Article in the Australian, page-4

Hi Dictionary and all,

My view is that generally you have to look closely at related party transactions, especially involving Chinese people / entities. My brother is a Partner in an HK law firm and some of the stories he tells reinforces my firm view of not investing in Chinese domiciled / controlled companies.

In this case I am less concerned. MLX is governed by Australian property law and companies regulations (even though this appear weak at times looking at market shenanigans). In addition MLX has a strong Australian management team and track record.

I believe that the relationship between the two companies allowed the transaction to proceed and I don't think that MLX has paid too much for this asset. The key will be how much additional capital it will take to get the operation ramped up.

The option that TAM has to sell it's remaining 25% after commercial production is achieved for $32m values MLX's share of the project at $96m (at that point). So far we know that MLX has paid $11m up-front and will sink some "ten's of millions" into is re-commissioning and ramp up according to TAM's Chairman. However, MLX quote "modest refurbishments and additions" ... let's see.

For that MLX receives (75% share and management of):

(1) 1.2mtpa plant
(2) 2.65m oz resource grading at 3 g/t (including 1.04m oz at 4.8 g/t)
(3) Exploration upside

The initial payment equates to $4.15 per resource oz not attributing any value to the plant, which would likely have a replacement value of c. $80-100m+ if they had to build it from scratch (e.g. develop Rover 1).

All in all I think that this is a win-win for each party for different reasons. TAM was screwed and shareholders have lost a huge amount of money here:



They were clearly unable to obtain finance in the current market setting to develop the project further.

MLX is, IMO, focusing on their core strengths: operating mines profitably. They are not buying up early stage green-field exploration targets, years away from production with large exploration risk - instead they are buying brown-field gold mines with proven resources and reserves with existing plant and facilities and focusing on re-commencing operations now that it appears the operating parameters for the industry has changed.

I think it is an excellent strategy. Just as NST executed a Blitzkrieg strategy in mid 2014 (increasing gold production c. 6 fold) is looks like MLX is doing exactly the same now (potentially ramping up production from 180k --> 520k oz p.a.)

I think that they now have enough on their plate to focus on; both in terms of management time and in terms of capital requirements. Given that MLX has just initiated a dividend programme (and will want to continue this) I think they are stretched thinly enough now ... but the prize will be worth it if they can execute.

Cheers
John