Well Ord Minnett have a different view to many of us on FML. I think they have done an ordinary job in their analysis and my reasoning is that they are using their rear view mirror - and IMO have not looked out the windscreen. Here is a cut and paste to their clients:
Approved for external distribution ASX Code: FML ($0.056) Company: Focus Minerals Current Recommendation: Lighten (previously Hold) Current Risk Rating: High
Significantly lower than expected gold production and higher cash costs were experienced in 2Q12 by mid cap WA gold producer, Focus Minerals Limited (FML), which included its majority interest (81.6%) in high cost junior gold producer, Crescent Gold (CRE, not rated). Key features of the quarterly were:
§ Gold production at its wholly owned Coolgardie operations was 21,432 ozs (down 1% on the previous quarter). Production was adversely affected by unscheduled treatment plant issues and unseasonal rain. Direct cash operating costs were A$1,076/oz, (14% higher than in the previous quarter).
§ Gold production at Laverton by 81.6% owned CRE was 15,666 ozs (29% down on the previous quarter) at an average direct cash operating cost of A$1,467/oz (down 8% on the previous quarter). This production was from only a 32 day treatment campaign at the Barrick Granny Smith facility.
§ Equity gold production was 34,216 ozs (18% below our forecast) at an average direct cash cost of A$1,222/oz (12% higher than our forecast).
§ Cash reserves were reduced to $18.6m on a group basis after capital expenditure of $12.7m, (comprising $8.5m of mine capital development and $4.2m of exploration) and the estimated modest operating cash flow from the high cash operating costs. FML activated a revolving $10m credit facility.
§ Exploration continued at the company’s Treasure Island project where aircore drilling has discovered a second thrust fault to the east of Treasure Island, suggesting that the Boulder-Lefroy Fault system could have split in two through the project area. Further aircore drilling is currently underway.
We have reviewed our forecasts for FML in light of its disappointing 2Q12 output and higher operating costs. We are forecasting a lower 1H12 result with reported NPAT now expected to be around $4m and operating cash flow of about $13m.
We have also revised our valuations of the company to reflect the likelihood of continuing high operating costs. Our base case valuation of FML is reduced by 11% to $0.049 ($0.055 previously) per share and our upside valuation is reduced by 8% to $0.068 ($0.074 previously) per share.
Notwithstanding its share price retracement and potential for improved operating performance from the new open pits at Laverton, we have downgraded our recommendation to “Lighten” from “Hold” with high risk because we see FML as a very likely relative underperformer compared to others in our gold universe.
Our revised share price target is reduced by 9% to $0.05 (previously $0.055).
[Analyst omitted]
End ******************************************
I passed this to FML so they can contact them to discuss the issues, calculations and assumptions and I did this for FML, the shareholders (including yours truly) OM themselves and their clients. I mean no disrespect whatsoever, it is just that I see there are some glaring errors - for instance the cash balance - no bullion counted.
FML has +$14M and CRE has $11M (FML share $9M) so liquid reserves are actually around 25% higher than they have reported. They also make it sound like the company is in trouble as they have not analyzed the cash flow for this current quarter or the forward mine plan. They have not looked at the current quarter at all to establish if the results are temporary or not, old news now IMO, I could go on and on. With all due respect it still amazes me that a firm with their resources...
Ah well but that is why I have a nice little business as an independent analysis. Hopefully I compliment the industry from an educational viewpoint and this is relevant to FML hence my comments here in this post. I will be over there reviewing the entire group again in a few weeks and looking forward to the trip and update. Brokers are obviously too busy to make such trips on so many companies so I have an obvious advantage on this stock as I am close to the ground so to speak. A new quote for you all...
"A fool and his shares are soon parted" Neil Charnock 2012
Cheers, CW DYOR&DD
FML Price at posting:
5.5¢ Sentiment: LT Buy Disclosure: Held
(20min delay)