual Report

This acquisition has split the history of the company in two, such that it is appropriate to analyse it as if it is an entirely new company, “a new leading Australian gold producer with a strong platform for growth”. It is in FY 2025 that Greatland became a cash-flow generating, profitable mining company with a robust balance sheet and a clear growth pathway.

As a result of the acquisition, the company now boasts a Group Mineral Resource Estimate of 285 million tonnes (Mt) at a grade of 1.11 grams per tonne of gold (g/t Au), 0.14% copper (Cu), or, 10.2 million ounces (Moz) gold, and 387 kilotonnes (kt).

Source: FY 2025 Annual Report

Telfer Mine

Telfer Mine, a producer of gold and copper concentrates with silver by-products, is located at Telfer in the Paterson region of Western Australia. First discovered by Newmont in 1972, it began production in 1977, producing more than 15Moz of gold since then. An established and iconic mine, it has both open pit and underground mining operations. When Greatland bought the mine, they also bought 30.5 million to 34.5 Mt of stockpiles, including 11.5Mt of high-grade run-of-mine ore and 19-23Mt of low-grade stockpiles. The mine’s processing plant, the third largest in the country, has two processing trains, each capable of 10Mt of gold ore, copper-gold concentrate and gold doré, only one of which was operating prior to the acquisition. Greatland resumed dual-train processing and poured its first gold bars under its ownership on 8 December 2024. 

Source: Greatland

Day remarked upon the importance of the acquisition, saying that,

Greatland’s first ever gold production at Telfer is a wonderful milestone and a credit to our team. Equally importantly, we are delighted to have resumed dual-train processing operations in line with our Telfer mine plan. The combination of a strong gold price and significant ore stockpiles at surface makes this a tremendous time to own the Telfer mine.

Seven months after the acquisition, Greatland had produced 198,319oz gold, and 8.43kt copper at an All-In-Sustaining-Cost (AISC) of A$1,849/oz Au, net of copper credits, selling 180,570oz of gold at an average realised price of A$4,785, and lifting net operating profit after tax (NOPAT) from -A$26.56 in FY 2024 to A$319.23 million in FY 2025, and NOPAT margins to 33.34%. Despite invested capital rising nearly six-fold, the firm’s balance sheet efficiency rose, with invested capital turns rising from 0.00 to 1.21. As a consequence, Greatland’ return on invested capital (ROIC) shot up from -19.20% to 40.44%. Such has been the success of the acquisition that within those first seven months, cash flow from Tefler’s operations, A$601.1 million, had exceeded the A$541 million upfront acquisition consideration for both Tefler and Havieron. . 

The Telfer Mineral Resource Estimate is currently 3.2 million ounces gold and 117kt copper, extending the mine’s life through FY 2027. Management expects to produce 260,000-310,000oz gold in FY 2026, at an AISC of A$2,400-2,800, having deployed A$230-260 million in growth capital toward Telfer, and A$60-70 million toward Havieron, and sustaining A$55-60 million in research development and exploration expense. 

Source: October 2025 Corporate Presentation

Telfer is not just a cash engine. Its surplus processing capacity and infrastructure are central to Greatland’s ‘hub and spoke’ strategy, designed to process ore from Havieron and other future regional discoveries, thereby de-risking and reducing capital costs for new projects.

The Havieron Deposit

Havieron -which the company describes as a “world-class, brownfield, high-grade underground gold-copper deposit”- is located in the Paterson region of Western Australia, some 45 kilometres east of the Telfer mine. Management intends to use Telfer’s processing plant and infrastructure to process Havieron’s ore, as part of a hub-and-spoke strategy. First discovered by Greatland in 2018, the project was advanced first through a joint venture between the company and Newcrest from 2019 to 2023, and then by Newmont between 2023 and 2024. Under the 2024 purchase agreement, Greatland acquired Newmont’s 70% interest in the deposit, bringing to 100% its ownership. 

Source: Greatland

According to Barnaba and Day,

It is one of the largest high-grade gold discoveries in Australia of the last 20 years and currently the second largest undeveloped high grade gold project by Mineral Resource in Australia, with 7.0Moz gold and 275kt copper in contained metal. The high-grade, sub-vertical and compact nature of the orebody is expected to result in a long life and low cost mine, with development partially completed.

The deposit’s Mineral Resource Estimate (including the Ore Reserve) is 131Mt at a grade of 1.67 g/t Au and 0.21% Cu, or, 7Moz gold and 275kt copper, with an Ore Reserve Estimate of 24.9Mt at a grade of 2.98g/t gold and 0.44% copper, or 2.4Moz gold and 109kt copper. 

The Havieron deposit is a deep, compact, and high-grade gold-copper ore body extending 1.4 km vertically and 650 m across, containing a large amount of metal per metre of depth. Greatland has already built most of the access tunnel (about 80%) to reach it, but underground work is paused until the final feasibility study confirms the economics of full-scale mining.

The feasibility study is currently looking at expanding the initially proposed 2.8 million tonnes per annum (Mtpa) single decline truck haulage operation, so that this mining rate increases to 4-4.5Mtpa when the second decline, material handling system and underground crusher are developed.

Exploration Portfolio

Greatland also possesses significant exploration ground within the surrounding Paterson region and broader Western Australia. In the Patterson Region, it owns the Telfer Near Mine, 750km² of tenements within 30km of the Telfer plant; Patterson South, 1,022km² of tenements for which Greatland earns as much as a 75% interest under a farm-in and joint venture agreement with Rio Tinto Group’s (ASX:RIO) exploration subsidiary; and Scallywag, a name shared by my old mine and which one hopes is less trouble, and which consists of 334km² of tenements. In broader Western Australia, it has Ernest Giles, an  underexplored Archean greenstone belt in the Yilgarn Craton covering 1,323km² of tenements; and Mt Egerton, 576km² of tenements 230 km north of Meekatharra in the Gascoyne region.

Source: October 2025 Corporate Presentation

Valuation Leaves Room for Upside

At the current price, Greatland has a price-to-economic book value (PEBV) of 1.06, implying that the market expects the firm to increase its NOPAT by no more than 6% from FY 2025 levels. Using my reverse discounted cash flow (DCF) model, I teased out the expectations implied by the current share price.

In the first scenario, I determined the hurdles revenue and NOPAT growth must meet to justify the current price. There,  

• revenue compounds by 10% a year, and,
• NOPAT margin remains at 33.34%, then,

Greatland earns A$351.15 million in NOPAT in FY 2026, where the shareholder value per share equals the current price. 

If, however, those hurdles are exceeded, and,

• revenue rises to A$1.64 billion, based on a full year’s worth of production at FY 2025 prices, and,
• NOPAT margin remains at 33.34%, then,

Greatland earns A$547.25 million in NOPAT, and the company is worth A$12.32 today, an upside of 48.43% from the current price. 

Finally, if,

• revenue rises to A$1.64 billion, and,
• NOPAT margin rises to 38.36%, then,

Greatland earns A$629.43 million in NOPAT, and the company is worth A$14.26 today, an upside of 71.81% from the current price.

Closed position on 27 October, 2025, with a -8.2% return.

As I noted in my thesis on Apex Mining Co., Inc. (PSE:APX),

Gold mining has historically been a poor way to capture gold’s value, with overinvestment, low-quality assets, and poor capital discipline destroying returns. Today, elevated gold prices are supported by disciplined capex, strong free cash flow, and conservative balance sheets, transforming miners into cash-generative, shareholder-friendly businesses.

Since then, gold has breached the $4,000/oz barrier, and there is every indication that gold’s stunning momentum will continue. As the Financial Times observed,

Gold mining stocks are outstripping leading artificial intelligence companies and bitcoin, as a bull run in precious metals fuels an even stronger rally for the “unloved” companies that dig them from the ground. The S&P Global Gold Mining index has surged 126 per cent this year, the best performer among the S&P sector indices.

Having written about gold not just in relation to Apex, but also in relation to the SPDR Gold Shares ETF (GLD) and the iShares MSCI Global Gold Miners ETF (RING), I will not reiterate the reasons why I believe that gold is in a stable regime in which elevated prices are supportable. Robin J. Brooks suggests that if the gold rally is to continue, it will be driven largely by rising debt levels in the ten largest economies, “with mounting anxiety in markets that higher inflation and currency debasement are inevitable”.

The focus of this thesis is on two bets that I am making, on Canadian gold and copper miner, K92 Mining Inc. (TSX:KNT: $19.47/share) and South African gold miner, DRDGOLD Limited (JSE:DRD: R51.68/share).

K92 Mining

Although domiciled in Vancouver, Canada, high-growth, low-cost gold producer K92 Mining’s operations are in Papua New Guinea, where it owns and operates the Tier 1 Kainantu Gold Mine, which also produces copper, and silver as well as engaging in as exploring and developing the surrounding environs mineral deposits, such as Blue Lake and Arakompa. The company has transitioned from a developer to a standout performer in the mining sector, renowned for its exploration success, operational excellence, finance performance, and growth trajectory. 

Management has successfully revitalised Kainantu, which was originally developed by Barrick Mining Corporation (B) between 2006 and 2009, before being acquired by K92 Mining in 2014. Under Barrick, the operation had been plagued by low grades, technical difficulties, and security issues, leading Barrick to place it on care and maintenance. K92 Mining’s insight was to realise that Barrick had had only mined the easy, near-surface oxide material and had not properly explored the high-grade underground potential. K92 Mining moved swiftly, re-commissioning the process plant, and began production from the Kora and Judd deposits. Initial production results immediately demonstrated that the asset was far higher grade than historically understood. The core of K92 Mining’s strategy has been to aggressively explore its properties. Initial results immediately verified management’s insight, showing that the asset was far higher grade than historically understood.

