If you look past the non-cash write down they has last year I think their balance sheet has been holding up for quite some time...
Even on the latest quarter where they missed expected production by 30% they still managed to put cash in the bank!
So personally I think MML may move higher irrespective of if they reach the production levels I'm expecting they will in 12 months time.
This year alone should reflect how strong the upward move in this stock is.
January 1 - MML was at $0.36. Since then they have:
- Had no CEO until March
- Extended the completion date of the service shaft from Aug16 to Jun17
- Missed lower bound production guidance by 2% in December quarter
- Got dumped from ASX300 in March rebalance
- Missed lower bound production guidance by 27% in March quarter
- Reduced FY16 production guidance by 14%
Yet the stock price has gone up 100% and outperformed the majority of XGD gold miners!
The 2016 news flow has been terrible, I'd go as far as to say that the only good news MML has had since Jan 1 is the gold price has gone up...
So for me I don't think MML needs good news to move higher, it ONLY needs the bad news to stop (which I think it will).
Maybe more importantly is what if I'm wrong about MML's future?
What if even after finishing the new service shaft all MML will ever be is its current 110k ozpa at a moderate AISC?
110,000 x ($1260 - $920) / 0.75 = ~A$50m
~A$50m / ~A$100m (today's EV) = FCF to EV yield of 50%!
So at today's share and gold price I'm OK with being wrong about MML's bright future...
Of course the flip side to that is what if I'm wrong about being conservative in thinking that they will only become a 140k oz pa producer?
What if their mill works as planned processing 2500tpd? What if grades as stated in their reserves are 7g/t+? What if their recovery rates remain at 94%? What if they get their AISC to below $880?
What if in 18 months they are the 170k oz pa producer they told everyone they would be?
In 2014 it was my expectation that the AUD would go lower is what originally attracted me to the gold mining, agricultural and tourism sectors of the ASX.
That said my conviction that the AUD will drop substantially lower is beginning to abate, not because the Australian economy is running well, but because I don't think any of the other major economic regions are doing much better (US, EU, China, Japan).
I'm expecting that we will drift into the low 60s, but I'm not expecting us to head into the 40s we did at the turn of the millennium.
I also agree that Australian housing prices are high (I wrote about that recently), but when you factor in the AUD real prices of housing has already fallen substantially and nominal price falls from here could be as small as 25% (which would still cause a lot of distress to the financial system).
Fair enough, though it might be worth putting a little bit of skin in the game to incentivize you to keep a closer eye on it.
Also to give you some perspective why I choose to hold MML as my largest position relative to its peers, it's because if you look at the performance of the gold stocks Feb 1st (ie after the market had been able to digest all their Dec quarterlies) to May 12th you can see that the low ranked miners (green) tended to outperform their peers and the high ranked miners (red) tended to underperform their peers:
MML, being a low ranked company (green) would have outperformed more over that period had it not had such an awful Q3 result, but if they don't repeat that mistake I'm sure the outperformance will materialise in time.
As of today and with its current (poor) operations it's even better value relative to its peers than it was at Feb 1 - so in taking the long view I have to be a buyer at these prices.
