medusa comes of age

It looks like, barring any last minute hitches, that MML will delist from AIM and relist on the FTSE on Thursday. This change should be greeted with jubilation by all shareholders. Medusa Mining will have come of age.
Up until now the ASX has been MML?s main exchange and has therefore suffered from the relatively low PE that the Aussie market values gold mining stocks at. Listing on the FTSE will enable (even oblige) more and larger institutions to gold MML shares. Existing FTSE listed gold miners trade at astronomical PE?s; Randgold Resources = 100, African Barrick Gold = 60, Centamin Egypt = 200. Should the FTSE become MML?s main market then all of these PEs are theoretical gettable. Maybe they reflect the massive demand for FTSE listed gold stock and there are very few to buy. MML will give the currently overpaying gold funds and gold bugs another prudent and better value option into which they can park their pounds. Can the PE realistically get any lower than it current is (10)? Given its new ?peers? is a PE of 20 gettable within a few months? I think so.

MML is about to issue it?s quarterly. Looks like it will have about 25,000 ounces. That?s 25,000oz at a cash cost of less than $US200/oz for a margin of around $US1150/oz. My maths isn?t what it used to be, but let me see, that?s free cash flow of almost $US27m - for just one quarter. If they keep this up all year that?s an operating margin of over $US100m or about 50 cents per share. Allowing a bit for expenses , we get a profit of 45c/share (2009/10, 37.8c). To UK investors that 25p. A PE of 20, in the UK, results in an SP of ?5.00 or $A8.00. And what if it got adopted like its UK peers and go a PE of 60? One can dream, but lest stick with what is realistic, a PE of 20.
And all of that is for a company producing 100,000ounces this year. MML?s 2011/12 horizon is for 120-130,000 ounces and no increase in the per ounce cost of production. Assuming that a PE of 20 is sustained, and the USD gold price averages where it is today then the SP will move up to be ?6.50/$10.50.

But that is 120/-130,000 ounces is not their real published horizon. MMLs goal is to produce 300-400,000 pa. Now this is where it really gets interesting. MML haven?t yet set out their plans as to how to make this quantum leap, but that doesn?t mean they are not making those plans. I hear that they have employed a guy who?s job it is to build the plan for them to make this transformation. Assuming the results this planning is Banaghilig and Banaghilig is an open-pit mine that comes into production in 2013/14, oh yes and it has lovely long intercepts at good grades that?s when we will really see the upside to the PE. Three times 2011/12 production should generate three times the 2011/12 SP. But it won?t. Because when production goes up by a factor so too does the market?s valuation. Instead of going up by three times it could go up by five times. And that is a SP of a staggering ?32.50/$55.50. I?m beginning to feel like I might yet retire. But that not all. The western world is facing monumental financial challenges. Currencies are fighting tooth and nail to fall relative to each other. As a commodity currency this surely has to be good for gold and gold must go much, much higher. Over the next three years gold could triple. Then again my rather pessimist view of the western world?s economic prospects might be misplaced and gold could plummet. I mean ?who needs gold if everything financial is going along hummingly?? The US going along financially hummingly? Now that?s a laugh! But I digress from my Medusa rant.

None this should be new to you dear readers. None of this should be a surprise to even the most timid followers of the MML.

This message is for entertainment purposes only and is not intended as investment advice.

DYOR and GLA

K