The quality of the assets and geology at Kainantu is exceptionally high, positioning it as a world-class, high-grade, and low-cost gold and copper operation. The cornerstone of the asset quality is the aforementioned Kora and Judd vein systems, which host substantial, high-grade mineral resources and reserves. The combined Kora and Judd Measured and Indicated resource stands at 8.1 million tonnes at 10.00 g/t gold equivalent (7.8 g/t Au, 21 g/t Ag, 1.2% Cu), while the Proven and Probable Reserves are 6.18 million tonnes at 8.5 g/t gold equivalent. These grades are significantly higher than industry averages, which is the primary driver behind the operation’s low all-in sustaining costs (AISC), forecast at $665/oz (net of by-products) in the Stage 3 Expansion study. This high-grade nature, combined with reported solid continuity, thickness, and favourable metallurgical characteristics, provides a robust foundation for current and future operations, enabling rapid production growth and highly economic expansion projects.

Geologically, the project is situated in a highly prospective and proven mineralized district within the New Guinea Thrust Belt, near the major Ramu-Markham Fault suture zone. The local geology is complex and fertile, featuring the Miocene-age Bena Bena Formation metamorphic rocks overlain by volcanic and sedimentary sequences of the Omaura and Yaveufa Formations. Mineralization is associated with the mid-Miocene Akuna Intrusive Complex and later Elandora Porphyry intrusions, and manifests in several forms. The primary focus to date has been on Au-Cu-Ag sulphide veins of Intrusion Related Gold Copper (IRGC) affinity, which host the Kora and Judd deposits, as well as low-sulphidation epithermal veins. The property encompasses a vast ~830 km² land package that forms part of a large epithermal vein field, with multiple known and highly prospective vein systems like Arakompa, Kora South, and Judd South, indicating significant exploration upside. The consistent discovery success, low discovery cost, and substantial growth in inferred resources demonstrate the exceptional quality of the geology and the high potential for further resource expansion, underpinning the project’s trajectory towards Tier 1 production status.

The company’s Q3 2025 production report, revealed that K92 Mining extracted 44,323 gold equivalent ounces from Kainantu, while also making significant progress on its Stage 3 Expansion, with construction of the new processing plant complete and commissioning well-advanced, keeping it on track for its first gold pour in the first half of Q4 2025. The Stage 3 expansion will double capacity from 600,000 tonnes-per-annum (tpa) to 1.2 million tpa. At a time in which there is some lingering concern that gold miners will loosen their discipline, it is noteworthy that the plant was completed under the capex budget. 

With over 80% of its annual production target already achieved and the expansion remaining on budget, K92 is confident it will meet its 2025 guidance.

The firm’s financial performance has been exceptional. Revenue has compounded by 22.5% a year since 2020, a rate in excess of the global 5-year revenue CAGR of 6.9%. In that time, the firm’s net operating profit after tax (NOPAT) has compounded by 46.1% a year, from $31.66 million in 2020 to $210.74 million in the last twelve months (LTM). In tandem, NOPAT margin rose from 19.89% to a remarkable 43.54%, while balance sheet efficiency, as measured by invested capital turns, rose from 0.25 to 0.46. As a result, K92 Mining’s return on invested capital (ROIC) from 4.94% to 20.08%. 

Following the theme of gold miners becoming value creators, the firm’s economic profitability has improved, rising from -$10.95 million in 2020 to $105.52 million in the LTM, having first generated an economic profit in 2024. 

In terms of valuation, the firm has a price-to-economic book value (PEBV) of 2.14, implying that the market expects a 114% increase in NOPAT. While this is a significant expectation, I think it is earned and justifiable. Using my reverse discounted cash flow model (DCF), I teased out the expectations implied by the current share price.

In the first scenario, I determined the hurdles revenue and NOPAT growth must meet to justify the current price. There,  

• revenue rises to $523.75 million in 2025, and $657.07 million in 2026, in line with Seeking Alpha’s estimates, and by 22.5% from thereon, and  
• NOPAT margin remains at 43.54%. 

In that scenario, the company’s market-implied competitive advantage period (MICAP) is six years, wherein its shareholder value per share equals the current share price. In this scenario, the company earns $1.8 billion in revenue and $789.25 million in NOPAT, by the end of 2031.   

If, however, those price-implied expectations are exceeded, and,  

• revenue compounds by 22.5%, and 
• NOPAT margin rises to 47.44%, then, 

In this scenario, K92 Mining earns $2 billion in revenue and $950.53 million in NOPAT, by the end of 2031 and the stock is worth $24.66 today, an upside of 26.66% from the present price.   

Finally, if,  

• revenue compounds by 22.5%, and, 
• NOPAT margin rises to 34.66%, then, 

In this scenario, K92 Mining earns $1 billion in NOPAT, by the end of 2031 and the stock is worth $26.42 today, an upside of 35.70% from the present price.  

DRDGOLD

In my thesis on Apex Mining, I recalled that,

My first job out of university, in 2007, was running a small-scale family-owned gold mine in Zimbabwe, Scallywag Mine, and it was with some horror that I heard an old joke in the mining community in Gwanda: “It takes a large fortune to make a small one in gold mining”. In fact, for many of the older gold miners, it was a misnomer to call them “gold miners” because gold mining had been so unprofitable for so long that many instead treated tailings, or what was colloquially referred to as “dumps”, a highly profitable endeavour. I remember seeing old shafts, last worked by Germans before the start of the First World War, symbols of the unattractiveness of the business.

When I wrote that, I was already looking at DRDGOLD, South Africa’s oldest continuously listed mining company still in operation. DRDGOLD’s operations on the Witwatersrand Basin are the heart of the company: Ergo, located to the south and east of Johannesburg and which treats slime dams from the Central and East Rand goldfields; and Far West Gold Recoveries (FWGR) near Carletonville, which processes material from the West Rand. The business itself is 50.1% owned by Sibanye Gold Proprietary Limited, a wholly owned subsidiary of diversified miner, Sibanye Stillwater Limited (JSE:SSW); around 26% of shares are held by American Depositary Shares (ADRs) through Bank of New York; Ergo Mining Operations, a wholly owned subsidiary of DRDGOLD, owns 0.51% of the company, while DRDGOLD’s directors own 0.15%. and the remainder is held by other public shareholders.

The business model is fabulous. The company retreats mine tailings to recover gold, a process which, as Niel Pretorius, the company’s chief executive, observed in the FY 2025 report, aligns the model with ESG frameworks. The beauty of the business is that it does not entail the massive capital expenditures involved in gold mining, and so, returns are generally both high and stable. 

The model is inherently volume-driven, as evidenced in FY 2025 by a 3% decrease in gold production to 4,830kg, which was offset by a significant 15% increase in throughput to 25.6 million tonnes, indicating a strategic shift towards processing larger volumes of lower-grade material. The financial success of this model is heavily leveraged to the Rand gold price, with a 31% increase in the average price received to R1.63 million/kg driving a 69% surge in operating profit to R3.5 billion, despite the dip in production. This is not the red line that it may have been in the past, given the stability of the South African rand against the U.S. dollar and other major currencies in the year-to-date, and potential weakness in major currencies going forward. A key component of the model is the reinvestment of robust cash flows into extensive capital projects (R2.25 billion in FY2025) aimed at expanding deposition capacity and plant throughput to secure a multi-decade operational life and future growth.

DRDGOLD’s production of “sustainable gold” is an important differentiator, addressing a major environmental legacy by removing and reprocessing tailings dams, thereby reducing dust and water pollution and freeing up vast tracts of land for redevelopment, as highlighted by the vision for a “corridor of freedom” linking Johannesburg and Soweto. This aligns perfectly with global ESG imperatives and provides a compelling social narrative. 

Operationally, the surface retreatment model is typically lower risk and has lower capital intensity than deep-level mining. This means that operations are less risky than traditional gold miners and far more predictable. For the uninitiated, consider two models: in the first, one has to explore and then dig deep into the earth, before being able to mine; in the second, one finds a large “dump” and the costs are simply those of treating that dump and extracting the gold. For very small operations, the difference between commencing operations or moving on is the difference between spending on exploration or simply getting samples to a lab and getting favourable results. 

Financially, DRDGOLD’s success is evident. Revenue has compounded by 13.49% a year since FY 2020, while its NOPAT has compounded by 30.74% a year, from R688.21 million in 2020 to R2.63 billion in FY 2025. At the same time, NOPAT margin rose from 16.44% to 33.33%, while invested capital turns declined from 1.16 to 0.85, leading to an improvement in ROIC from 19.05% to 28.45%. The most impressive aspect of the business is that throughout this period, it has earned an economic profit, which has risen from R267.8 million in FY 2020 to R1.78 billion in FY 2025.

A newly cemented advantage is its energy resilience and cost management; the commissioning of the 60MW solar PV plant and battery storage system at Ergo, operating at 97% capacity, has already saved approximately R108 million, insulating the company from Eskom’s instability and reducing its carbon footprint, with an application for carbon credits underway. One should expect this to translate into greater future profitability. 

DRDGOLD has a price-to-economic book value (PEBV) of 1.49, implying that the market expects a 49% increase in NOPAT. This seems, at face value, easily achievable. Using my reverse discounted cash flow model (DCF), I teased out the expectations implied by the current share price.

In the first scenario, I determined the hurdles revenue and NOPAT growth must meet to justify the current price. There,  

• revenue compounds by 13.49% a year, and  
• NOPAT margin remains at 33.36%. 

In that scenario, the company’s MICAP is three years, wherein its shareholder value per share equals the current share price. In this scenario, the company earns R11.9 billion in revenue and R3.98 billion in NOPAT, by the end of 2028.   

If, however, those price-implied expectations are exceeded, and,  

• revenue compounds by 15%, and 
• NOPAT margin rises to 35.98%, then, 

DRDGOLD earns R12.4 billion in revenue and R4.46 billion in NOPAT, by the end of 2028 and the stock is worth R57.04 today, an upside of 10.69% from the present price.   

Finally, if,  

• revenue compounds by 20%, and, 
• NOPAT margin rises to 40.48%, then, 

In this scenario, DRDGOLD earns R14.08 billion in revenue and R5.7 billion in NOPAT, by the end of 2028 and the stock is worth R72.28 today, an upside of 40.27% from the present price.  

Position closed on 6 Oct. 2025 at a price of $31.78, with a return of 6.7%.

