Medusa Share Discussion Threads

[chipperfrd] 09/3/2016 23:30

Excellent article on the COMEX (just in case there is anyone who still does not know what actually drives the gold price)!

[justinjjbuk] 09/3/2016 19:11

Speedsgh

I looked at the bottom ten names in the ASX 200 following your link. Market caps range from SGH at A$136 million to WHC at $790 million. Six of the 10 were in the 300 million bracket.

MML looks a long way off at the minute (currently $146m), although another name I like, RSG, looks a likely candidate.

But I presume ASX 300 will be rebalanced at the same time and MML will have a shot at this. Does anyone know how much money is passively indexed to the various ASX indices?

Also, a thread on Hot Copper mentions that the next rebalance will take place before Aussie market open this Friday 11th. Anyone know where I can find the official rebalance schedule dates?

Finally, thanks for the heads up on GDXJ ETF (I think it was CNC but apologies if it was someone else). Do we know what their criteria are for inclusion (size/rebalance dates). I tried to Google this but just got a lot of false leads.

Thanks

Justin

[justinjjbuk] 09/3/2016 14:12

Thing to ruminate on.

Below are the relative performance numbers for small cap Aussie gold names that I track (defined as market cap between US$50 million and $500 million).

I've take this from when the global gold miners bottomed; i.e., January 19. Note that from that point both HUI (NYSE Gold Bugs Index) and XAU (PHLX Gold/Silver Sector Index) are up 70%. Not bad for mega-cap names like Barrick, Newmont and Goldcorp!

MML has been doing pretty well at 90%, but has been eclipsed by MOY, RSG and TRY. What those three had going for them is the holy trinity of production uplift, positive exploration announcements and debt pay down (so catalyst announcements galore). And they were all cheap at the start (although now slightly less cheap).

Of the three laggards, I think that the Indonesian play KRM looks expensive. KCN is really cheap, but lacks a catalyst.

Metals X (MLX) is worth a look. Is not a pure gold play but profits mostly driven by gold, and the company was vulture investing in 2015: picking up distressed asset sales. I think it did so well in 2015 (a bit like SBM) that has been neglected in this rally. But for such a well-managed company, it now has a rock-bottom valuation.

And I still like MML on a valuation basis. It's just we don't have a near-term catalyst beyond the gold price and a strong expected Q3 report.



Jan-19 Price CapUS$ %chg
MOY 0.044 0.110 58 150.0%
RSG 0.250 0.610 275 144.0%
TRY 0.200 0.470 113 135.0%
MML 0.370 0.705 103 90.5%
SLR 0.205 0.355 126 73.2%
RMS 0.245 0.415 138 69.4%
BDR 0.160 0.250 162 56.3%
DRM 0.595 0.900 195 51.3%
KCN 0.275 0.395 62 43.6%
KRM 0.200 0.250 63 25.0%
MLX 0.980 0.930 311 -5.1%

HUI 100.7 171.7 70.5%
XAU 38.8 65.9 69.6%
Gold 1,084 1,256 15.9%

[chipperfrd] 09/3/2016 13:52

Justin

I think you will find that both methods will get pretty close.

I can normally get within a few USD of average realised price over every financial period (assuming the miner is not hedging of course). I have been doing it for about 5 years now and find that it helps between financial reports if I need to get an ongoing estimate of revenue.

Chip

[justinjjbuk] 09/3/2016 13:46

Chip

I think the difference is that I project forward the most recent numbers (London fix) to end of quarter. So my number is a blend of historical numbers and projected numbers.

So as we are above $1,250, and I project that forward, it pulls my average up. That's how we are getting the $20 dollar difference.

If you assume the current spot price of gold is the best estimate for the future price of gold over the coming month (not a bad assumption), I think my number will be a good guess at what the company will actually announce as their average PoG for CYQ1.

Justin

[chipperfrd] 09/3/2016 13:04

Justin

I track the weekly average US$ gold price OHLC (from ShareScope) as part of a COMEX CoT tracker.

The average closing price for 2016 as of last Friday's close was US$1,169/oz.

Chip

[justinjjbuk] 09/3/2016 12:51

CNC

I maintain a simple spreadsheet to estimate the current quarter average PoG. It just weights using each London fix (when most commercial gold is sold) and for the the remaining days of the the quarter I just project the last London fix forward. As we get deeper into the quarter, the prediction therefore gets more and more accurate.

As of the am fix of 9 March, estimated average PoG for the quarter is $1,189. For last quarter, MML had an average of $1,096, so we are seeing a $93 uplift. Times that by 30,000 oz and we (roughly) get a nice $2.8 million extra free cash flow.

I think ultimately these cash flow hikes are what will lead to continued revaluation of the shares. That said, the market remains skittish over the sustainability of this gold price move. We have had a number of years when gold has had a strong CYQ1 and then sold off. So the market may be looking for evidence of the durability of this gold rally before taking MML to much higher levels.

