MML and its future

I have been following MML for some years now. If have seen the bright and dark side of this company. Since the change in mgt last summer it is MHO that the sun has started to shine again for MML.

Let me start to commend on the new investment of the L8 service shaft. An investment of around USD 10 M. Some would say this is expensive. It is but you have to see this in perspective. MML said that through this investment the haulage capacity increases 300T per day. With 5gr per T this means 48 OZ per day extra. With cashcosts of arount USD 400 per OZ this means a cashprofit of USD 800 per OZ. Every day a positive cashposition of USD 38.400,- or USD 1.159.000,- per mnth. The investment takes 17 mnths and thus costs around USD 590.000,- per month. This is not a bad investmentcase. Besides we all want a much higher SP, the only way to that is with a higher productionlevel.

Now the broader picture: a few years ago the mgt was aiming for a company with a 400.000 OZ production. We all now how that ended. Now the mgt has said that for the FY 14/15 a productionlevel of 95.000-100.000 OZ is the target. Personally I think that it should be around 100 - 105.000 OZ because of the better productionfigures for the secondhalf because of the higher haulage of T. For the next two to three years MML must be able to have a production of around:

2.700t per day x 5 gr. of gold = 13.500 gr. per day x 365 = 4.927.500 gr. per year = 158.390 OZ or around 155.000 OZ per Year. If you do the math. with 6 gr. per T the figures would be even better.With cashcosts of around USD 400 per OZ and a POG of 1.200, this means a cashprofit of USD 800 per OZ. Where does this translate to?:

the gross operational margin would be around: 155.000 x USD 800 = USD 124 m.= AUD 160 m. or AUD 0,77 per share. Wouldn't you think investors would value such a company with a meager P/E or around 6 (we would not be too gready). this means a SP of around AUD 4,6. and this is a conservative calculation. Of course the company has to invest in order to keep the production at the 150.000 OZ level or higher. You will see that through higher deprectiationcosts or depletioncosts in the future balancesheet and P&L but also in a increasing NAV per share. But can you imagine what will happen to the value of this company if the POG will rise towards the 14/1.500 USD level. this is not that far away. Inflation will rise at some point in the future. It only says to me that the mgnt is on the right track. They analyse the mine in the right way and take the neccessary steps. Why do you think the mngt wanted options on MML shares.They probably see the same picture. All in all I am (very) positive for MML and its SP.