Caris Life Sciences, Inc. (CAI: $34.21 per share) positions itself as a future leader in precision medicine, but the odds are firmly against it. The company faces an intensely competitive landscape dominated by larger, better-capitalized rivals, ongoing accounting weaknesses, persistent losses, and limited transparency as an emerging growth company. Despite these challenges, the market has priced Caris Life as if it will achieve extraordinary scale and profitability for decades to come. The gap between these euphoric expectations and the company’s difficult realities creates significant downside risk for investors. Accordingly, I find Caris LIfe, “Unattractive”.

A Fiercely Competitive Market

One of the paradoxes of investing is that highly competitive industries produce what economists call a “consumer surplus”, and yet these firms often find it most difficult to create sustainable value. As Peter Thiel once said, “competition is for losers”. In fact, recent research by Boston University researchers has found that technological rivalry measured by research & development (R&D) investments by peers, increases the risk of obsolescence, making firms more reluctant to invest in new technology for fear that such investments will quickly become obsolete. This implies that firms in highly competitive industries may not experience the future profits they expect because increased competition will make customers less likely to buy new technology. 

Unfortunately, Caris Life operates in the highly competitive precision medicine industry, one where management is alive to it being, “characterized by rapid changes, including technological and scientific breakthroughs, frequent new product introductions and enhancements, and evolving industry standards.” Competition compels investments to keep up with peers, in the race for physician, patient, and biopharma clients, and competition increases the more attractive the potential profits are. These investments carry with them an expectation of future profits, yet, as economists have found, managers typically overestimate the potential gains from investments, leading to future losses. As people become more aware of the importance of genetic information, competition to serve the market with genomic profiling and sequencing services has grown. 

Caris Life faces competition from a myriad of firms, some of which are better resourced, able to invest more into R&D than it can, and with a greater ability to sell their products. If research that firms become more cautious as competition intensifies is correct, this could favour products from more established firms. Caris Life’s tissue-based molecular profiling services face competition from firms such as Roche Holding AG’s (RHHBY) Foundation Medicine and Tempus AI, Inc. (TEM). The firm also faces competition from academic centers, such as the Memorial Sloan Kettering Cancer Center and the NewYork-Presbyterian Hospital, while Weill Cornell Medicine provides genomic profiling to its patients. The firm’s blood-based early detection services face competition from firms such as GRAIL, Inc. (GRAL), Freenome, Guardant Health, Inc. (GH), Exact Sciences Corporation (EXAS), and Delfi Diagnostics. The firm’s blood-based molecular profiling for therapy selection services face competition from Guardant Health and Foundation Medicine. In blood-based molecular profiling for MRD tracking and treatment monitoring, the company faces competition from Natera, Inc. (NTRA), Guardant Health, and Adaptive Biotechnologies Corporation (ADPT). The firm’s core biopharma services face competition from firms such as Foundation Medicine, Guardant Health, Tempus AI, Natera, and Personalis, Inc. (PSNL). The firm’s genomic data and AI services face competition from Tempus AI and Foundation Medicine. Finally, other testing firms in precision oncology are Illumina, Inc. (ILMN), NeoGenomics, Inc. (NEO), Myriad Genetics, Inc. (MYGN), the Laboratory Corporation of America, Quest Diagnostics Incorporated (DGX), and BostonGene. This extensive list could grow as awareness of the importance of genomic information grows and the market opportunity expands.

Limited Transparency from Emerging Growth Company Status

Caris Life is what is known as an “emerging growth company”, which means that the Securities and Exchange Commission (SEC) does not require it to meet certain disclosure requirements required of other SEC-registered firms, requirements that may be beneficial to shareholders. In its S-1/A filing, management notes that,

Under these exemptions, we are not required to comply with the auditor attestation requirements of SOX Section 404 or the auditor requirements to communicate critical audit matters in the auditor’s report on the financial statements, have reduced disclosure obligations regarding executive compensation, and have exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. As a result, the information we provide shareholders will be different than the information that is available with respect to other public companies. We have taken advantage of reduced reporting burdens in this prospectus. In particular, in this prospectus, we have provided only two years of audited financial statements and we have not included all of the executive compensation related information that would be required if we were not an emerging growth company.

This is especially pertinent given that the firm has already identified material weaknesses in its internal control over financial reporting. For the uninitiated, the company explained that,

A material weakness, as defined by Rule 12b-2 under the Exchange Act, is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

These material weaknesses, relate to a

…lack of sufficient qualified accounting resources, including those with technical expertise necessary to account for and disclose accounting transactions which require complex calculations or thorough evaluation of the accounting literature.

These material weaknesses are still being remediated, as management notes in its Q2 2025 report, with management reviewing, documenting and testing its internal controls. The lower bar for transparency puts some doubt onto the financial reporting.

Exceptional Growth Without Economic Value

Since 2020, Caris Life’s revenue has compounded by 26.64% a year, a 5-year sales CAGR greater than the global mean and median of 9.2% and 7.3% respectively, for firms with sales of between $325 million and $700 million. Whereas firms tend to grow slower as they get larger, Caris’ growth has accelerated with size, with the firm enjoying a 3-year sales CAGR of 27.35%. 

It cannot be said of Caris Life that exceptional profitability has followed exceptional growth. While the firm’s net operating profit after tax (NOPAT) has substantially improved from -$308.64 million in 2023 to -$171.48 million in the last twelve months (LTM), it has yet to turn a profit. Driving this substantial improvement has been a rise in NOPAT margin from -100.82% to -32.12%. In turn, the firm’s invested capital turns, a reflection of balance sheet efficiency, have improved from 1.36 to 2.8. The net result of burgeoning NOPAT margins and invested capital turns is a return on invested capital (ROIC) that has also improved markedly, from -137.12% to -90.01%. 

Since 2023, the firm has burnt through -$659.33 million in cash. Improvements, however, can be seen, with free cash flow (FCF) rising from -$274.11 million to -$124.89 million, with a current yield of -1.18%. 

As Warren Buffett noted in his 1992 letter to the shareholders of Berkshire Hathaway (BRK.A), that,

Growth benefits investors only when the business in point can invest at incremental returns that are enticing – in other words, only when each dollar used to finance the growth creates over a dollar of long-term market value.  In the case of a low-return business requiring incremental funds, growth hurts the investor.

Investors should remember this rule. Value is created when returns are in excess of what can be got in the market, and destroyed when returns are below what can be got in the market. With such profoundly negative ROIC, it is probable that the firm has never created value. In the LTM, the firm earned an economic profit of -$190.73 million, or -$0.68 per share, compared to -$18.57 in GAAP diluted earnings per share.

Priced for Gargantuan Scale

The price of a thing carries with it expectations about the performance of that thing. That is true of share prices. Using my reverse discounted cash flow (DCF) model, I was able to determine the expectations implied by the current price, and use a variety of scenarios to show the potential downsides to investing in the stock. The reader may view the accompanying spreadsheet to see the logic of the following argument. 

In the base scenario, where I determined the hurdles Caris Life is expected to exceed in order to justify the current price,

• Revenue grows by 0% in 2025, 43.52% in 2026, 23.24% in 2027, 17.19% in 2028, 13.00% in 2029, and 17.02% in 2030, in line with Seeking Alpha’s revenue consensus estimates, before growing at 27.35% a year thereafter, and,
• NOPAT margin immediately improves to 2%. 

I found that in this base scenario, Caris Life has a market-implied competitive advantage period (MICAP) of 33 years, at which point it records $984.09 billion in revenue and earns $19.68 billion in NOPAT in 2058. By way of comparison, the world’s largest company by revenue is Walmart (WMT), who earned $693.15 billion in revenue in the LTM. 

Given where the firm’s NOPAT margins are, and the competitiveness of the market, it is prudent to wonder what downsides exist if the firm does not so markedly and immediately improve NOPAT margin. If we suppose that,

• Revenue grows by 27.35% a year, and,
• NOPAT margin improves immediately to 1%,

Caris Life is worth $27.79 a share, a downside of 18.14% from the current price, with the company posting $1.53 trillion in revenue and earning $15.32 billion in NOPAT. 

Finally, if we suppose profitability initiatives are less successful, and,

• Revenue grows by 27.35% a year, and,
• NOPAT margin improves immediately to 0%,

Caris Life is worth $2.78 a share, a downside of 91.81% from the current price, with the company posting $1.53 trillion in revenue and earning nothing in NOPAT.

Conclusion

Caris Life Sciences has delivered strong top-line growth but has failed to convert that momentum into durable profitability or economic value. Competition is intensifying, rivals are better resourced, and management continues to remediate material weaknesses in financial reporting. Yet the stock price reflects assumptions of flawless execution and revenue on a scale rivaling the world’s largest companies,  expectations that are implausible given the firm’s track record. Investors are being asked to pay upfront for profits that may never arrive. For these reasons, I assign an “Unattractive” rating to the stock.

Closed position on 27 October, 2025, with a 14.4% return, and then re-opened the position on 17 December, 2025.

Gold mining has historically been a poor way to capture gold’s value, with overinvestment, low-quality assets, and poor capital discipline destroying returns. Today, elevated gold prices are supported by disciplined capex, strong free cash flow, and conservative balance sheets, transforming miners into cash-generative, shareholder-friendly businesses. Apex Mining Co., Inc. (PSE:APX:₱8.22) exemplifies this shift. Once forced to close its Maco Mines, the company now delivers strong margins, rising returns on invested capital, and robust free cash flow, supporting dividends and demonstrating disciplined capital allocation. Market expectations are modest: even conservative assumptions imply upside, while realistic growth scenarios suggest meaningful gains. With a price-to-economic book value near 1.03, disciplined management, and structural tailwinds from the current gold regime, Apex Mining is very attractive for investors seeking both value and growth in the gold mining sector.