Justin

[chipperfrd] 09/3/2016 08:24

Thanks cncventure

I have added Ev/NPAT to my earlier comparison table to emphasis your point.

Stock . PE(x) . Cash ratio . ROCE .. ROE . Margin . EBIT/Ev .. AIC . Debt/Equity . Magic . Ev/NPAT
BDR ... -8.0 ......... 0.1 . -21% . -22% ... -14% .... -12% . 1226 ........ 60% .. -33% ... -10.7
EVN ... 18.3 ......... 0.2 ... 3% ... 5% .... 12% ...... 5% . 2340 ........ 29% .... 8% .... 42.8
KCN .. -11.7 ......... 0.4 .. -5% .. -1% .... -5% .... -21% .. 911 ........ 27% .. -25% ... -43.1
MML .... 1.8 ......... 0.6 .. 14% .. 14% .... 45% ..... 28% .. 928 ........ -1% ... 42% ..... 3.6
NCM ... 60.6 ......... 0.2 ... 1% ... 1% ..... 5% ...... 2% .. 802 ........ 39% .... 3% ... 154.0
NST ... 10.1 ......... 1.4 .. 18% .. 17% .... 15% ..... 16% .. 925 ....... -50% ... 34% .... 17.2
OGC ... 32.1 ......... 1.4 ... 4% ... 5% .... 10% ...... 6% .. 863 ......... 1% ... 10% .... 15.1
PRU .... 8.4 ......... 2.0 ... 2% ... 2% ..... 8% ..... 26% . 1412 ....... -16% ... 28% ..... 8.9
RRL ... 14.7 ......... 1.4 .. 13% .. 11% .... 19% ..... 10% .. 882 ....... -13% ... 23% .... 28.2
RSG .... 2.1 ......... 0.0 .. 20% .. 42% .... 38% ..... 25% .. 787 ........ 42% ... 45% ..... 5.2
SBM .... 6.5 ......... 1.3 .. 20% .. 38% .... 25% ..... 17% .. 658 ........ 95% ... 36% .... 15.4
SLR .. 470.2 ......... 0.7 ... 0% ... 0% ..... 0% ...... 0% . 1029 ........ -9% .... 0% ... 861.8
TRY .. -12.0 ......... 0.3 .. -3% .. -4% ... -10% ..... -6% . 1738 ........ 27% ... -9% ... -31.7

Chip

[roguetreader] 09/3/2016 07:42

Cnc
Great post thanks for your views
RT

[cncventure] 09/3/2016 03:52

@Chip - I agree, only a matter of time before we get above A$1 (assuming the gold price holds) and I also agree that a full year's earnings will go a LONG way to reversing sentiment.

That said, a solid quarterly with the price of gold above $1250 could turn some heads if their production is north of 30,000oz and US$7M+ reaches the bank account.

That in itself could potentially be the catalyst that pushes the MML price into GDXJ inclusion territory.

And from memory GDXJ used to hold 15M to 30M shares - that's A LOT of shares to accumulate in a quarterly re-balancing window.

I'd be surprised if traders weren't already thinking of trying to front run that built in demand for MML shares once it passes $1.

So you might see them start piling into once MML gets $0.85+ assuming the gold price remains steady.

That said, tightfist does make a good point about trading volumes, there is a chance that volumes might drop off to the point of not qualifying for GDXJ if the gold falls out of favour - that said at the volumes are comfortably supportive of inclusion at present (by my understanding of GDXJ's requirements).

As for the ASX200, in the near term I think the prospect of being put back into GDXJ is far more likely...

Ass was mentioned above, the 190th largest market cap in the ASX200 is currently A$470m... So MML will likely need to be trading north of $2.50 before that starts to look like it might happen.

That said, when it does happen, and I suspect it will within the next 18 months assuming the PoG remains at these levels or higher, it will be great for the share price and the caliber of investors it will attract.

@tightfist - yep same cnc.

I too unfortunately held MML through the ASX200 and GDXJ dump, as heartbreaking as that was I tried to see it as an opportunity and ended up buying a lot of MML while it was sub $0.60 and got my dollar cost average back down into the 50s (which in hindsight seems like a good move but at the time it was gut churning).

Also my sense is without a serious gold price fall (ie back to below $1050) gold miners (like MML) are likely to revert back to more normal valuation multiples which should make the risk of getting bumped out of GDXJ again extremely low.

In MML's case, once it is back in GDXJ the share price would need to drop back below A$0.50 for it to be dumped again... EXTREMELY unlikely with the current operations, balance sheet and gold price.

The reinstatement of dividends in 2016 is another potential share price catalyst.

