Managements' declared strategy for 2011/12 was to aggressively expand to take advantage of the strong PoG. The gold price is now on the skids. This must bring management's strategy into question.
Over the last six months the SP has fallen from 8.0c to 5.4c. the trend is clearly down. Until management proves to the market that it has production up and costs down, I suspect that this trend will continue. We may see sub 5 cents if the PoG stays weak. While this is the case there is a risk that FML will be cash flow negative and be reliant on a line of credit or similar to pay the bills.
I will change my tune when FML produces 25k oz from its core mines and the same amount from CRE ones over a quarter. Allowing for production hitches, my best guess is that this will first occur in June 2012.
Being in 'cash for Christmas' and getting back on the FML train in the June quarter looks like a relatively sensible thing to do.
K
FML Price at posting:
5.4¢ Sentiment: None Disclosure: Held
