Being an equity investor is not always easy. Everybody want a smooth path towards their personal goals. Often this is not the case. For investors in MML this is not different. I have been in the business for more than 25 years now and I haven learned some valuable lessons in that period:
- the most important one being: allways expect the unexpected;
- disappointments will always be there;
- but the economic framework of a company will always lead the SP although not on a daily basis.
Where does MML stands:
In earlier notes I mentioned the most important strategy MML is following now, that being that since last august there is a new management which is bringing the company back on track and the fact that the company delivers what it promises. So restoring the faith in the company is what matters. According to my observations Mr. Davis is doing just that. It is also honest to say that it will take some time before the mine is up and running with the higher capacity of 204.000 T per quarter. I have already written that the fact that the management team have been approved of stock-options with an exercise of 1 AUD per share for a limited period is a big boost to the confidence I have in the company. They see value in the company, exactly the way I like to see it. So the fundamental picture of MML is that in the next two to three years the will increase their production from the CO-O mine to a level of around 160-170.000 OZ per annum when all the infrastructure project are finished and up and running. For a further look it is interesting to see if MML can develop a second production location next to the CO-O mine. If this is the caste than it will be a total other ballgame. There is some skepticism in the market about the increasing costs to deliver the higher production. I am sure that Mr. Davis is aware of this and he and his team will do their best to make sure that all investments are profitable for the SP and that costs are controlled. But it is a fact that, as we say in the Netherlands " de kost gaat voor de baat uit" or: you first have to invest before you can gain the fruits of that. Mr. Davis must guide the equity holders in this investmentprogramme to give them comfort that everything is in control concerning costs.
So this brings me to my own conclusion that the economic framework for MML is better than for many other companies, not withstanding the unknown factor being the POG.
this brings me to the other lessons: always expect the unexpected and disappointments will always be there. For me that has been the last few weeks when the SP of MML dropped from almost 1,1 AUD per share to a level of just 0,84 AUD. I have no explanation for that, to be honest. Only the way the tax system in Australia is working can explain some of the losses in the last weeks. I can only expect that that will disappear from July the 1st. With some patience the economic variables will take their place again. The financial results for the FY 2014/15 can be a positive input factor for that, at least when the production will be in the range of 99.000 - 103.000 OZ. Combined with the guidance of 120.000- 130.000 for 15/16 it give me confidence for the next year (s). Personally I would't be short in MML for that matter, because when the sentiment really turns the corner, backed by the fundamentals, the first part of the re-ratingproces is not going to take long. The fact that some bigger investors a taking stakes in MML tells me that other professionals are starting to look at MML. Also in an earlier note I wrote that by far the most important factor for a higher SP of MML in the future is the very low PE MML has. Around or just under 3. I will not say it should be around 10 to 12 because of its size I understand that MML is not tier1 gold producer, but still a PE of 3 is way too low.
During this re-rating prices other unexpected things will happen (perhaps the POG will increase towards the USD 1.600 level again, who knows), but for me the economic input factors for MML will eventually define the SP. From my note you will understand that I have a positive feeling about MML, not withstanding the shorttetm volatility which I can't explain.
MML Price at posting:
84.0¢ Sentiment: Buy Disclosure: Held
