Ann: ABY Takeover Update,MLX-ABY.AX, page-9

The way I see it is this:

Hindalco decided to sell its 50% stake when MLX sweetened a 45c deal with an 8c cash component. That took the logic off the table that many a punter on here was saying was driving the deal - namely the fat cash kitty sitting around on ABY's books (and ABY was, at one stage, trading at close to cash backing).

So the logic of a cash grab is now gone (and Hindalco gets to keep its cash) and the deal went up in cost by 20%. Now, either MLX was significantly lowballing the price (due to being super amazeballs managers and miners) or they were paying full price.

If it was the first, then the cash grab raid on ABY's kitty was never going to fly, and now they've paid full price for the cash + book value, which means this wasn't such a flash deal for MLX holders in the end. I mean, you've suddenly paid 20% sweetener on a sweet deal, so the profit has to be wrung out of this deal the hard way.

If they were already offering full price for the asset + cash, paying 20% extra means suddenly you don't have such a great deal, and you also don't have the cash kitty you wanted to sweep up, which means you're out of pocket. You suddenly have to make 20% more profit magically appear from Nifty. Now, I'm not saying the Indians ran a good operation, but it's a mature mine, so 20% opex efficiencies aren't going to come easily or instantly.

Now, aside from this logic, MLX (as said a month and a bit ago) has a hefty slug of problems to iron out.
Fortnum needs $15M (25%!) of the company's cash to start on low-grade stockpiles.

Now, some of these stockpiles are 45-60km from the mill (Horseshoe-Cassidy, Peak Hill, Harmony, Wilthorpe) and barring complete miracles in transport costs the cash margin is quite thin once you account for capital (you need road trains, extra diggers, etc), mining, and milling.

Of the deposits at Fortnum, 90% of the 2.4Mt in Reserves are at a steep 11.5:1 strip ratio. There's a big sink in cash there. For Yarlarweelor's 2Mt of ore, you need to move 20Mt in material before you get anything back. You then have 2 years of production.

So, if you taker their $15M for a mill refurb, camp refurb, pre-strip, etc, that means they are mining all the cut-backs at Yarlarweelor for less than a buck a tonne. Not realistic. makes me wonder, it truly does, how RNI couldn't afford $26M to do this and suddenly MLX can do it for $15M.

Remember, $15,000,000 to develop 153,000 Oz = $100/Oz capital cost to get the thing into production. Add in the $13/Oz they paid for it, and your AISC begins heading upwards a smidge. So if they were to do $26M like RNI's PFS, not too flash. So what's their cost projection? North of $1200 I'd say.

Then they are commissioning a bunch of mines in the CMGP. Big bucks there. Costs for some of the mines are eyewateringly high and AISC's for all their operations are north of $1380. Realised price was $1588 vs spot above $1650. $200 an ounce profit, socialised across the Group.

So, I wonder what will happen when MLX has 550M shares on issue, $45M cash, and is making 200K Oz @ $200 for about $36M profit pre-tax.

At $1.10 a share, that's looking like 10% cash backing, with a 10% dilution to Hindalco and ABY, and a forward PER of close to 15. Not what I'd call a stable share price prediction.

If the company was making gold for $1200 an ounce like everyone else, it would be rolling in money, so I guess the idea in the price going up is,
a) ensure Hindalco et al in ABY sees a 4.5:1 and 8c cash-out sweetner looks fantastic (for juuuuust long enough to get it through)
b) hope they iron out all their cost problems via playing whack-a-mole with the issues, and drive group costs down to $1200/Oz territory (25%! heroic)
c) hope their Fortnum strategy pays off and they don't hit "troubles" that causes the capital to blow out
d) Hope they don't have to spend big refurbing Nifty
e) Don't even mention Wingelinna capex

Pretty much I rate MLX's chances of going up in price in the next year at 4.5:1 with a cash sweetener (or not much)