Elevated Prices Are Supportable

Historically, gold mines have been terrible investments. My first job out of university, in 2007, was running a small-scale family-owned gold mine in Zimbabwe, Scallywag Mine, and it was with some horror that I heard an old joke in the mining community in Gwanda: “It takes a large fortune to make a small one in gold mining”. In fact, for many of the older gold miners, it was a misnomer to call them “gold miners” because gold mining had been so unprofitable for so long that many instead treated tailings, or what was colloquially referred to as “dumps”, a highly profitable endeavour. I remember seeing old shafts, last worked by Germans before the start of the First World War, symbols of the unattractiveness of the business. In fact, Apex Mining, the subject of this thesis, closed the Maco Mines in Maco, Davao de Oro, Philippines, in 1991, as a result of depressed gold prices. Such has been the historical capital destruction in the industry that Reuters observed, 

Anyone acquainted with the industry might find that hard to believe. Historically, gold miners have offered remarkably poor protection against rising prices. Over the past three decades the index of U.S. consumer prices more than doubled and the price of gold rose sixfold. Over the same period, the Philadelphia Gold and Silver Index of listed miners climbed by about 40%. The mining benchmark remains well below its peak in 2011. Since that date U.S. prices and bullion have risen by 33% and 55%, respectively.  

Few industries have a more dismal record of allocating capital. After the gold price took off in the early 2000s, miners pursued growth at any cost. They borrowed freely, splurged on new developments, and pushed up costs by extracting gold from low quality mines – what’s known in the business as low-grading. Debt levels at the four senior miners – Newmont (NEM.N), Barrick Gold (ABX.TO), Agnico Eagle Mines (AEM.TO),  and Kinross Gold (K.TO)  – rose to an average 50% of net assets. After the gold price dropped in 2011, the miners were left stranded. Barrick, the world’s largest miner at the time, announced some $23 billion of asset writedowns between 2012 and 2015.

The year I entered mining turned out to be near the start of a great bull run, a run that has largely continued to the present day. 

Source: World Gold Council

As I said in an earlier and more general thesis on the iShares MSCI Global Gold Miners ETF (RING), and the iShares MSCI World ETF (URTH),

That era is, for now, a thing of the past. Today, gold prices are so high that gold miners can comfortably pay their all-in sustaining costs and all-in costs. Although the gold price has shot up to dizzying heights, part of a run that began around 2002, thereabouts, capex has actually fallen from its peak in 2012. In fact, capex for the top miners globally, across all commodities, has not recovered from the 2012-2013 heights, despite the temptations posed by the commodities boom. The economic result is clear: since 2010, supply has risen from 4,316.9 tonnes in 2010 to 4,974 tonnes in 2024, compounding at just 1% a year. Although demand is currently below supply, on balance, demand is more likely to rise quickly than supply is, pushing prices up. I try to avoid demand forecasts. What is essential is the realisation that the excesses of previous cycles have been avoided, supporting high gold prices.   

A recent discussion in the Financial Times shows the extent to which capital allocation has improved in the industry. Not only have miners shunned capex expansion, but M&A deals are far more conservative. As prices have risen, gold miners have become free cash flow (FCF) spigots. The FT cites a report by TD Securities which shows that, at current prices, Barrick Gold Corporation (GOLD) will earn an FCF yield of 9.5% and the Newmont Corporation (NEM) will enjoy an FCF yield of 7.5%. Kinross has doubled its FCF to $1.3 billion year-over-year. Gold miners have also become better about returning capital to shareholders. Barrick Gold, on the back of doubling its FCF in Q4 2024, announced a $1 billion share buyback. AngloGold Ashanti plc (JSE:ANG) declared a final dividend of $0.91 per share, five times the previous year’s dividend, having said that its balance sheet is at its strongest in a decade. Gold Fields Limited (JSE:GFI) has also said it will initiate a share buyback this year, while Harmony Gold Mining Company Limited (JSE:HAR) has said it will be able to self-fund the construction of a new copper mine in Australia.   

My own research suggests that a high-cost gold miner can make $1,000/oz more than it costs to produce, while low-cost producers can earn half of the gold price in profits. Usually, gold miners do not do as well as gold in terms of returns, but as profitability has risen, the market has started to wake up to the attractive economics of gold mining. In March, gold mining ETFs experienced their first net monthly inflows in six months. We are at a moment now where, if gold continues to do well, gold miners will benefit on the market. The capital discipline within the industry is even more remarkable when one considers that gold miners did not budget for prices in excess of $3,000. They have been built for lower prices, so that they are now earning excess FCF which, based on recent history, will be allocated in a disciplined fashion.  

Gold as a Stable Currency

In the paper, “Mining Gold for Regimes”, Colin Suvak et al, of LongTail Alpha, use a novel methodology to identify financial market regimes and they apply it to an analysis of gold’s performance across different macroeconomic environments. They use a relevance-based approach that identifies periods similar to the current one but distinct from historical averages. This creates a transparent, flexible, and non-arbitrary framework positioned between simple and complex methods. They employ k-means clustering on a relevance-based encoding matrix (RBEM) to automatically identify regimes. In doing do, they identify three “Faces” of Gold: a “Real Asset Regime”, in which gold acts as an inflation hedge, with average returns of 14.5% per year, a “Commodity Regime”, in which gold behaves like other commodities, with modest returns of 3.4% per year, and a “Stable Currency Regime”, in which gold serves as a flight-to-safety asset -especially during periods of loose monetary/fiscal policy-, delivering returns of 6.9% per year. When gold serves as a real asset, it has a high sensitivity to inflation, and a negative beta to real rates; when it serves as a commodity, it has a positive beta to equities and real rates, and a high correlation with other commodities, and when it serves as a stable currency, it has the lowest volatility, richest valuation, and most negative beta to real rates. We are presently in an epoch of gold as a stable currency, an epoch that began in the Global Financial Crisis. Spot prices in the post-2008 regime are at their highest level in half a century, all falling in the 99.8th percentile of gold prices. This has implications for portfolio allocation: under a Real Asset Regime, the optimal portfolio allocation is 30.9% equities, 54.5% bonds, and 14.6% gold, whereas under a Commodity regime, the traditional 60-40 portfolio is near-optimal, and under a gold regime, a 59.5% equities, 33.8% bonds, 6.7% gold allocation is optimal, although I take this as a long-run allocation and not what investors should have at present. 

Gold regimes are persistent, and there is no evidence as yet that gold’s regime is changing. Although the current trade war could change what regime gold is in, it could deepen the entrenchment of this regime. For now, investors should expect that gold’s spot price will continue to rise. Indeed, it is hard to think of a better investment. As Vineer Bhansali, one of the authors of the paper, and the founder and chief investment officer (CIO) of LongTail Alpha noted, among the many reasons why “gold is the only alternative”, is that gold is a superior safe haven to the Swiss franc and Japanese yen; its liquidity is similar to that of Treasury bonds and is likely rising, in my opinion, as the U.S.’s market dynamics take on the characteristics of an emerging market; it thrives under inflation; deterioration in financial assets is a plus for gold; increased sovereign credit risk for the U.S. benefits it; geopolitical crisis makes it attractive; and, deficits and taxes –such as tariffs– are good for gold prices. 

A Child of the Bull Run

Present-day Apex Mining was given new life by this bull run. In its Q1 2025 filing, the company reported an ore grade for the Maco Mines of 3.16 grams of gold per tonne of ore (g/t Au), a grade that is not what one would deem high-grade. When I started, 6g/t was generally considered workable, and the mine often reached 12g/t, and never lower than 7g/t. If the current grade reflects realities in 1991, it is likely the reason why the mines had to be mothballed. 

In its 2024 annual report, management explains than in 2005, Canadian miner, Crew Gold Corporation, and its Philippine subsidiary, Mapula Creek Gold Corporation, acquired 28% and 45% respectively, of Apex Mining’s shares, as part of an effort to rehabilitate and refurbish the Maco Mines’ processing plant. Crew Gold and Mapula would later sell their stakes in the company, and, today, the largest shareholder is Prime Strategic Holdings, Inc., which controls 64.63% of Apex Mining’s outstanding shares through its direct and indirect holdings. Alongside the Maco Mines, the company has, since 2015, owned Itogon-Suyoc Resources, Inc. (ISRI), which holds the Sangilo and Suyoc mines in Benguet province. Apex also owns Monte Oro Resources & Energy, Inc. (MORE), which in turn controls Paracale Gold Ltd. and Coral Resources Philippines, operator of a mineral processing plant in José Panganiban, Camarines Norte. The Maco Mines and ISRI’s Sangilo operation produce gold and silver bullions and buttons, with output refined by Heraeus Ltd. in Hong Kong, while its copper ambitions were strengthened in February 2023 with the acquisition of Asia Alliance Mining Resources Corporation, giving it 19,135.12 hectares of copper claims in Davao de Oro.

A Fast Growing, Highly Profitable Miner

Since 2020, the company’s operating revenue has compounded by 20.81% a year, from ₱6.32 billion in 2020 to ₱16.26 billion in the last twelve months (LTM). By way of references, according to Credit Suisse’s “The Base Rate Book”, between 1950 and 2015, the mean and median 5-year sales CAGR were 6.9% and 5.2% respectively. In that time, Apex Mining’s net operating profit after tax (NOPAT) compounded by 28.11% a year, from ₱1.63 billion to ₱5.6 billion. NOPAT margins in that period averaged 30.47%, rising from 25.85% to 34.66%. The firm’s rising NOPAT margins have occurred in tandem with an improvement in its balance sheet efficiency, with invested capital turns ticking up from 0.52 to 0.66 in that time. The result of rising NOPAT margins and invested capital turns has been a marked upscaling in Apex Mining’s return on invested capital (ROIC) from 14.25% to 21.6%. In that period, Apex Mining’s incremental ROIC has averaged 141.16% and has always been positive, last dipping below 5% in 2021, and currently standing at 11.68%. 

Dividends Supported By FCF Generation

Surging profitability has brought with it a gush of free cash flow (FCF), with the firm growing FCF from ₱568.17 million in 2020 to ₱8.84 billion in the LTM. In the last five years, Apex Mines has generated ₱7.29 billion in FCF, some 16.98% of its present market capitalisation. LTM FCF has an extraordinary yield of 19.68%. With dividend payments beginning in 2022, totalling ₱925.6 million since then, the company has ample room to support and expand its highly conservative dividend payments. 

