Are you ready for the reversal?, page-26

In all of my former notes I have been quite conservative about the future of MML. I was waiting for the proof of the management so that I feel comfortable about that same future and of course the POG is an unknown, but that will always be the case.

Under the assumption that the POG will not go lower than $ 1100 - $ 1150 for the first time I am much more bullish on MML. This is based upon the positive info I got from the presentation in London in the beginning of october. Once again a big thanks for the people who have attended the meeting and wrote about it. Where do I see it go:

ingredients:
a management which has tackled the internal problems and only looking forward now;
a production level of 150.000 OZ in the FY 16/17, climbing to 175.000 OZ in the years after that;
an AISC of $ 900 in the same FY 16/17, falling towards the $825,- level in the years thereafter;
an average POG of $1150 for FY 16/17 (as said this will always be the unknown).

The above will lead to the following generation of cash by MML:
for FY 16/17 150.000 x (1150 - 900) = USD 37,5 mln. positive;
for FY 17/18 162.500 x (1150 - 862,50) = USD 46,8 mln positive;
for the FY 18/19 175.000 x (1150 - 825) = USD 56,875 mln positive

for the current year 15/16: 125.000 x (1150 - 950) = USD 25 mln. positive.

So the conclusion: in the next 3,5 to 4 years the will generate a positive cash-flow of around $ 165 mln.

Perhaps the exact cash flows will be of by a few million because of the simplifications I made (f.e. debt redemptions, payments from the past etc), but the message will stay the same, depending the POG the power of generating cash by MML has turned the corner, even the $ 50 mln. investment in the L16 shaft (which is going to be spread over 6 years) can easily be financed with own cash. I agree that they will make a cash buffer before paying any dividends again. I don't think $50 mln. is the target. I think that management is wise enough to give the shareholders their fair share. By that I mean they will settle for a buffer of around $ 30 - 35 mln. So I think they will return to paying a dividend somewhere in the FY 17/18.

So what is the value of MML? If we go by an average positive cash-flow till the FY 18/19 of around $ 40 mln. per annum and with some 210 million shares, we can expect an average positive cash-flow per share of around $ 0,20 for the next 4 years per annum. In AUD this means 1,3 x 0,20 = AUD 0,26 per share. If I take an demanded ROC (return on cash) with an average of 18% per annum this means a multiple of 100/18 = 5,5 or an expected value for MML of around AUD 1,5. This is a base scenario. You can do your own calculations for the situation that MML is a well arrived junior gold miner with stable operations, new discoveries of gold in the new projects, a higher POG, a lower ROC etc. My calculations only proof that MML is undervalued at the moment. If they deliver a good quarterly and an upbeat story on the AGM in november, the first stop is AUD 1,- and that is only the first part of a normalization of the value of MM in the years ahead.