MUN at 38c per share is still cheapMUN has resource targets...

MUN at 38c per share is still cheap

MUN has resource targets between 2.1Moz and 3.2Moz, at the current market cap of $60M (AU), the market is paying $20 ~$30 (AU) per oz of the target resource. That is significant cheap when compare with other gold miners. Although every one knows target resource is not guarantee thing, but most of the gold explorers are valuing over $100 (AU) per oz (some of them even value at over $200 AU per oz) of their resource target. Oh… forget to mention these gold explorers have lower grade of mines and have not yet produce a single oz of gold yet. I think it is fair to say MUN is undervalue as Junior gold producer.

The current P/E ratio is around 10, for 2009 (After tax profit of Scenario 1 in the March financial forecast). Other gold producers are having a much higher P/E, like 25~30. Also when MUN got more gold produced from other mines in 2 years time, the current P/E will look far more attractive then it already is.

MUN has target production at 250,000 oz pa by 2014, assuming MUN can only achieve 80% of the target, that is still a lot of gold for $60M market cap company. I think you can work out how much it should be worth for 200,000 oz pa gold producer these days.

Gold is unlike other commodities, every single oz of gold you produced, it’s guarantee to sell on market. So gold producers don’t need to worry about finding customers and contracts. Other commodities such as copper, nickel, steel, aluminium etc…which may pipe up the stock in the warehouse but can’t find a buyer during the bad time. (like now)

So in general, profitable gold miner depends on 2 factors, cost of production and gold price.
Cost of production depends on the grade of gold mine, labour, facility costs, and tax
Grade
The Engheno has around 5~6 g/t, Jaqueira has over 8 g/t and Torracillas has over 18g/t in average. That is significant higher than most of gold miners which has only 1~2g/t au of their gold mines. And
Labour
Well… the labour cost is far more cheaper in Peru and Brazil when compare to local Australia.
Facility costs
Low capex and more importantly, it’s also low opex as well. MUN is not using the stage of art facility, from the pictures in the previous reports, it’s kind of low tech, simple and old school plant, but that is thing I really like, I still don’t understand why some of other gold miners have to build a high tech and expansive production plant, while a simple old school one can just do the job. Just remember, people producing gold for 1000 years, it’s relative simple process and you don’t need all the high tech equipments.
Tax
MUN is enjoying a lower tax in Brazil and Peru than Australia.

Gold Price
Nobody knows the gold price in the next 5 years, but one thing is sure, that is going to affect all the gold miners. So my judgement for MUN is undervalue based on the market across all the gold miners.

Anyway, DYOR, and if you believe in gold, I think MUN is cheap.