Management Creating Value

Since Alfred Marshall first published his Principles of Economics, economists have known that a firm creates value when it earns a return greater than the cost of capital. Indeed, this is the most important of management’s tasks. In that, management, led by Luis R. Sarmiento, the president and CEO, has succeeded, with the firm earning an economic profit throughout the 2020-LTM period. Economic profits have compounded by 30.23% in that time, from ₱702.13 million to ₱2.63 billion. In the LTM, that amounts to ₱0.42 per share, compared to ₱0.35 per share in 2024. 

Further Upside in Apex’ Valuation

At the current share price, ₱8.22 at time of writing, Apex Mining has a price-to-economic book value (PEBV) of 1.03, implying that the market expects just an at-most 3% increase in its NOPAT from current levels. Using my reverse discounted cash flow model (DCF), I teased out the expectations implied by the current share price. This should be read with the accompanying spreadsheet. 

In the first scenario, I determined the hurdles revenue and NOPAT growth must meet to justify the current price. There,

• revenue compounds by a modest 5% a year, and 
• NOPAT margin remains at 34.66%.

In that scenario, the company’s market-implied competitive advantage period (MICAP) is less than a year, wherein its shareholder value per share equals the current share price. In this scenario, the company earns ₱15.89 billion in revenue and ₱5.51 billion in NOPAT, by the end of 2025. 

If, however, those price-implied expectations are exceeded, and,

• revenue compounds by 10%, and
• NOPAT margin remains at 34.66%, then,

Apex Mining’s stock is worth ₱9.18 today, an upside of 11.68% from the present price. 

Finally, if,

• revenue compounds by 15%, and,
• NOPAT margin remains at 34.66%, then,

Apex Mining is worth ₱9.54 today, an upside of 16.06% from the present price. 

In these scenarios, I have purposefully frozen the impact of a change in NOPAT margin to current levels. Yet, there is evidence from VanEck that suggests that as gold prices climb, gold miners margins will climb as well; and evidence from Farmonaut that investments by 60% of gold miners into new tech will likely lead to greater operational efficiency. PwC, on the other hand, have pointed to cost pressures pushing margins down in mid-2025. Apex Mining’s investments into operational improvements, such as equipment upgrades, drain tunnel developments, and use of training simulators, should boost efficiency, support ongoing production targets, and, at a minimum, weigh against the cost-pressures discussed by PwC. 

Impact of Accounting Adjustments  

I made numerous accounting adjustments to Apex Mining’s LTM financial statements, with the following impact:  

Income Statement: I made ₱1.52 billion in adjustments to calculate NOPAT, with the net effect of adding ₱710.65 million in non-operating expenses. The adjustments are equal to 30.77% of Apex Mining’s IFRS net income.    

Balance Sheet: I made ₱8.2 billion in adjustments to calculate invested capital with a net increase of ₱7.39 billion. One of the largest of these adjustments was ₱1.85 billion in excess cash, an adjustment which, on its own, is worth 5.81% of reported assets.    
Valuation: I made ₱7.21 billion in adjustments with the net effect of reducing shareholder value by ₱3.49 billion. The largest of these adjustments was ₱5.35 billion in adjusted total debt, representing 11.47% of Apex Mining’s market cap. 

This position was closed on August, 18, with a return of 21.47%.

Thirteen years after Apollo Global Management, Inc. (APO) took McGraw Hill, Inc. (MH: $17/share) private, the global education solutions provider, raised $415 million in its initial public offering (IPO) at a valuation of $3.25 billion. Sold in 2021 by Apollo to Platinum Equity, LLC for $4.5 billion, the company sought a $4.2 billion valuation, and to raise $537 million. These details alone are enough to rouse the suspicion that this is a business in decline, at a time when private equity-backed IPOs are on the rise, even at the price of markdowns, in order to improve their liquidity in a climate of inflationary pressures, somewhat elevated interest rates, and geopolitical uncertainty. As this thesis will show, McGraw Hill is a business whose products are facing commodisation, which has experienced value-less growth, and faces pressure from niche players, and is priced for a surge in profitability. These factors lead me to assign a “Very Unattractive” rating to the forthcoming stock.

The Commoditization of Education Resources

With competitors such as AMBOSS, Amplify, Cengage, Curriculum Associates, Elsevier, Houghton Mifflin Harcourt, Macmillan Learning, Pearson plc (PSORF), RELX PLC (RELX), Savvas, and Wolters Kluwer N.V. (WOLTF), the industry structure is oligopolistic, with McGraw Hill touting in its S-1 filing, an industry defined by a “relatively small number of large competitors”, in which none of its peers competes with it “across the full learning lifecycle”, “from K-12 to higher education and through professional learning”. However, this is an industry under siege in the wake of the Internet Revolution. As McGraw Hill itself observes, it also faces competition from “open educational resources, which may offer similar digital products at lower costs”. 

McGraw Hill’s core value proposition is being eroded by a fundamental shift in the education value chain. In decades past, the legacy providers benefitted from high transaction costs related to physical production, relationships with institutions, distribution networks, and bundled content, which made centralised publishers indispensable. These publishers could control distribution, and integrate that backwards with control of authors, in order to earn and conserve attractive profits. Indeed, the company says of itself that,

The quality of our content and the effectiveness of our digital solutions are fundamental aspects of our business, and third parties such as authors, subject matter experts and software engineers help to enable us to maintain and to continuously improve in these areas.

In a world of high transaction costs, control of supply relationships was enough to conserve attractive profits. The Internet Revolution reduced the cost of distribution to zero for those publishers with digital goods, reducing to little the importance of supply integration. Moreover, with the cost of transactions reduced to zero, distributors could integrate forward with their users at scale. With educators and learners integrated, direct access to modular, digital content, and platforms was enabled. With control shifting downstream toward users, supply has become commoditized, with user experience rather than control of supplier relationships the key differentiator. Consequently, as Mcgraw Hill acknowledges, it faces competition from digital products that can be delivered at no cost, and offered free of charge. Open education resources such as MIT OpenCourseWare, and Khan Academy, show that education resources have been commoditized. The company acknowledges this commoditization, saying,

Free or relatively inexpensive educational products are becoming increasingly available, particularly in digital formats and through the internet. For example, some governmental and regulatory agencies have recently increased the amount of information they make publicly available at nominal cost or for free. In recent years, there have also been initiatives by not-for-profit organizations to develop educational content that can be “open sourced” and made available to educational institutions for free or nominal cost. In addition, there have been initiatives by the U.S. federal government and certain state governments to enact legislation or regulations that mandate or favor the use by educational institutions of open sourced content and provide funding for the same. The increased availability of free or relatively inexpensive educational products may reduce demand for our products or require us to reduce pricing, thereby impacting our sales revenue.

Large language models ((LLMs)) pose another threat, delivering commoditized education resources in highly personalized ways, even as the company warns that it can deliver inaccurate information. Again, McGraw Hill acknowledges this. Much as Mark Zuckerberg aims at the commoditization of advertising and a world in which Meta Platforms (META) can create ads with AI, generative AI could lead to a world in which educational resources are created by cannibalizing existing content created by McGraw Hill and its peers. 

Finally, with platforms such as Patreon and Substack making it possible for authors and subject matter experts to directly engage with educators, and students, the scale of competition is actually rather great. In its Risk Factors section, McGraw Hill acknowledge that,

The market shift toward digital education solutions has induced both established technology companies and new start-up companies to enter certain segments of our market. The risks of competition are intensified due to the rapid changes in the products our competitors are offering, the products our customers are seeking and our sales and distribution channels, which create increased opportunities for significant shifts in market share. Competition may require us to reduce the price of some of our products or make additional capital investments and may result in reductions in our market share and sales.

In attracting these authors and subject matter experts, McGraw Hill not only has to consider what competitors could offer them, but what they can earn if they embrace the disintermediation offered by the internet. 

Where McGraw Hill paints a portrait of an attractive industry structure, the realities of the Internet Revolution are that McGraw Hill is structurally disadvantaged and prevents it from exercising the kind of pricing power needed to create value, or to protect the bottom line in challenging times. The import of this is that, while McGraw Hill can boast that “ in the United States, on average, 89% of K-12, higher education and medical school students, faculty and administrators would consider McGraw Hill for their classes”, there is downward pressure on the prices it can charge, because there are free alternatives.

Full Learning Lifecycle Integration is Not a Strength

McGraw Hill, as aforementioned, provides educational resources throughout the learning cycle, from K-12 to professional, competing in the United States and abroad. This is not the advantage that it appears to be. If transaction costs have hurtled toward zero as a result of the Internet Revolution, swelling the number of competitors, then, not only is it easier for niche producers to emerge such as AMBOSS, who educational resources for medical doctors and students, it is also easier for schools and students to access their content, and, I think, more sensible. The specialised knowledge that AMBOSS possesses is likely to be greater than that available to McGraw Hill, and, with focus comes an ability to better reflect the needs of niche markets.

Growth Without Value

Since fiscal 2023, McGraw Hill has grown revenue by 3.85% a year. This is a rather low level of growth and reflects the maturity of the business. Growth has come with rising profitability, with the firm’s net operating profit after tax (NOPAT) going from -$6.44 million to $159.04 million. Driving the rise in profitability has been an improvement in the firm’s NOPAT margin from -0.33% to 7.57%. McGraw Hill’s invested capital turns have declined, however, from 0.85 in fiscal 2024 to 0.48 in fiscal 2025, leading to a fall in return on invested capital (ROIC) from 3.78% in fiscal 2024 to 3.61% in fiscal 2025. McGraw Hill’s anemic profitability has profound consequences on its ability to create and grow value, that is, to earn ROIC in excess of the cost of capital, with the firm generating economic losses in both fiscal 2024 and 2025.

Debt Weighs Heavily on the Company

Absent the impact of the firm’s adjusted total debt, McGraw Hill has an economic book value (EBV) of $1.9 billion based on the IPO price, and a price-EBV ratio of 1.71, implying a 71% growth in NOPAT from current levels. However, with debt, some $3.27 billion, the EBV of the company sinks to -$877.56 million, with a PEBV of -3.7. Loaded with debt that its economics cannot support, McGraw Hill’s value has been obliterated.