Whilst speculative, but if the gold price remains above $1250 (or goes higher) I suspect that half yearly NPAT's will be $50M+ and it will become increasingly difficult for the board to justify not distributing some of those profits...

Another potential catalyst would be a mine value write up.

If I'm not mistaken when they wrote down the value of the mine last year the gold price was trading around $1100 (and they revalued the mine on the basis of gold being $1200)...

I don't know what the MML accounting policy is and how much higher than $1200 the gold price would need to be to prompt recalculation of the carrying value of its assets, but if gold was to go north of $1300 by the EOFY, who knows, they might be required to write up the mine value on top of what would be a record NPAT...

And of course the final, and probably the biggest and most likely, catalyst for MML's share price will simply be time.

At a share price of $0.74 and the current half year NPAT, MML is trading on an annualised EV/NPAT ratio of 1.15!

Assuming the average gold price for Q3 is $1220, production is 32,000oz, they replace those ounces, costs are roughly the same, the AUD/USD remains at 0.74 and they don't pay a dividend...

Then by my calculations to maintain an EV/NPAT ratio of 1.15 on an annualise Q3 result will require the share prices to rise to $0.97!

If you assume the same situation for Q4 but with a gold price of $1255 (ie the current price), then to maintain an annualised Q4 EV/NPAT ratio of 1.15 the share price would need to increase to $1.14.

Also it's worth noting that of the 14 gold miners (MML, EVN, NST, NCM, TRY, PRU, SBM, SLR, RRL, SAR, RSG, OGC, BDR, AQG) whose half yearlys I looked at MML's EV/NPAT was the lowest by quite some margin, the next lowest being 2.0 with the median EV/NPAT being 12.9.

So even MML's becoming the second lowest valued gold miner of those above on an EV/NPAT basis at current gold prices would require its share price to get to about $1.60 by my calculations.

So with gold at these levels "time" alone will hopefully take care of MML's share price.

Would love to hear what other think of those catalysts or if they have any others they think are likely to occur in 2016.

[roguetreader] 08/3/2016 20:40

Justin
Interesting post, couldn't agree more re the TD Direct transfer process, never ever again.
RT

[justinjjbuk] 08/3/2016 20:32

On UK brokers trading MML

Just to extend the comments on trading MML though a UK broker. I am a holder of MML in a straight non-tax wrapped account with TD Direct. You don't need need a limit order and you can settle in A$. Because I am trading a lot of Aussie names, I tend to always specify settlement of proceeds in A$ because I know I will buy back into an Aussie name. That way I save on the FX.

I have both a SIPP and an ISA. The SIPP gives me the same flexibility as the straight trading account: market or limit order and I can hold Aussie dollars in the account.

The ISA is annoying since you always have to go via sterling. For that reason, I use it as an account for my buy and hold names (Chip style long-term value approach). If you tried to trade aggressively using an ISA in Aussie names you would give up half your performance in FX fees as you go in and out of names.

Ironically, the account I find best suited for a more aggressive trading approach is the SIPP: flexibility on which currency to park cash, full order flexibility and no worries about capital gains. Not sure that this was the government's intention when they set up the SIPP trading rules, but I am not complaining!

There are a few annoying gremlins in the TD Direct account. For some reason, when the Aussie market opens at 11pm UK time Sunday night, the TD account shows the Aussie market as closed and doesn't allow you to place an order. As the session progresses, the TD systems get up and running and this sorts itself out. But this can be really annoying when an Aussie name puts out a release before the Australian Monday market open and you want to react to it. Basically, you can't. The catalyst will get absorbed in the price before you can do anything about it.

The other gremlin is that often the value of holdings are calculated wrongly. Often the system takes the offer price rather than the last trade price and so you suddenly think you holdings are doing better than they really are.

I toyed at one stage with opening an Australian account, but given TD Direct is set up for all the tax exempt accounts and also allows me to seamlessly move money in and out of my UK bank account, I decided it wasn't worth it. So I have remained a long-term customer with TD Direct, although they were bloody awful when some of my MML stock moved from LSE to ASX.

Well, I learned my lesson on that one. If a name delists from one stock exchange and your account provider tells you that the transfer to another exchange is simple and straightforward, don't believe them! Sell the stock before the stock delists and buy back in the other exchange. Not doing this cost me an absolute bloody fortune.

Justin

[chipperfrd] 08/3/2016 17:48

Tightfist

Lowest in the ASX200 is now down at A$222m and the index has been trending down over 12 months - I guess the 'chill wind' of the Chinese/global trade slowdown is making it's mark as it is in most markets.

We shall see what pans out over the next 12 months for both MML (and peers) and the wider markets.
Chip

[tightfist] 08/3/2016 17:04

Chip,

Not sure the rules of promotion into the ASX200, but the last 5 who went in had Mkt Cap's ranging A$983m - A$613m. The five lowest exiting on 23rd December were A$397m - A$248m.

