Tuesday, 14 June 2011

Medusa Mining (MML.ax)

Medusa mining is an exceptionally well managed company and is my favourite gold producer due to its stability, first-class management and low production costs.

  • Current producer (100,00 ounces)
  • One of the lowest cost producers in the world ($190 per ounce)
  • Significant production increases planed over the next 5 years (100,000 to 400,000 ounces p.a.)
  • Expansion potential clearly defined and significant
  • Production increases to be achieved organically via cash flow
  • Is now paying a dividend
  • Very tight control over share issuance and shareholder dilution
  • High profitability (over 40% return on equity)
  • Strong and consistent cash flows
  • Debt free
  • High institutional ownership
  • Has delivered on targets

There is a board restructure in progress with the current managing director Geoff Davis stepping down and being replaced with Peter Hepburn-Brown (current Executive Director of Operations).

This is unfortunate, however it does not cause me concern at this stage because Mr Davis will be reappointed as Non-Executive Chairman and Mr Hepburn-Brown seems well suited to steer the company's ongoing expansion. This will likely be a smooth transition and should not impact on the success of this fantastic company.

Disclosure: I own MML with an original entry price of $4.46.


  1. What is your interpretation of the jump in SP from $7 to $8 in early April 2011 and its recent return to approx $7?

    What is your process for arriving at target prices?

    Regards Squadger

  2. Hi Squadger,

    The move from $7 to $8 was just part of the long term trend and in line with my expectations with an eventual move to $12 in the short to medium term. I'm not surprised by the recent pull-back as there has been significant volatility in this area.

    My first thought was that there may have been one or more institutional managers that did not like the announcement of management change. However, having seen Fidelity increase holdings by over 1% and overall institutional positions increase by 3% since I posted the analysis of MML, it seems that they are supportive of the change.

    Therefore, I'd have to conclude based on the facts that a good amount of private investors have reduced their position due to the announcement and that institutional investors have taken advantage of the situation.

    I think that there will probably be a bounce back starting next week.

    Target price is based on the valuation metrics which are driven by earnings. At this stage, I'm comfortable in using the consensus earnings per share forecasts for MML, but it is something that I'll monitor.