Whilst I have seen some pretty interesting comments on the prospects of MBN, I thought I will share some of my views and justification for investment. I will be happy and appreciative if someone can identify the flaws in my reasoning. 1. MBN has indicated the material movement will remain at around 40Mt whilst production in CY2012 is forecast to increase by about 40% to around 20kt. This suggests mining cash costs should decline considerably (conservatively say 30%) from US$3.67/lb (CY2011) to around US$2.57/lb (CY2012). Management has indicated that there may be scope to further reduce the mining costs through the termination of high cost mining contractors 2. Economies of scale of forecast increased throughput (5.4Mtpa in CY2011 to 7.2Mtpa in CY2012) of around 35% a. Processing costs declined by around 18% from US$2.56/lb to US$2.11/lb between CY2010 and CY2011 as a result of 41% increase in throughput from 3.8Mtpa to 5.4Mtpa. Assuming the projected 35% increase in throughput results in 10% decline in processing costs, these should decline from US$2.11/lb to around US$1.90/lb b. Admin costs declined by around 16% from US$1.04/lb to US$0.87/lb between CY2010 and CY2011 as a result of 41% increase in throughput from 3.8Mtpa to 5.4Mtpa. Assuming the projected 35% increase in throughput results in 10% decline in processing costs, these should decline from US$0.87/lb to around US$0.80/lb 3. In addition, MBN is expecting an increase in recoveries. Based on my analysis, it appears that the management will have to be extraordinarily incompetent to not be able to reduce the C1 cash costs to under US$6.00/lb. I however will be closely watching the 1Q CY2012 report to compare the performance.
MBN Price at posting:
47.8¢ Sentiment: LT Buy Disclosure: Held
