It has been a while and during those weeks the POG has done not bad, especially in AUD, so that is good for the Aussie miners. There has been quite some discussions about the change in the GDJX for next june etc etc. Although for the short term this will deliver volatility and downward pressure on the miners at stake (I do think quite some portion of the changes have already been organized via for example stock lending transactions, so the rest-impact can be mitigated). On the other hand you see that the big mining companies are trying to buy in on new ore (see the deals with Gold Road and Continental Gold in Canada). I always find it very important that insiders are on the buying site. Next to that quite some discussions about political uncertainties etc etc. So never a dull moment in the mining industry. But next to all these kind of developments, investing in a gold mine means that the miner must be able to produce profitable. This point is somehow not getting the attention it deserves. After some disappointments in Q1 of FY17 (some because of the heavy rain in australia in march/april) I think we are in for a much better Q2. MOY stands out as one of the companies who has quite a bad SP performance in the last months. Back in february the SP was still above 30 cts. Now it is below 20 cts. There is no economic reason to find for this downturn. They are still projecting some 85.000 OZ for this year against a AISC of AUD 1.200,-. Next to that they are also showing some good drilling results, so there aim to lengthen the LOM is doable.
I am not going to say that the current SP is a mistake. The price is what it is. But because MOY has done so poorly in the last months, without worsening conditions (like Blackham for example), you can also see it as quite an interesting starting point to start collecting some of the shares. I always do it against a valuation framework which works for me. With a production level of 85.000 OZ (probably growing towards the 100.000 OZ level in 2 to 3 years) and a gross margin of AUD 475,- per OZ, this will generate some AUD 40 mln. free cash-flow pa. Per share this means 40/781 = AUD 5,1 cts. because they are debt free, you can add some AUD 3,5 cts per share. In my eyes a cash-flow PE of 10 suits MOY (this means a cash-flow yield of 10% pa gross). 10 x 5,1 = AUD 51 cts plus 3,5 cts means a fair valuation of AUD 54,5 cts. When you calculate net then the 51 cts will be some 0,8 x 51 = AUD 41 cts plus 3,5 means a net fair valuation of some AUD 45 cts. If the production grows to 100.000 OZ per annum the calculation can be made again. When you place this against the current SP of 19,5 cts a potential of more than 100%. Not bad. So investors in miners in general, and MOY share holders in specific, can put their hopes on more normal valuation levels for Aussie miners in the coming months and off course also MOY. The only condition to this optimistic view is a steady POG. By higher prices for gold you can be even more optimistic.
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