Priced for a Surge in Profitability

Using my reverse discounted cash flow (DCF) model, I analysed the price-implied expectations for future cash flow, and found clear evidence that the company is a very unattractive investment proposition. 

In order to justify its IPO price my model shows that McGraw Hill will have to:

• immediately improve its NOPAT margin to 9.9% in fiscal 2026, 12.37% in fiscal 2027, 17.32% in fiscal 2028, 19.8% in fiscal 2029, and 22.27% in fiscal 2030
• revenue grows by 3.85%, its 2-year CAGR. 

In this scenario, McGraw Hill generates $2.5 billion in revenue, and $565.39  million in NOPAT in fiscal 2032, with NOPAT compounding by an average of 13.62% a year within its market-implied competitive advantage period (MICAP) of four years. 

In my second DCF scenario, I unlocked the downsides of this valuation if this surge in profitability does not materialise. 

If one assumes that McGraw Hill’s

• NOPAT margin rises to 9.9%, and,
• revenue grows by 7.18% a year, its 1-year CAGR, then,

McGraw Hill is worth $1.37 per share, a 91.94% downside to the target valuation. In this scenario, McGraw Hill generates $2.97 billion in revenue and $294.24 million in NOPAT in fiscal 2030. 

Finally, if,

• NOPAT margin jumps to 14.85%, and, 
• revenue grows by 7.18% a year, then,

McGraw Hill is worth $10.07 per share, a downside of 40.76% from the target valuation. In this scenario, the firm earns $441.36 million in NOPAT. 

In each of these scenarios, I assumed that Mcgraw Hill will not have to grow its net working capital or adjusted fixed assets. Should McGraw Hill need to grow its invested capital, the stock’s riskiness is even greater. The lesson is simple: given how deep a hole the firm’s debt has left, even incredible performance will not be enough to make the present valuation palatable.

Recently, I have found value in banks, specifically, JPMorgan Chase & Co. (JPM), and Lion Finance Group PLC (LON:BGEO), and now, with Danish regional bank, Ringkjøbing Landbobank A/S (CPH:RILBA, 1400 kr.), the subject of this thesis. With a favourable capital cycle, a robust and resilient business model, and a history of profitability, the firm’s valuation creates a very attractive entry point for investors. This stock forms part of my model portfolio with a very attractive rating.

Scope for Healthy Credit Expansion

Global interest rates have been in suprasecular decline for the last eight centuries, and Europe and Japan’s flirtation with negative interest rates may, in time, be seen as a return to a historical trend, rather than the aberration it is currently viewed as. Having reached near-zero interest rates in early 2019, Denmark emerged from a brief period of negative interest rates in early 2022, lifting net interest margins (NIM), which peaked in October 2023. Since that peak, the NIM has been under pressure, with Ringkjøbing Landbobank noting that in addition to this, “continuing keen competition for loans resulted in pressure on the lending margin”. 

Regulators report that banks’ deposit margins are at historically high levels, driven by abundant deposits and positive policy rates, while lending margins have fallen to record lows. In other words, banks pay more on deposits but have not raised loan rates commensurately. The Danish Financial Supervisory Authority (FSA) cautions that record‐low lending margins for households may underprice underlying risk. Nonetheless, banks’ profits have surged, with credit institutions earning a record 71.4 billion Danish kroner (kr.) pre‐tax in 2023, about 30 billion kr. above 2022, driven chiefly by higher net interest income thanks to the wide deposit‐loan spread. The Systemic Risk Council likewise notes “high earnings and moderate lending growth” are allowing banks to build capital, even as lending margins on new household loans continue to decline.

Credit is supplied endogenously by banks to meet profitable loan demand, creating deposits and driving aggregate demand. Historically, this credit‐driven process can amplify business cycles, as rising loans fuel an asset boom and bust cycle. In Denmark, medium‐term swings in house prices and credit are tightly linked to GDP, with Nationalbanken noting that peaks in financial cycles often precede crises. 

Recent Danish data show moderate credit expansion. Private housing debt grew only 0.6% in 2024, up 12.2 billion kr. to 1.94 trillion, finally surpassing its mid‐2022 peak. Nationalbanken attributes this to higher real incomes and falling long rates, which have kept house‐price inflation subdued. Mortgage institutions’ outstanding lending is climbing again, after 2022’s plunge, as rates stabilised in 2023, but overall loan growth remains modest in historical terms. Commercial bank lending to businesses has been mostly flat, while mortgage credit to firms is rising.

With dividend restrictions imposed by regulators in the wake of the Covid-19 pandemic, banks were left with excess capital to deploy. That, alongside strong balance sheets, with a current non-performing loans (NPL) ratio of 1.9%, led to a wave of consolidation, which in turn boosted shareholder value. Rising interest rates and deepening consolidation have continued, leading to strong results in the industry, with profitability doubling in the last two years. However, consolidation in Demand, and indeed across Europe, is at such high levels now that it is bound to slow down. 

Banks now face the prospect of higher expenses, and squeezed net interest margins and growing loan losses as a consequence of this epoch of uncertainty, although only the first has materialized. 

Denmark’s robust employment and real incomes support sustainable household borrowing, and banks’ high profits and capital buffers mean there is ample capacity to lend. Indeed, the systemic council maintains a 2.5% counter-cyclical capital buffer to allow creditworthy lending to continue. Current conditions, defined by subdued growth in credit volumes, stable banks’ liquidity, and plentiful capital, permit moderate loan growth.

A Low Cost Regional Giant

Ringkjøbing Landbobank is a regionally focused retail and small-to-medium enterprises (SME) bank in Denmark that describes itself as a “customer-focused relationship bank” in Jutland, with branches in Copenhagen and Aarhus for niche clients. The bank serves household and business clients with a full suite of products, but concentrates on markets in West, Central and North Jutland. It also pursues niche segments: private banking for affluent individuals and medical professionals, financing of renewable energy projects (wind, biogas, solar), and select commercial real estate financing. In all its lending, the bank’s philosophy is conservative: it typically requires first‐lien security and closely monitors credit quality through its robust evaluation models. The bank’s low and secularly declining cost/income ratio and its good credit quality are what makes it so unique and able to generate a high free cash flow (FCF) and a strong revenue shield.

Strategically, management emphasizes organic growth through cross‐selling and deepening relationships, backed by strong personal advisory service and enhanced digital capabilities. The CEO, Mr. John Bull Fisker, highlights the mantra “the customer is king”, aiming to offer all functions that matter and partnering where others excel. Notably, Landbobank has invested heavily in digitalisation and staff training to combine the benefits of personal advice with efficient execution. This dual focus on personal service and technology is a core element of its business model, and management cites its low cost structure as evidence of efficiency, with the cost/income ratio remaining below 26% in Q1 2025.

A Customer-Centric Brand

Independent surveys consistently rank it very highly for customer satisfaction and brand image. The bank itself notes that its “strong image and high level of customer satisfaction” drove a large increase in new customer relationships. This virtuous cycle helped grow loans, up and deposits, up 10% and 8% respectively in 2024. Such loyal retail and SME customers allow the bank to maintain high margins on new business despite overall margin pressure and keep impairment rates negligible.

Extreme Efficiency

The bank’s cost/income ratio is among the lowest in Danish banking. With a less-than 26% cost/income ratio, the bank boasts superior efficiency to the wider Danish banking sector, and the wider European banking sector, which boasts a cost/income ratio of 53.89%. This, as aforementioned, supports high profitability. The bank’s 22% return on equity (ROE), at 22% in Q1 2025, is nearly double the 12% Danish banking sector average. The firm’s return on invested capital (ROIC) has improved from 14.26% in 2020 to 20.7% in the LTM.

Exceptional Financial Strength

Ringkjøbing Landbobank’s very strong capitalization and conservative funding mark it out. At the end of Q1 2025, the bank reported a common equity tier 1 (CET1) ratio of 15%, and a total capital ratio of 15%, compared to a 28.2% Minimum Requirement for own funds and Eligible Liabilities (MREL) capital ratio. With a loan‐to‐deposit ratio of 99.15%, nearly all lending is funded by stable retail deposits, giving a very strong liquidity profile. Regulations demand that the bank maintains a statutory requirement of at least 100% for both the liquidity ratios Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), and it has done so, with an LCR of 184.1% and an NSFR of 118.8%. With one of the highest capital and liquidity cushions of any Danish bank, it is extremely resilient.

Earning Attractive Profits

Since 2020, Ringkjøbing Landbobank’s operating revenue has compounded by 17.14% a year, from 2.39 billion kr. to 5.27 billion kr. in the last twelve months (LTM), compared to a 6.9% and 5.2% global mean and median 5-year sales CAGR respectively. In that time, the bank’s net operating profit after tax (NOPAT) compounded by 15.22% annually. NOPAT margin, however, declined in that period, from 47% to 43.25%.

FCF Generation Supports Dividend Payments

Ringkjøbing Landbobank’s rising profitability has given it the platform to generate meaningful free cash flow (FCF), with the bank generating positive FCF throughout the analysis period, and a cumulative 6.69 billion kr. over the last five years, equal to 19.17% of its present market capitalisation. Ringkjøbing Landbobank’s 2.3 billion kr. in FCF over the LTM equates to an attractive 6.48% FCF yield. The firm’s FCF generation supports its dividend payments, with the firm paying out 1.19 billion kr. in dividends in the last five years, compared to 6.69 billion kr. in FCF generated. This demonstrates the prudence that guides the firm’s dividend payment policy. 

Priced for a Fall in Profitability

At the current price, Ringkjøbing Landbobank has a price-to-economic book value (PEBV) of 0.71, implying that the market expects its NOPAT to permanently fall by 29% from current levels, despite the firm’s history of earning attractive profits. 

Using my reverse discounted cash flow (DCF) model, I tested a variety of scenarios to unearth the cash flow expectations baked into Ringkjøbing Landbobanks current stock price. Afterwards, I analyzed the implied value of the stock based on different and conservative assumptions to predict the bank’s future growth in cash flows.  

