Monument Mining is a gold mining production and exploration company that is headquartered in Canada but whose operations occur entirely in Malaysia. The easiest way to understand what type of discount Monument is selling for is by taking stock of all of the company’s current and prospective Malaysian mining properties. After that, the only thing left to do is ponder how the market could tolerate such an underpriced company.This article has been written by Steven Reiman who recently graduated with a degree in Finance from the University of Connecticut and currently works as a financial analyst. He focuses on value investing with a preference for small, under followed companies. Enjoy reading his work.
Selinsing Gold Mine
Acquired in June 2007, the Selinsing mine was brought into commercial production in September 2010 and is currently on pace to produce roughly 55k oz’s of gold for FY12 ending in June. Selinsing is Monument’s only commercially producing property to date and is the resident company crown jewel.
As of the latest 43-101, Selinsing has 231k oz’s of indicated gold with another 388k oz’s of inferred. It is worth noting that management has announced that an updated 43-101 for Selinsing will be released in June as Monument continues to drill for additional resources. In terms of actual production, the main limiting factor at the Selinsing site is the plant, which can only process 400k tons of ore per year which equates to roughly 50k oz’s a year. However, Monument is reaching the completion of a plant expansion that once finished, will increase the ore processing rate to 1M tons/year. This expansion is expected to be completed in June 2012, which again also coincides with the end of the company’s fiscal year. Therefore, starting in FY13 Selinsing should be processing 1M tons of ore per year which should translate to approximately 100K oz’s/year.
Based on the current price of gold and assuming that historical costs of $300/oz continue to hold, this brings us to ~$140M of free cash flow from Selinsing. Fully diluted, Monument currently has 321M outstanding shares which means that this single mining property is set to generate $0.44/share in FCF starting in June 2012. A share of Monument currently trades at $0.46.
Current company strategy is to utilize Selinsing as an engine for growth, using the mine’s large free cash flows to invest in other mining opportunities in the region to expand the company’s resource base and increase shareholder value. The below properties are the beginning of the this phase in the company’s development.
Damar Buffalo Reef
The Damar Buffalo Reef property is located to the northeast of the Selinsing mine and is still in an exploratory phase. Acquired in 2007, Monument has completed two drilling programs and are continuing to evaluate the property’s gold prospects. As of the latest 43-101 (May 2011), Buffalo Reef has 165k of indicated oz’s with another 57k inferred. Commercial production appears to be well into the future as the company works to solidify their estimates before deciding on their next course of action.
Famehub
The Famehub exploration properties are located north of the Selinsing mine and comprise of 9 separate properties, totaling 32,000 acres. The property is in early stages of production with no 43-101 produced to show indicated or inferred gold reserves. The active exploration activities at Buffalo Reef and Famehub demonstrate management’s long term view towards the future. Although management is targeting an increase in mine life beyond 10 years, Selinsing has a finite amount of gold reserves and other properties must eventually be brought online to keep the company viable.
The New Addition: The Mengapur Project
Last month, Monument announced the closing of its largest acquisition to date, a 70% interest in the Mengapur polymetallic project. At a final price of $60M, Mengapur gives the the company a more diversified resource base including iron, copper, silver and sulfuric acid. Management believes that by acquiring Mengapur, the company has solidified a long lived revenue stream that could lead the company to begin issuing a dividend as the mine begins commercial production.
Monument intends to bring the project into production in stages with phase one involving mining the magnetite (iron) that is readily available near the mines surface. The cash flow generated from this would then be used to pay for the capex that would be needed to exploit the other, more difficult to reach resources contained in the mine.
Monument had intended to acquire Mengapur using proceeds from a private sale of equity that was supposed to generate $70M. This would have been a questionable move at best in terms of growing shareholder value as they would be purchasing a property with shares that are on pace to yield 100% FCF/year. Unless Mengapur can generate over 100% ROI, equity financing does not make sense.
Luckily, company management changed course and decided to fund the project with cash on hand, saving shareholders from further dilution. The company announced at the deal closure that they are going to continue to go forth with the private placement to fund the development of Mengapur but it remains to be seens how many new shares will actually be issued. This is something that shareholders should pay close attention as the Mengapur project continues to evolve.
