A few thoughts on the period since MML embarked on it's expansion programme at Co-O: (all figures in US$)
What was meant to be a roughly 2.5 year programme ended up being approximately 12 quarters thanks to the delayed operation of the new SAG mill - plus other set-backs through weather, shaft fire, et al.
They started with cash of $100.7m at the end of FY11 and paid out $23.3m in dividends over FY12 & FY13, leaving them net cash of $77.4m to fund the expansion project.
Over those intervening 12 quarters (up to June 2014) they paid out $95m for capital works which, with c. $2m/qtr of underlying sustaining Capex, equates pretty closely to the original budget of $70m for the upgrade.
However, over the same period, exploration cost another $74.9m, mine development cost $102.1m and corporate overhead was $25.9m. A total of c. $202.9m.
All of these items needed to be funded by ongoing operational cash generation, which turned out to be during a period when the gold price dropped significantly.
In the event, over those 12 quarters, Free Cash Flow (FCF), ie the difference between cash generated from operations (OPCF) and investment outlays (all of the above items) was -$78m. (ie. OPCF of $219.8m minus Investment outflows of $297.8m). The average FCF over the 12 expansion quarters was -$6.5m.
The delay to the SAG mill and the fall in revenue/OPCF due to the fall in PoG coupled with reduced production, necessitated fresh capital injection of $29.8m from an equity raise plus a moderate level of debt/overdraft from local banks.
Hence, at the end of the expansion programme they ended with cash of $13.7m and debt of $9.3m, therefore net cash of $3.7m - so it all got pretty tight for them!
However, the last negative FCF quarter was June 2014. In the September quarter they had a marginal positive FCF of c. $0.7m and then achieved c. $$5.8m over the December quarter.
Over the half year they have used this FCF to reduce their total liabilities from $33.2m to $27.2m (ie they have paid down debt and creditors by $6m). Total assets have risen from $445.35m to $466.7m (ie an increase of $21m) and they have expensed $14.2m of capitalised costs via D&A.
So, how does the rest of FY15 look?
On the basis of the expanded haulage capacity now available, it looks reasonable to estimate mill throughput at c. 180kt/qtr.
With the improving ratio of stope ore to development ore now being achieved I would expect blended head grade to work up to c. 6g/t over the next 2 quarters. So, c. 5.7g/t for Mar qtr and 6g/t for June qtr.
Recovery looks to be fairly consistent now at 93% but with possible small improvements due eventually from the new leaching capacity.
Hence, my estimates are c. 30.6koz for the March qtr and c. 32koz for the June qtr.
I am leaving cash costs at c. $380/oz for the 2 quarters, so OP costs of c. $11.6m for March qtr and c. $12.2m for the June qtr.
Which just leaves PoG !!
Impossible to know what the gold price will be going forward. But the average, so far, for 2015 is $1247/oz - so I have assumed $1240/oz over the remaining period of FY15.
Put it all together and I arrive at the following:
............. March Qtr ... June Qtr
OPCF ...... $26.4m ...... $27.8m
Outflows .. $16.3m ...... $16.3m
FCF ....... $10.1m ...... $11.5m
note: I estimate the $16.3m outflows as:- Exp ~ $2.9m; Cap ~ $2.1m; Dev ~ $9.6m; Corp ~ $1.7m.
Barring any unforeseen issues at Co-O I consider the main variable will be the gold price.
2H base case (PoG at $1240), FCF = $21.6m
+5% PoG (ie $1302), FCF = $25.5m (so 18% higher)
-5% PoG (ie $1178), FCF = $17.7m (18% lower)
Which puts MML's OPCF leverage at c. 3.6x the movement in PoG.
AIMHO of course
CPDLC
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