Peers, page-24

“200k ounces pa is not going to happen if you have a 2500 tpd mill, your average milling grade is 5 grams/tonne, and the gold recovery rate is 90%. This would suggest they produce only 132k ounces pa.”

That would assume running 365 days per year which does not allow for regular maintenance, unplanned downtime and the regular seasonal natural event disruptions. I was allowing for 45 weeks of mill run time. Using your 5g/t and 90% would drop the output to 114koz from your 132koz. I think that would be more realistic at the 5g/t, 90% and 2500tpd assumptions. At 6g/t it would be 137koz. That’s about as far as I would allow for now or maybe a little more if recovery can be pushed higher and maintained. There may be quarters or even years where they hit higher grade and wider veins reducing dilution but it is looking like 5-6g/t has become the best average grade we can expect for now.

CPDLC, “They are guiding cash costs of US$400-450 for 2H15 compared to US$418/oz for FY13 and US$382/oz for 1Q15. That still looks pretty good to me.”

That would look excellent if the remainder of the costs were not so high. It’s no good looking at the reported cash cost in isolation when the balance of the AISC would be significantly higher than the “cash cost”. I’m with Loki and Beardy; investors need to assume perhaps 114koz -140koz per year and forget the 200koz/yr or at best treat it as possible upside (on strongly improving grades at depth) rather than probable upside.

On the bright side, at least the capitulation for gold hasn’t occurred after the 1180-1190 support was breached a few weeks ago. I’m hoping the break of support is going to have been nothing more than a bear trap. Gold stock indexes appear to be forming strong bottoming patterns. If gold manages to break through 1200 and rally back up to 1300 then at least MML will be marginally cash flow positive even on my estimated $1200 plus AISC. If gold can recover sustainably (fundamentally it certainly can considering global ave AISC is around 1200/oz), then an improvement in grade and recovery over the last qtr numbers could see the slim cash profit margin expand. So if gold continues higher you might get a nice short covering rally in MML aided by some bottom hunting by the MML “die hards”. Cross those fingers that gold rallies further. A sustained price below US$1200 without a strong grade improvement would see MML cash flow negative IMO (regardless of reported profit for accounting purposes).

Compare the sharp ($200) sell-off in 2013 after support broke to the much more moderate sell off this year after 1180-1190 broke. Also note how the price was rejected from well below previous support in 2013 when it rallied but in 2014 it has broken back above its previous support. At the very least it is a much less bearish chart than it was in 2013. At the best it is a bear trap and the price is going significantly higher. My money is on the latter now after I bought back into NST and topped up a few others. There might be more leverage here than NST but there is also more risk in case gold drifts lower again. Good luck all.