Recent selling by founders might not augur well

I’ve turned bearish on MLD after posting favorably on the stock before and after the results announcement.

Since the IPO in Nov 2010, a number of founding shareholders appear to have either sold out completely or sold down to somewhere below “major shareholder” status. Other founders, while remaining “major shareholders“ with stakes of over 5%, have gradually trimmed their holdings.

To be sure, much of the selling is ancient history and a somewhat inevitable part of insiders cashing out as they take a company public. Issuance of new shares in the two years through FY6/15 also significantly diluted the percentage shareholdings of the founders. However, recent MLD filings show the three remaining founders again trimmed their holdings on or around 29 August, just after the FY6/16 results announcement on 23 August. This latest round of selling dashes any sense that insiders might have stopped heading for the exits. The filings show the insiders sold for $1.57/share on or around 29 Aug to a range of (undisclosed) institutional investors. Selling by one insider might not be cause for concern, but three at once?

Some new names have appeared on the register over the past 18 months. Paradice Investment Management is now a major shareholder. Kenneth Kamon –a major shareholder (9% stake) in rival mining services outfit Mastermyne Group (MYE) – popped up with a 7.4% stake at the end of 2015. Who is he? Will he do good or evil, or nothing at all?

MLD is trading on PERs of 14x and 9x based on FY6/17 and FY6/18 consensus forecasts and grossed-up dividend yields of 7% and 11%, respectively. Of course, with only two analysts covering the stock, one of whom hails from Hartleys (corporate adviser to MLD, and which arranged at least one of the aforementioned founder sales to institutions), the forecasts need to be taken with the usual pinch of salt.

I like MLD for its exposure to the gold sector (it will almost certainly rally hard if the gold price moves higher). I also like the dividend and strong-ish balance sheet, the reasonably cheap valuations and the presence of some reputable names on the share register like Paradice. But the latest round of insider selling begs the question: What is it about MLD that the founders don’t seem to want to stick around despite the valuations? And if they don’t want to hold, why should I? There seem to be a lot of positives, and I may well be over-reacting to my own somewhat selective research, but for now I’ve chosen to be out of this one than in.