Ann: Quarterly Report March 2016-MML.AX, page-21

It is always a good thing to have a framework you can use to value a company like MML. Before I come to the framework it is good to understand that MML is a junior miner working in the Philipines. You can not compare that with a major miner like New Crest or Barick Gold. MML is not even close to that standard, but so is their current valuation. You can say that all the disadvantages are discounted in the stock price.

How do we have to look at MML in the next 3/4 years. For me the basis is not the NPAT and earnings per share. Because of the bookkeeping rules (where depreciation and amortization play a large role) I prefer to look at MML through the cash-flow principle. The most important question is what kind of Free Cashflow is MML able to generate in the next few years. I always like to work with the so called ROC (return on cash-flow). In the current situation I would say that I need an ROC of around 15 to 20% on an annual basis. So take 18%. This generates a multiple of 100/18 = 5,5 for MML. We can lower the 18% when MML develops toward a more stable mining company. By doing that the multiple increases.
Before we can start to use the framework we have to make some assumptions for the years ahead for the AISC, production level and of course the POG. This is always tricky but has to be done. everybody can use his own and make the calculations.

FY15/16: production 108.000 OZ; AISC USD 980,- and POG USD 1200,-;
FY16/17: production 110.000 OZ (work still going on in the mine); AISC USD 980,- and POG USD 1240,-;
FY17/18: production 130.000 OZ; AISC USD 900,- and POG USD 1250,-;
FY 18/19: production 150.000 OZ; AISC USD 850,- and POG USD 1.250,-

Now we can calculate the free cash-flow (or at least something close to that):
FY 15/16 108.000 x (1.175 - 980) = USD 21,1 mln;
FY 16/17 110.000 x (1.240 - 980) = USD 28,6 mln;
Fy 17/18 130.000 x (1.250 - 900) = USD 45,5 mln;
FY 18/19 150.000 x (1.250 - 850) = USD 60,0 mln.

Multiple FY 15/16: 5,5, the free cash-flow of 21,1 mln. generates a free cash-flow per share of USD 0,1o,
this leads to a "fair value" of MML of 5,5 x USD 0,10 = USD 0,56 x 1,3 = AUD 0,72 (close to what it is now); the music in the story is of course the future (with the higher average POG than this FY) and not the past so:
Multiple FY 16/17: 5,5; the free cash-flow of USD 28,6 mln generates a free cash-flow of USD 0,14. Using the same methods from above this gives a fair value of USD 0,76 x 1,3 = AUD 0,98;
Multiple FY17/18: 6 (more developed, less risk); using the same calculation leads to a fair value of AUD 1,70;
Multiple 18/19: 7 (even less risk); fair value in AUD 2,62.

So for me this kind of calculations give me the "feet on the ground" by trying to calculate the fair value of a company like MML. Ofcourse the actual SP can differ from the calculated fair value. It is not all about "science" when it comes to investing in companies. Feelings about the product sold, believe in a higher POG etc also play a role. I hope this will give you "kingharris" some ground under your feet when you look at a company like MML.