On that basis we have got some way to go - I am looking for $3 (A$621m) in the not too distant future. We were last at A$3 in April 2013 when forecasting 75,000 Oz pa reputedly at a cash cost of $296 when PoG was $1,364.

Cheers, tightfist

[bushtuckaman] 08/3/2016 16:53

Davegk thanks for that. AJBell, charge £30 for the oz overnight limit order trade, plus 1% fx charge per trade. Maybe an IG spread bet is the way to go!

[chipperfrd] 08/3/2016 16:08

Thanks Speedsgh :-)

[speedsgh] 08/3/2016 16:04

Chip - It's ASX200...

[tightfist] 08/3/2016 15:35

Hi cnc,

Good to hear from you, I have enjoyed browsing your comments on HC (I guess it's the same cnc!).

We all found that being part of GDXJ ETF was a double-edged sword, especially in early 2015. The mis-match in liquidity is surely one of the main reasons that MML share price ended up in the dirt when GDXJ holders decided to liquidate. Steady-handed holders such as Dimensional, Paradice, Ruffer are good to have around, but a catalyst like GDXJ could take us back to a whole world of pain if Gold sniffs reverse gear - also volumes may fall back from current levels when the initial euphoria has died down?

More positively, A$1 doesn't seem that far away...... Cheers, tightfist

[chipperfrd] 08/3/2016 15:17

cncventure,

Only a matter of time before they get above A$1 in my opinion. And true, they may well then be bought back into the ETF. There must also be the possibility of a return to the ASX250 (or is it ASX200 - I forget).

However, given the poor sentiment towards the stock which still pervades, it might well require a full years figures to convince the market to dip it's toes back in.

I am taking a minimum of a 3-year forward view. Happy to see them keep up with what they are doing and to rebuild their cash reserves. Obviously, there is also all this management 'hoo har' re the next CEO/MD and COO, but I imagine it will all sort itself out pretty soon.
Chip

[cncventure] 08/3/2016 14:36

There has been discussion about lack of catalyst for MML, but would MML being absorbed back into GDXJ not be a potential catalyst on the horizon if the price of gold remains where it is or moves higher?

My understanding is that to be eligible to be listed in GDXJ, MML needs a market cap above US$150M and a volume average of 1M shares per day.

At present, they seem to be comfortably averaging the volumes and to reach the market cap target they only need the share price to move above $1.

Thoughts?

[davegk] 08/3/2016 12:31

Chip, regarding the candy’s involvement.

Yes there were very cheeky the way they tried to grab the company(MTL) a few years back, but that’s in the past now. I spoke to the company’s CEO at an AGM and he said that the Candy brothers were prevented from acquiring more than 49% of the company.

They have been supportive in the fundraising needed to get the company going.
One of the big risks with a share like MML is that somebody could come in and take over the company at a knockdown price. That could only happen at MTL if the candy’s agreed.

The main problem with MTL is the small free float.

[davegk] 08/3/2016 12:21

IG stockbroking only cover UK Europe and North America, they may add Australia at a later date they say.

IG spread betting quote live prices during the Australian session and include MML.
One interesting feature of holding MML in a spread betting account is that you are not exposed to the GBP AUD exchange rate.

TD direct investing covers the Australian market (including MML), you can enter a trade at any time when the market is open, but I think it has to be a limit order. The big problem with TD direct investing is if you are using funds in a ISA TD charge 2% on the Fx. That’s 2% when you buy and 2% when you sell and of course when you do sell in an ISA it can only hold sterling so when you sell, the Australian dollars are converted to sterling even if you immediately want to buy another Australian company.

This does not apply to a SIPP where you can hold foreign currency. All the money in my TD SIPP is in US dollars and remains in US dollars which I use on the American market. There is still the 2% Fx charge but you only pay once to convert sterling to the currency of your choice. They have about eight currencies and of course you can mix and match.

I suspect but don’t know that a TD non-ISA account might work in the same way.

Saxo bank cover the Australian market(including MML) and in a ISA the Fx charge is a more reasonable 0.5%. They quote live prices when the Aussie market is open. Possible problem with saxo bank is they have a £50,000 minimum account size for an ISA. Saxo bank is covered by the financial services protection scheme.

[chipperfrd] 08/3/2016 12:15

Davegk,

Thanks for the list.

No I have not looked at MTL for ages. The involvement of the Candy brothers finally turned me off. But I will have another look as I used to be quite positive on their potential 'back in the day'!
Chip

[bushtuckaman] 08/3/2016 12:02

Davegk, can you trade MML on IG from the UK during the oz trading session? Or is there another broker that allows you to trade MML mid session in Oz (uk based)
Currently have an AJBell account, which only allows you to put an overnight limit order in during UK open hours... far from ideal!!