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Monument Mining – Growing at 100%, Yet Trading at a P/E Ratio of 3

September 30, 2011 | About:
On May 15, 2011, I wrote my first analysis of Monument Mining. This article is an update because the company just released its fiscal year 2011 financials. Because it is more fashionable to panic these days than to buy shares of Monument Mining, the company is trading at a P/E ratio of 3, growing earnings 100%, and also has the equivalent of more than 50 percent of its market cap in cash at the bank.

During fiscal year 2011, which ended on June 30, 2011, Monument Mining produced 44,438 ounces of gold at a cash cost of $242 per ounce. The revenues for the year were $52 million and net income was $31 million, or $0.17 per share. Yesterday, the stock price closed at $0.56 per share, which means that it is trading at a P/E ratio of 3.3.

Income-Statement-Monument-Mining1.bmp

In addition to its fantastic financial performance during fiscal year 2011, the company has close to $50 million in the bank, which is equal more than 50% of the company’s market cap.

Balance-Sheet-Monument-Mining.bmp

Considering that the third quarter is almost over, I am estimating that the company now has about $60 million in the bank.

Also, in fiscal year 2011, the company proceeded with the Phase III expansion plan for its Selinsing gold treatment plant, under which the plant capacity will be upgraded from 400,000 tonnes per annum to 1,000,000 tonnes per annum.

This will mean that once the update is complete, the company will increase production from 44,438 ounces of gold produced in fiscal year 2011 to a run rate of 80,000 ounces of gold per year. In fiscal year 2012, the company projects that it will produce 55,000 ounces of gold. Based on the current price of gold, this should translate into earnings per share of about $0.40 per share. In fiscal year 2013, the company should produce 80,000 ounces per year, which will translate into earnings per share of about $0.60 per share. Let’s not forget that the stock just closed at $0.56 per share.

How Is This Possible?

How is it possible for the earnings to be growing 100% per year, to have the equivalent of 50% of its market cap in cash, and for the stock to be trading at a P/E ratio of 3? First, it is fashionable to be panicking right now. Second, few investors want to touch the mining stocks as they continue to go down day after day exerting excruciating pain day in and day out.

Why Aren’t Value Investors Buying Stocks Like Monument Mining?

Traditional value investors are clueless about this sector. After they heard Buffett talk about how gold does not produce any cash flow, they do not want to touch this sector even though the mining companies themselves are producing cash flows, which are a function of the price of gold and the cash cost per ounce. Plus, although many of them call themselves value investors, when it is time to be greedy when others are fearful, they are hiding and shaking with fear.

What is Going to Happen Next?

This depends on whether I am talking about the company’s performance or the stock’s performance. It is much easier to see how the company will operate fundamentally by talking to the management and reading their reports. How the stock price will behave is in the hands of other investors. Right now, they don’t want to touch it. Only the crazy ones like me are buying it. But, here is another thing that I believe is important. Fiscal year 2011 is the first full year that the management can use to show the company’s performance to potential investors at investing conferences. They can now present the story of Monument and say, “It has now been 12 months – this is what we are making, and this is what we will be making in the future.” Before, potential investors were not willing to pay attention because there was only a promise of potential. Now, the results are here, and they are a fact. I believe that now investors are finally going to start paying attention because it is impossible to ignore a stock that is growing at 100%, trading at P/E ratio of 3, and also has the equivalent of more than 50% of its market cap in cash. Finally, the company will soon apply for a listing on a major exchange. This will only be positive for the stock.

Disclosure: I, or persons whose accounts I manage, own shares of Monument Mining Ltd. This report is not a solicitation to buy or sell securities. Neither Mariusz Skonieczny nor Classic Value Investors, LLC, is responsible for any losses resulting from purchasing or disposing shares of Monument Mining Ltd. You are advised to consult your financial advisor or conduct the due diligence yourself.

About the author:

Mariusz Skonieczny
Mariusz Skonieczny is the founder and president of Classic Value Investors, an investment management firm. He is also the editor of Ultimate Value Finder, a monthly newsletter that features three underfollowed, unknown, and undervalued companies ignored by Wall Street.

Visit Mariusz Skonieczny's Website


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