X64 - Ten Sixty Four
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So I was on a flight home from Brisbane today reading a book tilted towards a value investing approach and I've also been re-assessing the course my own investing approach is taking. The book concentrates on low debt, high return through cashflows and share price catalysts.
Instantly MML popped to mind on the flight and I started thinking about how their cashflows are strong, they are expanding production which is the catalyst and they have no debt (are unlikely to take any on either).
So I decided to look at a really basic approach to estimating where the share price could be heading with the production expansion that Medusa plans to achieve. I based it on a gradual decreasing profit margin of 74.20% in 2011 down to a margin of 60.00% in 2016 due to extra costs / possible tax etc that may occur. I then adjusted this to 95% to approximate cashflow/share. Currently Medusa trades at approximately 12.35 times cashflow/share for FY11.
Hence I made the following projections of share price based on cashflow per share which can be reasonably easy to predict (providing nothing major goes wrong) due to the 1 operating mine producing the inflows. Note i've highlighted in orange where the shareprice is approximately in comparison to current gold price and P/C ratio (Price over Cashflow/share)
Notice the current shareprice is very close to what i've estimated based on current FY12 estimates and current USD gold price. Note that as production increases a P/C ratio might expand as well which means the shareprice could expand considerably based on the simple achievement of cashflow expansion through production expansion.
The following chart just shows my basic understanding of some support and resistance levels that could be tested and hopefully 2,3 and 4 can be pushed through moving forward. The circles show where low volume meant a sustained push above the No. 4 resistance couldn't be achieve. The high volume below the No 1 support shows that there is great share price support that low.
The way I see it is that if/as my production and cashflow forecasts come to fruition then the share price will continue to appreciate in line with this. The main issues are having 1 operating mine and being overseas, hopefully they can remain under control going forward. Chart below shows where I think the share price could head moving towards the end of FY12.
I'm interesting in the thoughts of others, but this was just some basic analysis i did tonight when I got home from my flight. Definitely increases my interest in buying some MML shares to hold through the production expansion plans.
Instantly MML popped to mind on the flight and I started thinking about how their cashflows are strong, they are expanding production which is the catalyst and they have no debt (are unlikely to take any on either).
So I decided to look at a really basic approach to estimating where the share price could be heading with the production expansion that Medusa plans to achieve. I based it on a gradual decreasing profit margin of 74.20% in 2011 down to a margin of 60.00% in 2016 due to extra costs / possible tax etc that may occur. I then adjusted this to 95% to approximate cashflow/share. Currently Medusa trades at approximately 12.35 times cashflow/share for FY11.
Hence I made the following projections of share price based on cashflow per share which can be reasonably easy to predict (providing nothing major goes wrong) due to the 1 operating mine producing the inflows. Note i've highlighted in orange where the shareprice is approximately in comparison to current gold price and P/C ratio (Price over Cashflow/share)
Notice the current shareprice is very close to what i've estimated based on current FY12 estimates and current USD gold price. Note that as production increases a P/C ratio might expand as well which means the shareprice could expand considerably based on the simple achievement of cashflow expansion through production expansion.
The following chart just shows my basic understanding of some support and resistance levels that could be tested and hopefully 2,3 and 4 can be pushed through moving forward. The circles show where low volume meant a sustained push above the No. 4 resistance couldn't be achieve. The high volume below the No 1 support shows that there is great share price support that low.
The way I see it is that if/as my production and cashflow forecasts come to fruition then the share price will continue to appreciate in line with this. The main issues are having 1 operating mine and being overseas, hopefully they can remain under control going forward. Chart below shows where I think the share price could head moving towards the end of FY12.
I'm interesting in the thoughts of others, but this was just some basic analysis i did tonight when I got home from my flight. Definitely increases my interest in buying some MML shares to hold through the production expansion plans.
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Crappy quarterlies -10% in LN
What does LN mean?
BTW, thanks for the in-depth analysis Kermit, was an interesting read.
I already sold all my shares yesterday @ 5.91. After 11am it dived back down under $6.00 and no volume, so I did a quick exit.
No problem, MML definitely has trading opportunities as it moves around quite a bit.
