Worth Reading, page-7

cncventure I agree with you on the value of gold (and silver by the way) in volatile times in a world full of toooo much debt. That is why I like gold and silver miners so much. I am still positive on the POG, but as with everything the price will not go up in one straight line. Every (serious) dip should be seen as a buying opportunity. Back to the miners. MML was my first miner and still is in my portfolio of miners. Although it has gone up in price in the last 6 months, it lagged a lot of other miners. Most of this has to do with the poor track record of the management and from more recent times the new government in Manilla. A lot of rumours about the government being more unfriendly to the miners. Perhaps to the ones polluting the environment too much, but we have to see and wait what will really change. Even the Phillipine government can use the money they collect from the miners. When the mining-company also does a lot of good things for the people living in the surroundings of the mine (health care, infrastructure, education etc), and MML is doing that, then I don't think this will be the miners the government will be unfriendly against. And for the management-discussion. Let us give the new CEO some time to shape up the company. This brings me to the valuation I use for all my miners. I always look at the free cash-flow they produce. I then use a " free cash-flow PE" to value the company. Allthough not for the 100% complete I think the AISC compared to the POG per OZ determines the free cash-flow. For example the interest costs and the investment in a new production facility next to the one existing, are not part of the AISC. When you have the figures for that you can adjust the figures for that. Because for MML there is almost no debt and they have only one plant and mine, the AISC the give us is enough for me to make the calculation. With the current POG and the current AISC of USD 1.350,- and USD 1.030,-, the free cash-flow per OZ is around USD 320,-. For a production level of 110.000 OZ pa the free cash-flow is USD 35 mln. Per share this means 35/210 = USD 0,16 cent or AUD 0,225 per share. For a producer like MML I " demand" a yield of around 15% pa in this stage (this means a Pe of 100/15 = 6,7). This means the valuation for MML at the moment for me is around AUD 1,50,-. When we look two years ahead and by then the work in the mine is complete and if we assume the same POG but a lower AISC of not USD 1.030,- per OZ but some USD 875,- and a production level of around 130.000,- pa the picture is the following: free cash-flow of around USD 475,- per OZ or in total USD 61,75 mln. This means per share 61,75/210 = USD 0,29 or almost AUD 0,40,-. By then I think MML is a more stable company then it is now, so the "demanded yield" of 15% has decreased to 12% per annum. The cash-flow PE has increased towards 100/12= 8,3. The "calculated" valuation for MML will then be: AUD 0,40 x 8,3 = AUD 3,30. Quite a different level then it is now. All what has to be done to reach this level is that management is able to finnish the works in time and within budget, will produce 108.000 OZ this year and some 110 - 115.000 for the FY 16/17 and then increase to 130.000 OZ for the FY 17/18, the POG will stay at the current level (higher is no problem). Becasuse I believe in MML, I think this can be reached by the company. It the price will increase toward the " theoretical" level of AUD 3,30 we will see in the next two years. But if they deliver it will for sure be higher than the current level.