Ann: 81% Increase in Greenfields Mineral Resources, page-10

Time to revisit SMN Post from July 2019, 100,000 oza Pa might not be too far off.

As a result, comparisons between companies are difficult. However, suppose a person wants to compare the returns on gold stocks to term deposits. If the interest rate offered on terms deposits is 2% then it takes $50 to get a $1 return. A quick look at the dividend paying, ASX-listed, gold producers reveals that it takes as little as $25 and as much as $150 to get a $1 dividend. Put in a more conventional way, the dividend yield on those companies varies from a high of 4% to less than 1%.

So, what is the price prediction for FML? Obviously, you have to make all sorts of assumptions. It seems to me that the FML Board is sensibly moving towards sustainable production of a good amount of gold with good grades and a good AISC.

Assume 100,000 oza pa (at least initially).

Assume an AISC of AUD1,200

Assume a PoG of AUD2,000

That would yield AUD80m pa, ie (2,000 – 1,200) x 100,000

Initially, no tax due to tax losses assume but 30% in due course.

Assume AUD24m pa: for increasing plant capacity initially and later for tax.

That leaves AUD56m pa.

As I have said before, if a gold company is only mining then, sooner or later, it runs out of gold and if it is only exploring then, sooner or later, it runs out of money. That is why a combination of mining and exploring is ideal. So allow something for a continuing exploration programme.

Assume AUD16m pa for exploration.

That leaves AUD40m.

(I accept that the increasing plant capacity and exploration would likely reduce tax and make more money available after tax but let’s keep it simple.)

Assume half that is paid in dividends.

Since a 1c dividend costs FML less than AUD2 million, for AUD20m you get 10c.

Shares in ASX gold miners are selling at between 25 and 150 times the dividend.

That suggests a share price of at least AUD2.50.

I note that Shandong bought around 4,500m shares at 5c, costing AUD225m

After the 50 to 1 conversion, that becomes 90m shares at a cost of AUD2.50

So, in Shandong we have the benefit of their expertise and a shareholder that must surely want to get the share price up to at least $2.50 since that is what they paid for them.