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MML

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85.0¢ medusa mining limited

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roka

912 Posts.

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12/02/16

20:58

Post #: 17009345
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Originally posted by cncventure ↑

All this talk of price targets without justifications doesn't make sense to me.

MML @ $10 is just as possible as MML @ $0.

It just depends on the price of gold (hard to predict with certainty) and market multiples (sentiment).

The reason why I suspect MML is a better investment than a leveraged bet on gold is given its current operations, cashflows and prospects relative to its peers it seems to have a depressed valuation in an industry (gold mining) that also has depressed valuations relative to historical norms.

ie, its the most unloved stock stock in an unloved industry.

In normal times the gold miners usually trade at a EBIDTA to EV mutlipe of 5 - 12. Currently the median ASX listed gold miner is trading on a multiple of 4.7 and MML is presently trading at about 1.

So if you are bullish on gold AND more importantly think that MML's valuation over time will revert back to the median of other gold miners valuation multiples and you think the gold mining industry valuations will revert back to more historical valuation levels then it's easy to create a scenario where MML goes to $5+ (even with modest gold price increases).

Eg, holding all else equal, if the PoG goes to US$1500 and using the current median EV to EBITDA ratio of ASX listed gold miners (4.7) then MML's EBITDA would be roughly $1500 minus cash costs (say $450) multiplied by production (say 125,000) and then converted into AUD:

~A$185M

Times that by the current median Ev/EBITDA multiple for ASX gold miners (4.7) and divide it by the 207.8M shares MML has on issue and that's your "relative fair value" share price for MML at PoG of $1500:

$4.18

A ten bagger if you were acquiring MML shares are below $0.40 recently.

If MML hits next year's production target of 150k oz and gold miner EV/EBITDA multiples move back towards a more normal 6 - 8 then MML's "historically relative fair value" share price would go to $7.50 @ $1500 gold.

I'm not saying any of this will happen, just saying throwing out price targets without justifications makes it difficult for the rest of us to determine what you are basing your thesis on.

I own MML not because I think the gold price is going to $8000. If that was my only investment thesis I'd just buy gold.

I own MML because I think when the market believes that gold has bottom (like I do now) then it will quickly revalue both MML and the broader gold mining industry back to historical norms.

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@cncventure, you've changed your sentiment to Sell. Please tell me that's an oversight.

MML Price at posting: 59.0¢ Sentiment: Buy Disclosure: Held
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