would you invest in fml?

Firstly, let me thank Chinabrian for an excellent post.

OK, so I thought I would post on the good and bad about FML not taking into account Treasure Island or CRE. These are only my personal uneducated views. I realise other factors exist and these are fairly basic so read them with that mindset. Some people want FCF, some people want long mine lives, others won't low cash costs along with many others. Make up your own mind why you choose a company, constantly review, and stand by your decision if you believe you are right.

Please DYOR and don't act on these. Rebuttal is welcome.

Costs of Goods Sold
Part 1 (Cash Costs) - Acceptable - in my opinion
In Q1 and Q2 2011, $878 and $983 were the reported cash costs respectively. These are stated by FML and can easily be calculated using Oz Produced per Quarter / (Production Cost + Royalties). If you do this, you will arrive at these numbers. Personally speaking, I do think that they are potentially overstating true cash costs as when you look at large companies like Barrick, Goldfields, Ashanti etc... the raw cash cost is generally around 75% - 80% of stated production cost. On this basis, FML may have been around $658 and $737 respectively for the last 2 quarters. This is speculation on my part. They may be stating it correctly, however, they may also be including some other non-cash costs, depreciation, reclamation or other items as you don't ordinarily see. Production + Royalties match up to produce cash cost for FML - this is unusual. I am also not sure how they treat amortized costs of future production potential. Anyway, for me, I see a lot of upside here and this is in the good category (based on better understanding of cash and actually very good production costs ratio). I think they are high cash cost, but I also don't think they tell the market the whole story.

Part 2 (Leverage) - Very Good
OK, as Tailspin correctly pointed out, FML has better leverage to a rising gold price than a lower cash cost producer. Irrespective of Rod178 stating they don't have better leverage, it is a fact that they do compared to a lower cost producer. For example - at a gold price of $1,000 Oz, a high cash cost company with a cash cost of $950 makes $50. At $1,050 / Oz they make $100 i.e. 100% increase in profit. A company with a low cash cost of$400, makes an extra $50/Oz or 12.5% increase in profit. This of course is a double edged knife, but at the moment, FML has clearance of well in excess of $700 / Oz on the current gold price to fund its own exploration, development and expansion. In a rising gold market, the best returns are often seen on high cash cost producers. This is called leverage

Mine Life - Very Bad
Ok, this one is terrible and would be keeping a lot of people away from investing in FML no doubt. Irrespective of what Campbell Baird has said about keeping reserves to around 3 years, if you looked at FML based on mine life, you would quickly move onto something else. Mine Life is simply The amount of Reserves (not resources) / Annual Production. As at the end of March 2011, Reserves were 247,000 with Annual Production of 100,000 Oz = Mine Life 2.47 years. As it is still exploring rapidly, this should increase but if it calls itself a mid-tier producer, then this is a woeful number and many smart investors won't touch anything under 5 years. Focus would need reserves at 650,000 Oz within the next 12 months based on forecast production of 130,000 Oz/Annum to have a 5 year mine life by definition.

Market Cap versus Reserves - Very Bad
Well, this was really covered in the Mine Life Section, but just for the sake of it, $231M Market Cap / 247,000 Oz reserves = $935. It should be about a quarter of this amount. If you solely used this method to evaluate FML, you might end up at a market cap of $58M or 1.7 cents per share. Anyway, it comes down to FML's objectives as earlier stated. I do feel that this adversely affects the current share price of FML and was more than pleased to see that part of the recent placement was to "bring forward plans to increase Focus' reserves at its Greater Coolgardie gold projects". On the upside, no one is likely to takeover FML with these sort of number.

Resources - Good
Evaluated as an exploration company in this instance (simply because they really are to be honest), as at the end of March 2011, Focus has stated resources of 2,300,000 Oz. At the current spot price of approx. $1,700 AUD, that equals $419M worth of gold in the ground versus a market cap of $231M. This is a market cap to resource ratio of $100 ($231M / 2,300,000 Oz resources). This is very good for an exploration company who sometimes may be around $10 or less (before a BFS or the like), Resources are going to continually grow (rapidly in my mind), and yet, they are undervalued at the moment based on a market cap to resource ratio. More people use reserves to do this type of analysis (see below), however, I prefer this method with FML as they have already stated they don?t want a big reserve base just yet.

Market Cap versus Production - Good
Market Cap $231M, Approximate Production based on 100,000 Oz in 2011 is $2310.00 / Oz Produced. This is what I would say, on the low side for combined explorer / producer. Personally, I would think that at this stage of FML's life cycle, it should probably be ranked much higher at say $3,500. ie a market cap of $350M or share price of 11 cents. As the company become much larger, it may come back to say $2,500 - 3,000 / Oz Produced, but then other items such a mine life (if expanded), will get a better rating in the share price and won't automatically mean a fall from this level.

Rising Gold Price and Hedging - Good
This is the only item I thought Chinabrian could have mentioned in his post. Source (http://www.reuters.com/article/2011/08/02/idUSL6E7J21GB20110802). Forecast hedge book at 3.88M Oz compared to 4.86M Oz which shows a significant amount of de-hedging and is a big positive for a solid continued run in the price of gold. For FML, this continued de-hedging will greatly assist to keep the gold price buoyant and FML's associated profitability high and ever growing. Given then options contracts also exist due to the solid demand for gold, FML is well placed to take advantage of the rising price through rapidly increasing production (forecast 64 Oz Jul-Dec 2011 versus 36K Jan to Jun 2011) and can also buy options contracts or hedge portions of its gold produced if it needed to. There are a few in here that talk of the misery for FML if gold suddenly fell, but please keep in mind that at $1350/Oz through 2010, FML still made $11M profit whilst exploring and developing, mostly. All I am saying here is that FML has options and whilst things point to a continued increase in the price of gold, FML doesn't have to sink with the ship if it did drop.

Capital Raisings - Good / Bad
People don't like cap raisings, the market doesn't like them, the share price doesn't like them. Since October 2009 FML has raised approx. $48M. Of this, and since this time, they have spent $6M on Mill Spare Parts, $31M on development and $29M on exploration. Of this $48M raised, they still have about circa $24M (they only had $3M carried fwd). That means FML have spent to the end of June, $42M from their own pockets on the items above. They still largely fund their own growth activities.

Exploration - Excellent
I said earlier that market cap versus reserves was bad ($935), and it is. I also stated that market cap to resource ratio at $100 is a positive indicator for FML. Although producing, I still feel FML is an explorer. This is a major reason I am on board with them. Take a look at the exploration spend below. That is not the chart of a producer, in fact, near the inverse in fact. FML had battled well and is spending a great deal of cash for us, the shareholder. As resources and reserves increase, this is how the most immediate re-rating will occur, and provide a solid market cap based moving forward.