The quarterly obviously wasn't pretty in terms of what was produced last quarter, but if your a long-term holder its more a blip on the radar and a buying opportunity IMO. If the share price rocketed below $5.00 then there would be cause for concern however I can see the share price rebounding well if FY12 guidance is re-iterated as on target at the end of this quarter.
Certainly think $7 is a reasonable target for July/August and $8+ by years end providing POG stays above $1,600 per ounce and production guidance is achieved.
The quarterly obviously wasn't pretty in terms of what was produced last quarter, but if your a long-term holder its more a blip on the radar and a buying opportunity IMO. If the share price rocketed below $5.00 then there would be cause for concern however I can see the share price rebounding well if FY12 guidance is re-iterated as on target at the end of this quarter.
Certainly think $7 is a reasonable target for July/August and $8+ by years end providing POG stays above $1,600 per ounce and production guidance is achieved.
Yep, looks like the next 2 days will hit MML hard... might hit $5bucks.
tinhat
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Oh Medusa, never fails to disappoint! Down over 10% this morning on the open - now at $5.12
These are the boom years and Medusa is missing out on production.
These are the boom years and Medusa is missing out on production.
tinhat
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Down again today by quite a bit (>4% as I type). $5 is a salivatingly attractive price. I am already quite long in MML. What to do? If I wasn't long I'd be jumping in at the current price. Putting aside all the normal business risks, this company has the potential to achieve massive profits even if gold prices were to fall to under say $1,200. Once they do ramp up their production (assuming they can reach the 400,000oz level) I believe MML will be seen as a defensive pure gold play having such low cost of production. Getting there is not without risk though as we are seeing with the current production problems.
Oh yeah, I came here to post this:
and this
Oh yeah, I came here to post this:
and this
tinhat
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Up 6% in the first hour of trading. My goodness. Someone, somewhere has realised what a bargain this stock is.
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Tinhat - your March post suggests you've been following this stock over the last couple of months. It seems to have fallen through a support level on Friday to end up at $4.80. I was wondering if you had any company-specific theories for this (most other gold stocks I've been following fell significantly on Friday as well)?
Are you still looking at this stock as a bargain?
tinhat
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I haven't been keeping a close eye on this stock and I'm not aware of any big changes to the outlook of the company's fundamentals. I didn't read the most recent investor update or the March quarterly report. I've downloaded them and will read them now.
I guess the market is just risk-off and it is a more speculative play given that the upside of large scale production is still off into the future (the new mill is another 18 months or so away from production) and has been subjected to delays due to natural events. The market is just discounting future cash flows more heavily at the moment. As I mentioned earlier, earnings are going to be down this year and I guess that has disappointed the market. The other risk is increasing costs as production expands. 4.80 represents a PE of 13 so the market is pricing very little of the upside to future production into the price given that they are planning to quadruple production over the next few years. They reckon they've got a lot of unexplored gold in the tenements too.
I've got another holding HZN that is in the same boat. The market seems to be fully discounting the potential of its PNG tenements which are subject to development in the medium term. But that is another story...
I see MML as a well run company with a clean balance sheet that has big upside potential to turn into a cash making machine that could generate big dividends down the track, but do your own research.
It's a medium term capital growth holding in the SMSF. That said, I'm keeping a close eye on the prices of my current holdings as I do think there is a risk of another leg down for the all ordinaries. So, I wouldn't be buying anything at the moment.
I've followed MML for a while now as well and essentially agree with everything tinhat has said. If MML drops below $4.50 i'll be watching with a lot of interest waiting to buy in. The EPS this financial year is going to be lower then last due to the lower gold produced due to site downtimes and upgrades limiting production. However production is expected to fully recover in the 2012-13 financial year and then increase materially from there onwards.
If you look at my very simplified estimates provided in january, even if the gold price drops to $1,000 per ounce but Medusa reaches their 200,000 ounce output in 2012 your still looking at approx an $8.50 stock which is almost double today's price. Not a bad return if they fulfil their growth plans in 2 years time - which I believe management can achieve.
If you look at my very simplified estimates provided in january, even if the gold price drops to $1,000 per ounce but Medusa reaches their 200,000 ounce output in 2012 your still looking at approx an $8.50 stock which is almost double today's price. Not a bad return if they fulfil their growth plans in 2 years time - which I believe management can achieve.
tinhat
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Don't name your company after a nasty woman with snakes for hair.