In the first scenario, I modeled the catastrophist scenario implied by Ringkjøbing Landbobank’s current stock price. In this scenario, I assume:  

• Revenue declined by 5% a year, 
• NOPAT margin falls to 30.08%, its lowest level in my analysis period.  

In that scenario, the company’s market-implied competitive advantage period (MICAP) is less than a year, at which point its shareholder value per share equals the current price.   

In the second scenario,  

• Revenue grows by 11.33%, its 3-year CAGR, and, 
• the bank maintains its current NOPAT margin of 43.52%. 

In this scenario, the stock is worth 2,335 kr., an upside of 66.79% from the current price.   

In the final scenario,   

• Revenue grows by 10%, and, 
• NOPAT margin falls to 37.59%. 

In this scenario, the stock is worth 1993.43 kr., an upside of 42.36% from the current price. 

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on Aspen Insurance Holdings Limited (AHL). From the executive summary of the article is the following:

• Aspen has demonstrated strong underwriting profitability and value creation despite industry headwinds, supported by a hardening insurance market and disciplined capital allocation.
• The company’s integrated ‘One Aspen’ approach and ACM platform differentiate it, enabling bespoke risk solutions and stable, growing fee income from third-party capital.
• Aspen continues to generate economic profit with solid free cash flow and an attractive valuation, with the market pricing in conservative growth assumptions.
• Given the company’s resilient performance, unique value proposition, and undervaluation, I assign Aspen a Buy rating, despite ongoing industry risks.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on Flowco Holdings Inc. (FLOC). From the executive summary of the article is the following:

• Flowco appears cheap on P/E but is in a phase of the capital cycle defined by deteriorating ROIC, with no clear turnaround catalyst.
• Material weaknesses in internal controls and questionable executive compensation practices undermine trust in financial reporting and management alignment.
• The Up-C structure and noncontrolling interests siphon most economic benefits away from public shareholders, with dilution risks compounding the problem.
• Despite theoretical upside in optimistic scenarios, the risk of total capital loss makes Flowco a gamble, not an investment—Strong Sell rating assigned

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on OMS Energy Technologies Inc. (OMSE). From the executive summary of the article is the following:

• OMS Energy is undervalued post-IPO, with strong capital cycle dynamics and profitable growth supporting a ‘strong buy’ rating.
• The company benefits from industry consolidation, a capital-light business model, and alignment between management and shareholders.
• OMS Energy’s geographic strength and single-source supplier status enhance pricing power, but heavy reliance on Saudi Aramco is a key risk.
• Market pessimism and lack of analyst coverage have created a compelling entry point, with significant upside potential as fundamentals are recognized.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I cover recent and forthcoming initial public offerings (IPOs). The article is on Belgian manufacturer and supplier of heavy building materials, Titan America SA (TTAM). From the executive summary of the article is the following:

• Titan America operates in a growing industry, but rising supply and capex across the sector raise concerns about future returns and overinvestment.
• The company’s focus on supplementary cementitious materials and its regional presence provide growth opportunities and potential margin stability.
• Ownership by Titan Cement offers strategic alignment and long-term focus, but also limits minority shareholder influence and adds governance risk.
• Despite profitability and growth, scenario analysis suggests the current share price may be too high without further margin or revenue expansion—warranting a Hold rating.

The rest of the article is available here.

“Fish big enough to swallow a boat are not found in ditches.”

Yang Zhu

At a time of record-high U.S. equity preference, evidence of some diversification away from the U.S., and dollar weakness, Lion Finance Group PLC (LON:BGEO, ₤73.90/share) is a very attractive investment opportunity that joins my model portfolio.

Favourable Supply Dynamics

Lion Finance’s most important business segment is Georgian Financial Services (GFS), which represents 72% of the group’s total assets, while Armenian Financial Services (AFS) accounts for 25%, with the residual encompassing JSC Belarusky Narodny Bank (BNB), serving retail and small to medium-sized enterprises (SME) clients in Belarus, and JSC Digital Area, a digital ecosystem in Georgia including e-commerce marketplace, ticketing marketplace, and inventory management Software-as-a-Service (SaaS) solution for merchants.

Georgia’s gross fixed capital formation to GDP, at 24% in 2024, is down from the last decade’s 28% average; while Armenia’s gross fixed capital formation to GDP, at 22% in 2024, is slightly up from the last decade’s 21.2% average. Both numbers are in line with Eurozone and OECD averages. Data from the World Bank shows that Georgia’s domestic bank credit to the private sector as a share of gross domestic product (GDP) is 68.9%, while Armenia’s is 64.8%, compared to around 77.8% for the Eurozone and 149.4% for the OECD. Greece’s non-performing loans (NPL) ratio is 1.47%, while that of Armenia is 1.25%, with both countries experiencing a sharp decline in the NPL ratio in recent years, with Armenia and Georgia reaching a record low in 2024. Both countries have some of the lowest NPL ratios in the world. These factors suggest ample room for profitable credit expansion before oversupply of capital becomes a concern. This is especially attractive given that Georgia is the world’s sixth fastest growing economy in terms of real GDP growth, while Armenia is the world’s 42nd, with strong growth likely to continue in 2025 going forward.

Despite this, Akaki Liqokeli, the bank’s macro economist, indicated in the Q1 2025 earnings call that,

Downside risks remain elevated for the whole region. However, Georgia and Armenia maintain their leading positions according to the latest IMF forecast for the next five year growth, as you can see on the right hand side chart. So external sector inflows have been historically one of the main drivers of growth and currency values in Georgia and Armenia.

External sector inflows, traditionally a key driver of both growth and currency stability, have begun to normalise. In Georgia, inflows such as export proceeds, tourism revenues, and remittances remained resilient, showing a modest year-on-year increase in Q1 2025. In contrast, Armenia experienced a larger adjustment, mainly due to an unusually high base effect from the prior year. That said, both countries are now benefiting from the emergence of non-traditional, service-based inflows, particularly from IT and transportation services, which are proving more durable. These sectors have become significant contributors to hard currency earnings and productivity gains. Importantly, these inflows are helping to support the value of local currencies. The Georgian lari (GEL) and Armenian dram (AMD) both appreciated against the U.S. dollar in early 2025, aided by broader USD weakness. However, looking over a longer time horizon, this strength is also attributable to sound macroeconomic policies and sustained current account support. As a result, both currencies are expected to remain stable over the medium term. A macroeconomic environment of strong and diversifying inflows, sound policy frameworks, and low NPL ratios further supports Lion Finance’s opportunity to profitably expand credit in its core Georgian and Armenian markets.

A Banking Oligopoly

The Georgian and Armenian markets are highly concentrated. The Georgian market is dominated by a duopoly of TBC Bank (LON:TBCG), and JSC Bank of Georgia, a branch of GFS that enjoys 37.3% of the market by total loans; while the newly acquired Ameriabank CJSC, a branch of AFS that enjoys 20.3% of the Armenian market by total loans. A survey by IPM Georgia found that JSC Bank of Georgia is the most trusted universal bank in the country, while a survey by Invia found that Ameriabank is the leading and the top-of-mind universal bank in Armenia.

The World’s Best Digital Bank

In 2024, Global Finance named the JSC Bank of Georgia the world’s best digital bank, breaking Citigroup (C) multi-year stranglehold on that title. The bank was also named the Best Consumer Digital Bank. These awards recognise the bank’s customer-centric machine learning and AI-driven solutions, such as its retail financial super app and its business mobile apps. The bank’s mobile app is the dominant distribution channel, with 85% of loans and 74% of deposits now sold digitally. Its financial super app ecosystem includes daily banking, instant money transfers, card issuance, low-cost brokerage, bill payments, embedded insurance, loyalty programs, and even open banking integrations—all accessible from a single interface.

The platform’s growth is staggering: in Georgia alone, digital monthly active users (MAU) rose 17.1% year-over-year (YoY) to 1.65 million. User satisfaction remains industry-leading, with a Customer Satisfaction (CSAT) score of 91% and app ratings of 4.9/5 (iOS) and 5.0/5 (Android). Importantly, this growth is not confined to retail: digital adoption among SMEs is also rising, aided by end-to-end onboarding, digital underwriting, and merchant tools like POS analytics, inventory management, and business financing.

In Armenia, through Ameriabank, the group is replicating its digital success. Digital MAUs there jumped 53.1% YoY, reinforcing Lion Finance’s regional edge. Across both markets, the bank’s payments infrastructure is robust and fast-growing, with acquiring volumes rising 31.9% and monthly active card users approaching 1.5 million.

Lion Finance’s integrated, AI-enhanced, mobile-first model positions it as a technology company with a banking license, and arguably the most advanced digital banking platform in any frontier or emerging market globally.

Earning Attractive Profits

Lion Finance has a remarkable history of earning and growing attractive profits. Since 2020, the bank has compounded operating revenue by 25.63% a year, compared to a global mean and median 5-year revenue CAGR of 6.9% and 5.2% respectively. In each of the last five years, the bank has expanded its net operating profit after tax ((NOPAT)), with NOPAT compounding by 40.58% a year.

The rise in NOPAT was powered by an increase in NOPAT margin from 17.65% in 2020 to 30.98% in the last twelve months (LTM). In that time, the company’s invested capital turns, a measure of balance sheet efficiency, remained at 0.88. The combination of these two factors drove a rebounding of return on invested capital (ROIC) from a 2020 low of 15.48% to 27.16%. 

Lion Finance’s ability to earn attractive profits allows it to earn significant free cash flow (FCF), with the firm generating a cumulative GEL2.14 billion since 2020, equal to around 19% of its current market cap. The firm’s GEL1.5 billion in FCF over the LTM equates to a 12.71% FCF yield. As Liqokeli explained, the bank expects interest rates in Georgia and Armenia to remain level throughout the rest of 2025. With the era of low and falling interest rates at a pause –in the longue durée, interest rates are falling-, growth alone will not be enough to attract capital. Firms that generate meaningful FCF will be rewarded and Lion Finance’s FCF generating business is a source of stability and safety.

