Development costs are an ongoing sustaining cost that must be kept at a sufficient rate to maintain the level of stope mining that they have now reached - I don't believe that they have an option to cut it. It is now at approximately twice the level reached in 2011 when they were mining c. 100koz pa. So the current expenditure would appear to be balanced with targeted forward throughput tonnage and has been fairly consistent now for 9-10 quarters.
I also don't believe that exploration expenditure is likely to reduce any further. They are currently averaging about US$11.5m for the FY compared to their past average of c. US$25m pa. It is another essential outlay and IMO it is unlikely to be cut any further.
However, judging by the progress made over 1Q15 and 2Q15 and the growth in free cash flow that is now being achieved. As long as Capital works remain at c. US$2-2.5m and Corporate overhead is maintained at US$2m or lower, then, as already discussed in an earlier post, the cash pile should grow steadily as a function of the gold price.
At PoG of US$1,200/oz (average) for 3Q15, free cash flow (FCF) could well be c. US$9m and 4Q15 could be c. US$10m, making a total for FY15 of c. US$25m (although they have already used some of that to reduce debt and current liabilities.
One could argue that at the current lowly share price of A$0.8 they could achieve a 3% dividend yield for the year by providing a dividend of 20% of that FCF (ie c. US$5m) but personally I would rather they built a bit of a cash cushion first. Perhaps this time next year would be a better time to renew their dividend payouts.
CPDLC
MML Price at posting:
81.5¢ Sentiment: Buy Disclosure: Held
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