The latest saga is a fire in one of the mine shafts.
http://www.stockmarketwire.com/article/4431303/Medusa-Mining-hit-by-fire-damage.html
The latest saga is a fire in one of the mine shafts.
http://www.stockmarketwire.com/article/4431303/Medusa-Mining-hit-by-fire-damage.html
skc
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On a day where most gold stocks broke out for 5 to 13% gains, MML is the only major gold stock that I track which went backwards - and up to 10% backwards at one stage.
The most unlucky day to announce a fire.
Seemed like market was just starting to get back onboard with Medusa as well. Company seem to think FY production wont be effected and that the repair work will actually improve the haulage efficiency.
I'll continue to hold MML for the medium term, I actually bought some more a couple of weeks ago at $5.00 but was annoyed with myself because i'd tossed and turned about it at $4.60 but decided to wait. I just feel that with no debt, increasing production and a reasonably stable gold price they could easily get back to their highs of $8.50 in the medium term, if not higher.
If they keep having these kind of incidents though it may set them back. Do more modern mines still use timber frames? Surely not.
I'll continue to hold MML for the medium term, I actually bought some more a couple of weeks ago at $5.00 but was annoyed with myself because i'd tossed and turned about it at $4.60 but decided to wait. I just feel that with no debt, increasing production and a reasonably stable gold price they could easily get back to their highs of $8.50 in the medium term, if not higher.
If they keep having these kind of incidents though it may set them back. Do more modern mines still use timber frames? Surely not.
tinhat
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The market seems to be back on board with MML and seems to be happy enough with production guidance for the current year. Up 6% so far this morning. If it closes this week up around the $6 level it will be firmly above the 200 day moving average (I generally use weekly chart for my holdings). It opened up this morning with a nice gap up to $6 so hopefully this will be a support for the short term - not that I am interested in the short term - more interested in the next few years with interest in seeing whether this company's plans come to fruition and whether it turns into a cash generating solid dividend payer in the medium term.
I wonder if any TAs are following MML at the moment - what are your thoughts?
I wonder if any TAs are following MML at the moment - what are your thoughts?
tinhat
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Looking at my last post support didn't hold at $6 and now it looks like it falling again with $4.45 being a strong support point. I don't know what the market wants from this stock? The production report seems to have hit guidance and mine expansion is on track. This is a company that is ramping up to 300,000 ounce production in CY15 then to 400,000 in CY16 and beyond. All being funded from proceeds of current mining with absolutely no debt on the balance sheet. Furthermore marginal costs are way at the low end of the industry.
Perhaps it was mention of the uncertainty remaining (the "sovereign risk") over the Philippines government's review of mining tax. It is interesting that MML have appointed their legal counsel to the board.
Perhaps it was mention of the uncertainty remaining (the "sovereign risk") over the Philippines government's review of mining tax. It is interesting that MML have appointed their legal counsel to the board.
Hi tinhat,
The following is a post I made on another forum in regards to Medusa. They did miss their guidance for the December quarter and hence have downgraded their full financial year expectation of ounces produced but I still think they are well undervalued at these levels and bought some more myself today. If they can get even remotely close to all their production estimates over the next 12 months, providing the gold price doesn't take a dive and costs remain at or below the $300 level I really struggle to understand how the price isn't at least above $6 and closer to $8+
Heres the post:
Hi Guys,
I've held MML for quite some time, haven't posted here for a while but given the recent price decline I thought i'd re-check some back of the envelope number given the situation shown in today's announcement.
Firstly, current FY:
Q1 - 14,403 ounces @ $328 p/ounce costs sold at average price of $1,636 per ounce
Q1 Revenue - $18,840,000
Q2 - 18,117 ounces @ $279 p/ounce costs sold at average price of $1,731 per ounce
Q2 Revenue - $26,305,000
Q3Est - 22,000 ounces @ $280 p/ounce costs sold at average price of $1,650 per ounce
Q3Est Revenue - $30,140,000
Q4Est - 23,000 ounces @ $280 p/ounce costs sold at average price of $1,650 per ounce
Q4Est Revenue - $31,510,000
Total Estimated Revenue of $106,795,000 against approx 190 mill shares is EPS of $0.56 per share. Note this is based on production of 77,520 ounces which is under the company's guidance.
