It is clearly difficult (if not impossible currently) to accurately estimate performance in future quarters. However, I will be an optimistic 'mug' and put my head above the parapet for this September quarter.
Basically, the significant variables are: throughput, head grade, recovery %, average PoG (US$), and investment outflows (Dev, Exp, Cap).
My low base estimates are as follows:
Throughput c. 149,000t - just a bit more than the 140.8kt processed in the March qtr resulting from the shake-up of the systems and personnel at the mine.
Head grade c. 5g/t - already achieved in June qtr so not a big ask. Frankly I would expect a likely improvement in average grade.
Recovery c. 85% - already at a low base compared to the 6 year average of 91% at Co-O. Surely this must get better soon!
PoG c. US$1,312/oz - this is the current average since July 1st. I suggest this is also likely to be a bit higher by 30th Sep.
Investment outflows - this is the big question! It was $15.2m for the March qtr but shot up to $22.9m for the June qtr. That $7.7m rise basically pushed their Free Cash Flow into the red to the tune of $6.68m. A reduction in these outflows will clearly make a significant difference. So what might these come in at now that staff have been released and work schedules tightened?
Exploration: looks likely to remain at the June figure of c. $3.5m. They have already cut right back but do need to keep ahead of the miners by maintaining the U/G drilling rigs at Co-O. Not so sure about the minimal drilling at Bananghillig, but curtailing that might be an option given the uncertainty over the new mining law for fresh projects.
Development: I feel this is very likely to drop somewhat. The development is carried out by contractors so, with 1,000 now sacked, it would appear probable that this expense will reduce over the next few quarters. I am plumping for an outlay of c. $7m this qtr, which also happens to be their previous average development cost when they were producing at 25koz/qtr in FY11.
Capital works: I am expecting this to drop back to the level seen in the March qtr, (ie c. $3m) now that all the expansion Capex 'should' have been expended.
So total Investment outflows of c. $13.5m - annualized this is $54m and close to the level seen in FY11 before the expansion got fully into gear.
Putting all that into an overall 'low-base' estimate works out like this:
Throughput ~ 149,400 t
Grade ~ 5 g/t
Recovery ~ 85%
Production ~ 20,416 oz
PoG ~ $1,312 per oz
Sales ~ $26.8m
OP Margin ~ 69% (using the 6 year average)
therefore Net Cash from Ops ~ $18.5m
Less Investment outlays of -$13.5m
Resulting in a positive Cash Flow of $5m.
However, I don't feel it is unrealistic to expect grade to be somewhat higher than 5g/t if, as I suspect, development ore reduces and stope ore increases after the personnel reshuffling at Co-O. So a 'base case' scenario might well pitch blended head grade more towards 6g/t.
Recovery is still well under par compared to their historic figures so I fully expect them to sort out this part of the processing sooner or later - but perhaps it is too optimistic to expect that to improve dramatically over this current quarter. Maybe they will get it up to c. 90% by the end of the year.
As for PoG, who can tell! Best to just take it day by day - so no optimistic bullish estimates from me on gold!
Finally, they still appear to have the option to sell more inventory. Any additional oz sold will add Revenue and cash flow to the above scenario.
So there you have my positive case for this current quarter. Right or wrong I feel one needs to have a view - and this is mine.
All the best
CPDLC
MML Price at posting:
$1.43 Sentiment: Buy Disclosure: Held
(20min delay)