Ann: December 2017 Half Yearly Report and Accounts, page-26

Hi everyone
Apologies for bombarding the thread with posts but I did enter with a sizeable position of 800k shares on Friday and I have thus being down a deeper dive into the numbers to work out whether I add on weakness or exit on a decent bounce. I have kept broadly upto date as I was keen to get back in a a price that had a good safety of margin. ( Discount to cash ) I have read 4 broker reports in detail , read the half yearly and quarterly and listened to the last concerence call .
Here is what I have concluded but please free to contest my comments if you disagree.
I am firstly being conservative and assuming all the 97m will be spent on KI including the 10 contingency and I add another 3 m for good measure . As 32 m has been spent to date - that leaves another 68 m to go .
Last quarter the had a 10 m operational cash flow - this quarter I expect a little better because if the higher IO average and the improved price on discounts and lower AUD . So I am assuming 11, 10 10 and 8 for the 4 quarters this year. This includes interest minus Corp expenses . So if I add 477m and 39m I get 516 m minus 68!million for KI I get 448 ) I haven’t assumed they will get the remaining few million for the KI BI claim yet so if it comes in this year that is a bonus ) . Now even when KI does start there will be a time lag between mining and revert so I minus another 30 m off my 448
So by my calcs the cash position is unlikely to be any less than 418 which is about 38c per share cash backing. So downside is very much protected with the safest asset possible being cash and unlikely to drop below current SP . So one is buying KI for free
Therefore the upside lies in calculating DCF on KI. Now what I picked up in the Conf call was that a KI extension is looking increasing likely and even a 1 year expansion would have material impact but if one looks at the resource I would expect any mine life extension to be 2 years plus. There is on current high grade premiums a massive cash flow possibility and a 500-600m cash flow over a 5 year mine life is very probable. Not no analysts models a KI extension and if MGX do announce an extension each year can add 9-10 c of value, thus broker targets could easily shift to the 65-79 c range
Furhermpre the language coming from Jim both in terms of current balance sheet strength and asset opportunities suggests these may be closer than ever and a good purchase could see a significant rerate also . Furthermore Jim states any acquisition will not be in IO ( so put Southdown idea to bed Imo ) and I think MGX moving from a one mine one commodity stock to a multi mine multi commodity stock will be rewarded by the market, especially if the retain a decent cash balance.
So I have concluded I will buy more on weakness to take position to 1.2 m units and will look to extract a little more 35-50% from this low risk stock over 12–18 months.