After spending a few weeks in a very hot Italian sun I looked at...

After spending a few weeks in a very hot Italian sun I looked at the SP of MML for the first time in a few weeks. I noticed that after the collapse from almost 1 A$ to 50 cents, the stock entered a bottoming prices. Now the price is 54 cents, it was 57 cents when I left for Italy.

I think that what we have seen over the last 4 to 6 weeks has two sources of information which filtered into the SP:

first company-news: the slightly disappointing production figures for the 4th quarter, bringing the total for FY14/15 to a level of 98.500 OZ. We have to take into account though that the level of " stope inventory" has increased from 20/25.000 tons in january towards 60.000 tons at the end of june. Besides that the " head grade" stand now at a level of 7 gr. per ton. This already represents a production of OZ of 60.000 x 7 x 0,94 = 12.690 OZ. So a good start for the coming year. In an earlier note I wrote that we have to take management seriously in their guidance for production levels. So for FY 15/16 I am penciling in 125.000 OZ. A very decend increase. From the quarterly report you can read that the AISC is still quite high. This has everything to do with the investment program which MML is running on infrastructure projects. They are aware of that because they write that for the medium term the AISC will be at this " elevated level". Once the projects are done the AISC will fall to competeting levels. I would like to hear from the management what these levels are. The mill efficiency is not up to standards. Although it increased from a low in january to a level just under 80%, it can be better. Management is aware of this and is spending time to improve this. I hope management will spend time on this issue in the next annual shareholders meeting.

So far on MML. The info from the production report is not enough to let the SP almost drop 50%. There must be something else. There are two important sources of unrest: the drop in POG (which has initiated an outflow in funds in gold miners, that is why all gold miners have dropped to levels not seen for many, many years) and the " pessimism" amongst investors about the state of the world wide economy. About the first. I know that a lot of analyst are writing of a POG of around 1000 $ per OZ. I know about the sudden very big sell order a few weeks ago which let the POG drop by 50$ per OZ. It is very difficult to predict the POG. But when you are investing in goldmines you must at least have an opinion of yourself. I built my opinion on economic factors which are important for gold. For me it is important that the market in real bullion is normal, what is offered, is sold. The market is in balance and the costs of getting gold out of the ground are high enough so that mines are feeling the pain of today's POG. For me this is an indication that the chance of a higher POG in the future is more than 50%. The market in etf's is a different story. There are a lot of participants in the market: speculators and funds who offer their clients a portion of gold in their portfolio's without have to own the real gold itself (not everybody has a safe at the bank to keep it there). It is difficult to tell from activities in this market where the POG will go for the next couple of months. Another reason which is given by analysts is that when the FED starts to increase interest rates, these higher rates will make sure that more investors will return to bonds and sell other assets, for example gold and equity. Gold doesn't pay interest nor dividend, analysts are telling me. Two things about interest rates: rates go up because the FED believes the economy is robust enough to cope with higher rates and the shape of the yield curve matters. When the economy is in better shape you will finally see, next to higher rates, a higher inflation level (higher not high). In the longer run gold has always been an inflation hedge. So although gold doesn't pay a direct yield it will "profit" from a higher level of inflation. About the shape of the yield curve. Today the curve in the US is quite steep. This is not because the yield in the long end is high, but because short term rates are extremely low. It is my expectation that the curve will flatten when the FED start increasing shirt term rates. The long end will not follow the short end and the increase in longer term yields will be mitigated. For me it remains to been seen if investors start selling equities and gold big time to put the money on a savings deposit yielding 2% on an annual basis.
The weak economy: I also see that while the economy is improving on a global basis, it is not the growth you would expect. For me two reasons for that: after such a deep crisis it will always take time to recover. Especially banks need time to recover their losses and to adapt to the more strict rules from their supervisors. The same for insurance companies. Governments around the world are still seeking for more money so taxes are high. This also not stimulates an economy. Finally we face a greying population. When people are becoming older their consumption changes. This all has an impact on the growth of the economy. Although I am not negative on the economy I am aware of the fact that the level of "normal growth" will be lower than in the last decades.Finally for me personal, gold is an asset (and thus gold miners) I would like to have because it will give me comfort in times of great unrest. I still don't feel very comfortable with the built up of debt all around the world. That is why I think MML is doing a hell of a job by financing their expansion with their own cash.

Reasons for me why I find MML attractive at this moment:
it has a good management which delivers as promised, it has almost no debt, it is increasing production so finally AISC will drop, the POG is not high, and the stock is priced like their is no tomorrow. Yes I am positive on MML (perhaps the release of the annual figures next week is a good start for others to become more positive on MML).