Based on current share price, company woud be on a P/E of 8.85. Previously the company's P/E has hovered anywhere between 10 and 20 which based on my EPS estimate is a share price between $5.60 or $11.20 (obviously the smaller figure is more realistic) which on $5.60 would already provide a 13% return.
Also note that the last time EPS was above $0.50 the market pre-empted it based again on the quarterly figures and reached a peak of $8.70 per share. Also note when this occurred they were merely making the investment decision and making small starts to the construction process, we're now much closer to ramping up to the 200,000 ounces per year stage as evidenced by this year's calendar year estimate of 140-150,000 ounces.
Lets assume for a second that they achieve 130,000 ounces for the calendar year with cash costs of say $300 per ounce and avg gold price of 1,600 which equates to EPS for the CALENDAR YEAR of $0.89. I find it hard to imagine the market doesn't react in some positive way to these kind of figures.
Note the only things that can stop the scenarios above coming to fruition is weather/natural disaster, gold price slump or teething problems with the expansion.
The following is a post I made on another forum in regards to Medusa. They did miss their guidance for the December quarter and hence have downgraded their full financial year expectation of ounces produced but I still think they are well undervalued at these levels and bought some more myself today. If they can get even remotely close to all their production estimates over the next 12 months, providing the gold price doesn't take a dive and costs remain at or below the $300 level I really struggle to understand how the price isn't at least above $6 and closer to $8+
Heres the post:
Hi Guys,
I've held MML for quite some time, haven't posted here for a while but given the recent price decline I thought i'd re-check some back of the envelope number given the situation shown in today's announcement.
Firstly, current FY:
Q1 - 14,403 ounces @ $328 p/ounce costs sold at average price of $1,636 per ounce
Q1 Revenue - $18,840,000
Q2 - 18,117 ounces @ $279 p/ounce costs sold at average price of $1,731 per ounce
Q2 Revenue - $26,305,000
Q3Est - 22,000 ounces @ $280 p/ounce costs sold at average price of $1,650 per ounce
Q3Est Revenue - $30,140,000
Q4Est - 23,000 ounces @ $280 p/ounce costs sold at average price of $1,650 per ounce
Q4Est Revenue - $31,510,000
Total Estimated Revenue of $106,795,000 against approx 190 mill shares is EPS of $0.56 per share. Note this is based on production of 77,520 ounces which is under the company's guidance.
Based on current share price, company woud be on a P/E of 8.85. Previously the company's P/E has hovered anywhere between 10 and 20 which based on my EPS estimate is a share price between $5.60 or $11.20 (obviously the smaller figure is more realistic) which on $5.60 would already provide a 13% return.
Also note that the last time EPS was above $0.50 the market pre-empted it based again on the quarterly figures and reached a peak of $8.70 per share. Also note when this occurred they were merely making the investment decision and making small starts to the construction process, we're now much closer to ramping up to the 200,000 ounces per year stage as evidenced by this year's calendar year estimate of 140-150,000 ounces.
Lets assume for a second that they achieve 130,000 ounces for the calendar year with cash costs of say $300 per ounce and avg gold price of 1,600 which equates to EPS for the CALENDAR YEAR of $0.89. I find it hard to imagine the market doesn't react in some positive way to these kind of figures.
Note the only things that can stop the scenarios above coming to fruition is weather/natural disaster, gold price slump or teething problems with the expansion.
Country Lad
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Kermit, are you sure that you are not rationalising your decisions here? Without having a go at you, I see you saying the price should be higher and the market saying the price is too high and consequently it is very much in downtrend at the moment. You may be betting against the market, but unfortunately, regardless of what we individually think about the price of a share, the market is always right.
They missed their guidance and for any company that is a sin and they will be smacked hard by the market until they can prove they are back on track and that may take another quarter or two.
A big IF and markets don't deal in, or rely on, IFs
Another IF
Another IF
Sorry, the market deals in both the facts of the here and now and prospects 6 months ahead. Right now, they missed the guidance, there is nothing to say they won't miss the targets next time, there are other companies doing better and achieving targets so expect the probability of the MML price falling for a little while.
Cheers
Country Lad
