follow up on London

thanks Steve for the summary of London. I find it very usefull.

Building on the information from London I am going to try to find the valuation level of MML in the next 3 years. I am using the framework provided by a post on April the 12th by CPDLC which I find of value.

Basics (all figures in US$ unless otherwise stated):
Production in OZ: FY2016 120.000/ FY 2017 150.000 and /FY 2018 175.000;
POG: for all the years 1,200 OZ;
Cash costs: U$ 390 (slightly higher than the current U$ 380 because of the U$ 10 M investment in the service Shaft L8);
Recoverylevel: 94%;
NPAT margin: 40%;
Outflows: FY2016 70,8M/ FY 2017 75,2M and FY 2018 82,0M;
Div: after sufficiënt buffer MML is going to pay a div of around 30/35% of FCF
Shares: 207 M in 16 and 17 and 212 M in 2018 (options excercised).

FY 16 FY 17 FY 18

Revenue 144,0 M 180,0 M 210,0 M
Cash Costs 46,8 M 58,5 M 68,25 M
FCF 26,4 M pos 46,3 M pos 59,7 M pos
OPCF 97,2 M 121,5 M 141,75 M
NPAT (E) 57,6 M 72,0 M 84,0 M
EPS 0.278 0,348 0,396
U$/AD 1,28 1,26 1,24
EPS (AD) 0,356 0,438 0,491
Div. (AD) 0,0 0,05 0,10

The SP performance for the coming year is dependent on the following:

Can the company grow to a productionlevel of 175,000 OZ in the FY2018;
Is management capable of finding a productionlocation next to the CO O;
Can management restore confident enough in the company (paying a dividend is one way to do that).

If this is the case (I do think that management can deliver) then we can think of a return to more normal valuationlevels. By looking at bigger GM which are more diversified in production and by country with levels of 13 to 16 I think that MML, with its size, can return to levels of around 6x to 10x step by step. Where does this brings us:

With a PE of 4 after publication of the FY 2015 figures (aug/sept 2015) ---> SP 1,32;
With a PE of 6 in aug/sept 2016 ---> SP 2,14;
With a PE of 9 in aug/sept 2017 (with a returning dividend) ---> SP 3,94;
With a PE of 11 in aug/sept 2018 ---> SP 5,40

So I think there is more than enough potential for MML, especially compared to the stocks who have already performer nicely, but that the road forwards will be a gradual one. The SP will not jump in one big leap but more in small steps, backed by a management that can deliver on a quarterly basis with perhaps a positive note in some quarters. If I am not mistaken this is also the prefered way of the management.