I have been doing a little research on DCN and have formed the...

I have been doing a little research on DCN and have formed the following conclusion - the comparisons between MAT and DCN mentioned on this forum are relevant in only one respect; potential share price appreciation.

These are the reasons for my conclusion:

• With all due respect to PP and the team at MAT, given their track record at Avoca, the management team at DCN do have the runs on the board. I am confident though that our team will be no less successful over time.
• When DCN IPOd in late 2012, it was with a seemingly excellent asset with excellent upside exploration potential. Since listing, DCN has diligently gone about proving their geological model.
• Following numerous capital raisings, DCN will be in production with their own plant within the next 12 months.
• MAT, under PP’s diligent and dogged management, has been battling away for a number of years on the exploration front. Its success has been predominantly corporate based, with BNR and the offloading of Mt. Henry rather than geologically based. The jump in MAT’s share price on the SIR “nearology” play was never justified with exploration success, notwithstanding the company’s best efforts in this respect.
• MAT was punished by the market for not finding something at Fraser Range, but that’s the exploration game.
• MAT did brilliantly to survive the downturn in commodity prices with minimal dilution.
• The acquisition of LC was the turning point for MAT. DCN may have a few million ounces in the ground and are imminent producers but they now also have potential debt of $150m and have diluted shareholders with $126m in equity.
• When MAT start trial mining (at least 6 months before DCN will become a producer), MAT will have no debt on its balance sheet. Should MAT decide to ramp up to 40K ounces per annum production, I’m sure it still won’t have any debt on its BS. To this end, it will be very interesting to see who MAT signs a toll treatment deal with.
• Even assuming MAT decides to scale up production, there will be no need to worry about building a plant or ramping up production as they will continue to toll treat their ore. They also won’t need to take on a truck load of debt or heavily dilute shareholders to achieve what I conservatively forecast as $20m per annum in profit. This equates to 13c EPS.
• With 10 years production in the ground at Fortitude without any further exploration, I believe this alone would support a PE of 10x, resulting in a share price of $1.30.

I have stated previously that I believe LC would be a company maker for MAT, and although it’s still early days, I believe that my contention will be vindicated.

Exploration success at BE1 is already on the horizon. AC drilling success at BE3 will result in another prime target for diamond drilling.

In short, LC was a VERY shrewd acquisition by PP and is proving to be MAT’s first real exploration success and a transformational event in MAT’s history.

Should we have another Granny Smith on our hands, I shudder to think of the impact on the share price. Would a $400m market cap be justified on that alone? Easy! Add to that the potential for a 40K oz p.a. operation without having to build a plant and you start to get some idea of why I’m so happy to have my MAT position.

For the sake of ease of calculation, DCN is currently a $400m company and MAT a $42m company. I believe that to reach a similar cap to DCN, MAT will not need to dilute and if so by a very small amount. As outlined previously, I also believe that in some respects, MAT is ahead of DCN in the exploration/mining game.

Of course, if I were a DCN shareholder, I wouldn’t be buying it at $400m cap as where is the upside - $800m cap, $1bn cap? Without doubt, DCN management have done a fine job but further relative price upside is limited. For MAT to get to $400m cap though, it’ll become a 10-bagger from current levels.

To conclude, DCN is barely a valid comparison with MAT other than when it comes to multi-bagger potential. And even then, I genuinely believe that with a little exploration success and if the gold price is kind to us, MAT could comfortably exceed DCN’s 1600% move over a 20 month period in both extent and speed. And this thing is happening right here, right now.

This analysis is by no means exhaustive, however I hope it shows the potential capital appreciation that MAT is capable of achieving. There is one big caveat though as it pertains to MAT becoming a potential 10 or 20-bagger from current levels – will the likes of AngloGold Ashanti, Goldfields or Saracen allow them to reach that market cap before devouring them for breakfast.