To Break $1 the Q4 Production Report Will Need..., page-24

There is nothing else to add to the MML-specifics. We await the report next week. The turbulence in the gold market and therefore the goldmines is initiated by the large sell-order in gold-etf's of around $ 2,7 bn. early monday-morning (asia time?). It looks like somebody wanted the POG down. Already in the last few months the POG is not performing very well. When you look at the report of the World Gold Organisation about supply and demand for the last two years you can see that the demand for fysical gold was a bit higher in 2013 compared to 2014. This year is comparable to 2014. The demand is around the 4.000 ton per year. As a conclusion you can say that the market for fysical gold is quite balanced (you cannot say this for the oil market for example). There are no stockpiles that cannot be sold. The Investment-demand can be rather volatile from year to year though. This is were hedge funds and other speculators are playing. The role of Central Banks in the gold markets are difficult to trace. There intentions even harder. Bottom line is that we have to deal with that but this was always the case.

Next to volatility in the gold market itself you have analysts who think it is there job to give predictions for the POG and perhaps it is, but I have learned not to give to much attention to these kind of predictions. but what there are telling right now, does it makes sense or not? Well it is true that in a period where the USD is appreciating against other currencies the POG will decrease. The exact correlation is not stable though. Also this time the POG decreased because of an appreciating USD. This is why others on this platform have mentioned several times that the POG in AUD is a different story. A relevant other " way of thinking" is that a lot of people say that because the FED is going to tighten and interest-rates will increase, there is fewer interest in gold because gold does not pay interest or dividend. This is correct but I disagree that a tightening FED is the reason for a lower POG. The FED-fund rates are close to zero and will increase towards a level of around 2 to 2,5%. But they also say that longer term rates will increase by the same. Here I disagree. What you see in times of a tightening FED and a controlled inflation is that the yield curve will flatten. The rate of 10 years Treasuries will climb from 2/2,25% to al level of around 3/3,25%. Actually no big deal, rates are still low on historical grounds. So I find the way analysts are trying to explain the gold price fluctuations and give their opinion for the nearby future rather weak.

And what about the goldmines themselves. It is true that in the last 5 years they have increased their annual production by about 2/3% per year. They have financed that for a big part by adding new debt to their balance sheets. That is why they have to keep producing to serve their debts. Also they spend money on mergers and acquisitions, also financed largely with debt. The all-in-costs of most mines are around the current POG and sometimes they are higher. This explains why almost all goldmines are hammered in the last year or so. They all need a higher POG. For MML the story is a bit different because of the lack of debt. But they are on a growth path for their own production, financed by own cash flows though. Because of the size and age their is no room for paying a dividend. It should be an important task for the management to make sure that their all-in-costs will be lowered to the 800$ level in the next two years. This is feasible because production will grow towards a level of 150.000/160.000 per year and the investments costs will diminish over the next years. MML is than in a much better position because of the fact that they don't have debt on their balance sheet. I hope to see proof of this in the next annual report and AGM. By than there is room to start paying a dividend again.

Conclusion: MML is, although it is a small miner, in a better position than a lot of others miners to withstand the lower POG, but it is true that a higher POG will help MML also a lot. You can calculate yourself what will be earned when the POG will be 1300$ again. So the " multimillion dollar question" is: will the POG return to higher levels again. This brings me back to the beginning of my note being who and why is wanting the POG to decrease. I will probably not get an answer, but is for me encouraging enough that somebody only wants it. And not a small somebody when you see the sell-order. This brings me to my own believes that gold is a rather rare commodity which is being around for more than 5000 years. It has withstand every storm (and every currency if I may add) and fits in every diversified portfolio as long as it is physical gold. I don't believe in etf-gold. The costs of getting it out of the ground will not decrease in the coming decades, this is why I believe that the POG will return towards a level what corresponds with the level of costs plus an operating margin for the miner. That level will be reached sooner for MML than for many other miners. So with this level of valuation for MML the only thing an shareholder will have to do is wait.