A Fortress Balance Sheet

Lion Finance maintains a fortress balance sheet, underpinned by strong capital ratios, prudent asset quality, and ample liquidity. As of Q1 2025, the group’s Common Equity Tier 1 (CET1) ratio stood at 16.4% in Georgia and 14.7% in Armenia, both well above regulatory minimums. The total capital adequacy ratio (CAR) was 21.2%, and the liquidity coverage ratio (LCR) exceeded 133% in Georgia and a remarkable 230% in Armenia, reflecting conservative liquidity management even amid macro and political uncertainty. Notably, client deposits fund 63% of total liabilities, giving the group a high-quality, sticky funding base.

Asset quality is equally strong. As aforementioned, the group NPL ratio is just 2.0%, with adjusted coverage at 117.1% and a cost of risk of only 0.2%, far below the group’s long-term guidance of around 1%. Credit growth has been rapid, with loan book up 23.6% YoY, with underwriting remaining disciplined, high collateralisation levels and digital scoring models reinforcing risk controls. Conservative management is further highlighted by a loan-to-deposit ratio of 96.89%.

Built-In Structural Resilience

The bank is structurally resilient to financial and macroeconomic shocks, with internal stress-testing frameworks that model severe currency devaluation and liquidity disruptions. According to its Q1 2025 disclosures, the bank maintains sufficient capital buffers to withstand a 10% depreciation of the Georgian lari and Armenian dram, while keeping CET1 ratios above regulatory minimums in both jurisdictions. Liquidity is proactively managed at the subsidiary level, preventing contagion between jurisdictions. Each entity, the JSC Bank of Georgia and Ameriabank, operates with independent regulatory oversight, ensuring local compliance with Basel III liquidity and solvency standards.

Although the bank is not subject to European Central Bank (ECB) or Federal Reserve-style stress tests, management conducts internal scenario analyses that align with international best practices, incorporating macroeconomic, geopolitical, and idiosyncratic risks. Importantly, the group is not reliant on contingent capital instruments or central bank facilities, and its conservative loan-to-deposit ratio around 96.89% limits refinancing risk. With an exceptionally low cost of risk in a high-growth environment, and provisioning coverage exceeding 100%, earnings resilience in a downturn is highly probable. With its strong capital, liquidity, and risk governance, Lion Finance ranks among the most robust banks in the emerging market banking universe.

Priced for a 62% Decline in NOPAT

At the current price, Lion Finance has a price-to-economic book value (PEBV) of 0.38, implying that the market expects its NOPAT to permanently fall by 62% from current levels. Given the bank’s history, this is clearly a catastrophic scenario and the geopolitical risks entailed in ownership are likely responsible. The market has priced in disaster. Remarkably, this is the highest PEBV the bank has had in my analysis period. The bank’s current EBV, or no-growth value, is GEL699.45, equivalent to £192.65, an upside of 161.75% from the current price.

Using my reverse discounted cash flow (DCF) model, I tested a variety of scenarios to unearth the cash flow expectations baked into Lion Finance’s current stock price. Afterwards, I analyzed the implied value of the stock based on different and conservative assumptions to predict the bank’s future growth in cash flows.

In the first scenario, I used recent projections for revenue declines, and historical margins, to model the catastrophist scenario implied by Lion Finance’s current stock price. In this scenario, I assume:

• Revenue grows by an average of 34.95% a year, in line with the Financial Times’ consensus estimates, and,
• NOPAT margin falls to 9.36%, its lowest level in my analysis period. 

In that scenario, the company’s market-implied competitive advantage period (MICAP) is less than a year, at which point its shareholder value per share equals the current price. 

In the second scenario,

• Revenue grows by 25.63%, its 5-year CAGR, and,
• NOPAT margin remains at its LTM level, 30.98%.

In this scenario, the stock is worth GEL840.35 or ₤231.70, an upside of 231.53% from the current price. 

In the final scenario, 

• Revenue grows by 13.67%, its 3-year CAGR, and,
• NOPAT margin falls to 32.74%, its 3-year average.

In this scenario, the stock is worth GEL806.22, or ₤222.24, an upside of 200.73% from the current price.

In a period of regime uncertainty, JPMorgan Chase & Co. (JPM: $288.19/share) is not only a paradigmatic bank, with a history of profitability stretching back decades,and a “fortress balance sheet”, it is also an attractive investment opportunity.

Banking in a Fuzzy Zone

Since the Great Recession, termed, “largely unprecedented and virtually inconceivable“  by JP Morgan Chase & Co Jamie Dimon, banking has undergone profound changes, with a wave of bankruptcies, government bailouts and nationalisations, and restructuring and industry consolidation in terms of branch deposits, and increasing competition in terms of lending. Regulators, in the United States, the Federal Reserve, along with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), have intensified bank regulations, with more stringent capital requirements, greatly curtailed trading operations, and, in Europe, caps on bonuses. The ongoing “Basel III Endgame” proposal, opposed by the American Bankers Association (ABA), seeks to further increase capital requirements, particularly for larger banks. Although the initial proposal for a 16-19% increase has been revised downwards to around 9% for the largest banks, this still represents a substantial increase in the “capital buffer.” 

Since 2018, U.S. banks have benefited from the country’s stellar economic growth, attendant burgeoning loan demand, and a decline in bad debts, that has allowed them to outstrip their pre-crisis profit levels, compared to a Europe that Dimon recently warned is “losing”. Events in 2024, an unfolding of regime uncertainty, has benefitted European bank valuations, even if European fundamentals have not meaningfully improved compared to the United States. Banking is in a fuzzy zone between boom and bust, in which regulatory constraints have served to discipline the market. Although the collapse of the Silicon Valley Bank, Signature Bank, and First Republic Bank and the emergence of banks-as-synthetic-hedge-funds, has exposed the profitability challenges of small and regional banks; although the non performing loans ratio has increased modestly; although the prospect of interest rate cuts threatens net interest margins (NIM), on the rise since Q1 2024, given the relationship between the two; although loan demand is weakening; the Federal Reserve has concluded that, “large banks are well positioned to weather a severe recession, while staying above minimum capital requirements and continuing to lend to households and businesses”.

Profiting Across Cycles

JPMorgan Chase has been a beneficiary of the tailwinds of the post-Great Recession world, while prudently managing the risks of that period. A consequence of this success is that, since 2019, the bank’s operating revenue has swelled from $142.42 billion to $281.51 billion in the last twelve months (LTM), compounding at a rate of 12.03% a year. The bank’s 5-year sales CAGR, at 16.8%, compares very favourably to a 6.9% mean and 5.2% median for the world’s 1,000 largest firms. In that time, the bank’s net operating profit after tax (NOPAT) has ballooned from $34.18 billion to $60.06 billion, compounding at a rate of 9.85%.

With rising profitability has come copious amounts of free cash flow (FCF), with the firm generating $$171.17 billion in FCF since 2021, equivalent to 21.37% of its current market cap. With $50.35 billion in FCF in the LTM grants it an attractive 6.17% FCF yield.

Prepared for Severe Adversity

The bank’s “fortress balance sheet” has continually been reinforced under Dimon’s stewardship. As of the end of Q1 2025, the bank’s Common Equity Tier 1 (CET1) was $280 billion, with a Standardized CET1 capital ratio of 15.4%, compared to 15% in Q1 2024, and 15.7% at the end of 2024.

JPMorgan Chase’s recently disclosed results from its 2025 Annual Dodd-Frank Act Stress Test projected financial resilience under the Federal Reserve’s Supervisory Severely Adverse Scenario, which hypothesises a severe global recession accompanied by substantial stress in commercial and residential property markets and corporate debt markets over a nine-quarter period from 1Q 2025 to 1Q 2027. Under this extraordinarily challenging scenario, characterised by a 7.8% decline in U.S. GDP, unemployment reaching 10%, a 50% stock market decline, and 33% fall in house prices, the bank’s Common Equity Tier 1 capital ratio would decline from 15.7% to a minimum of 13.7%, whilst still maintaining comfortable margins above regulatory minima. The stress test projects cumulative pre-provision net revenue of $93.8 billion offset by $79.3 billion in credit loss provisions and $12.4 billion in trading and counterparty losses, resulting in a modest net loss before taxes of $3.2 billion over the entire nine-quarter period. Notably, the bank’s capital position would remain robust throughout the hypothetical crisis, with all key capital ratios, including the Supplementary Leverage Ratio maintaining a minimum of 5.6%, demonstrating the bank’s fundamental strength and capacity to continue serving clients even under severely adverse economic conditions.

Moreover, the bank’s catastrophic loss-absorbing capacity is impressive, with JPMorgan Chase boasting a Total Loss-Absorbing Capacity (TLAC) (see page 106 of the 2024 annual report for a detailed explanation) of $558.3 billion as of Q1 2025, 30.8% of risk-weighted assets (RWA), compared to a regulatory requirement of 23%, indicating a $140.8 billion surplus. TLAC is 11.3% of total leverage exposure, compared to a 9.5% regulatory requirement, indicating an $87.7 billion surplus. 

Upside Remains

At the current price, $288.19 at time of writing, JPMorgan Chase trades at a price-to-economic book value (PEBV) of 1.25, its highest ever level in my analysis window. This implies that the market expects the bank to grow its NOPAT by 25% from current levels. Using my reverse discounted cash flow (DCF) model, I unearthed the cash flow expectations implied by the current price. 

In the first scenario, I determined the conditions under which the firm’s share price is justified, wherein,

• Revenue grows by 7.1% in 2025, 2.6% in 2026, and 3.9% in 2027, in line with consensus estimates, and by 16.8% thereafter, and,
• NOPAT margin remains at 21.33%

In this scenario, NOPAT compounds by an average of 4.11% a year, and the firm has an attractive market-implied competitive advantage period (MICAP) of four years in which the shareholder value per share equals the current stock price. 

If, on the other hand,

• Revenue grows by 16.8% a year, and,
• NOPAT margin remains at 21.33%.

Then the stock is worth $404.75, an upside of 40.45% from the current price. 

If, 

• Revenue grows by 12.71% a year, the 3-year CAGR, and,
• NOPAT margin remains at 21.33%.

Then the stock is worth $337.31, an upside of 17.04% from the current price.

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