production guidance FY15/16

With the production guidance of 120.000-130.000 OZ for the coming year 2015/16 Mr. Davis delivers a next step in the rerating proces of MML. It is not a huge step but a smaller one. Is it disappointing or not:

MML comes from a period where everything went against them. With new management on board the first thing to do is to get the operation on track again and to regain confidence with the investor. MML is doing both and don't want to give predictions it can not meet. Therefore Mr. Davis is prudent in giving guidance. He knows that the company is accelerating investments in the mine to finally reaching higher production levels. This brings down production because of all the works that have to be done in the mine. He wants to deliver what he promises. I can relate to that. Take a look at what he says:

production: 120-130.000 OZ.. Does this makes sense: in the april presentation MML speaks of a current productionlevel of 180.000 T per quarter. This makes 720.000 T per year. By assuming 6 grAy/T and a recovery of 94% this means a production of: 720.000 x 6 x 0,94 / 31,1 = 130.572 OZ. As I said Mr. Davis is a prudent man;

guidance of costs: for the next year MML predicts $ 40 mln. in development costs. Does this makes sense: in the 3rd quarter these costs where $ 9,3, so about $ 37 mln. per year. The $ 40 mln. is therefore not out of line. Exploration costs are predicted $ 11 mln. for the next year. In the 3rd quarter they were $ 3,1 mln. Also, as a quidance, in line. Capital works the figures are $ 10 mln. for the next year and $ 2,2 for the 3rd quarter. My conclusion is that in these figures there a no strange things happening. The AISC for the next year is $ 960 - 1060 excl. the Service Shaft. In the 3rd quarter they were $ 989,-. Because MML is investing into the future the guidance is acceptable with the remark that the company should aim at a figure around $ 1.000,-.

Ebida for next year will make a jump because of the higher production, and that is good. POG of course is a relevant unknown.
And what about the SP: in my humble opinion the most relevant factor is the low PE-ratio which is now around 3. this is where the real juice is coming from. If MML is delivering what they promise, and I think Mr. Davis will deliver, then the PE of the stock will rise. By how much and with what speed is difficult to predict, but it will come. So if earnings per share will rise and the PE-factor as well so will the SP of MML. This is quite a compelling case. It is difficult to find a lot of other companies with the same framework as MML.