Conclusion
In the end, for $0.47/share, an investor is purchasing a commercially active mine that is on pace to produce $0.43/share in free cash flow, future mining prospects at Buffalo Reef and Famehub and the potentially company transforming Mengapur project. Like all good things, Mr. Market keeping Monument’s stock price low cannot go on forever but until that day, investors would be well served to start building a position
Selinsing Gold Mine
Acquired in June 2007, the Selinsing mine was brought into commercial production in September 2010 and is currently on pace to produce roughly 55k oz’s of gold for FY12 ending in June. Selinsing is Monument’s only commercially producing property to date and is the resident company crown jewel.
As of the latest 43-101, Selinsing has 231k oz’s of indicated gold with another 388k oz’s of inferred. It is worth noting that management has announced that an updated 43-101 for Selinsing will be released in June as Monument continues to drill for additional resources. In terms of actual production, the main limiting factor at the Selinsing site is the plant, which can only process 400k tons of ore per year which equates to roughly 50k oz’s a year. However, Monument is reaching the completion of a plant expansion that once finished, will increase the ore processing rate to 1M tons/year. This expansion is expected to be completed in June 2012, which again also coincides with the end of the company’s fiscal year. Therefore, starting in FY13 Selinsing should be processing 1M tons of ore per year which should translate to approximately 100K oz’s/year.
Based on the current price of gold and assuming that historical costs of $300/oz continue to hold, this brings us to ~$140M of free cash flow from Selinsing. Fully diluted, Monument currently has 321M outstanding shares which means that this single mining property is set to generate $0.44/share in FCF starting in June 2012. A share of Monument currently trades at $0.46.
Current company strategy is to utilize Selinsing as an engine for growth, using the mine’s large free cash flows to invest in other mining opportunities in the region to expand the company’s resource base and increase shareholder value. The below properties are the beginning of the this phase in the company’s development.
Damar Buffalo Reef
The Damar Buffalo Reef property is located to the northeast of the Selinsing mine and is still in an exploratory phase. Acquired in 2007, Monument has completed two drilling programs and are continuing to evaluate the property’s gold prospects. As of the latest 43-101 (May 2011), Buffalo Reef has 165k of indicated oz’s with another 57k inferred. Commercial production appears to be well into the future as the company works to solidify their estimates before deciding on their next course of action.
Famehub
The Famehub exploration properties are located north of the Selinsing mine and comprise of 9 separate properties, totaling 32,000 acres. The property is in early stages of production with no 43-101 produced to show indicated or inferred gold reserves. The active exploration activities at Buffalo Reef and Famehub demonstrate management’s long term view towards the future. Although management is targeting an increase in mine life beyond 10 years, Selinsing has a finite amount of gold reserves and other properties must eventually be brought online to keep the company viable.
The New Addition: The Mengapur Project
Last month, Monument announced the closing of its largest acquisition to date, a 70% interest in the Mengapur polymetallic project. At a final price of $60M, Mengapur gives the the company a more diversified resource base including iron, copper, silver and sulfuric acid. Management believes that by acquiring Mengapur, the company has solidified a long lived revenue stream that could lead the company to begin issuing a dividend as the mine begins commercial production.
Monument intends to bring the project into production in stages with phase one involving mining the magnetite (iron) that is readily available near the mines surface. The cash flow generated from this would then be used to pay for the capex that would be needed to exploit the other, more difficult to reach resources contained in the mine.
Monument had intended to acquire Mengapur using proceeds from a private sale of equity that was supposed to generate $70M. This would have been a questionable move at best in terms of growing shareholder value as they would be purchasing a property with shares that are on pace to yield 100% FCF/year. Unless Mengapur can generate over 100% ROI, equity financing does not make sense.
Luckily, company management changed course and decided to fund the project with cash on hand, saving shareholders from further dilution. The company announced at the deal closure that they are going to continue to go forth with the private placement to fund the development of Mengapur but it remains to be seens how many new shares will actually be issued. This is something that shareholders should pay close attention as the Mengapur project continues to evolve.
Conclusion
In the end, for $0.47/share, an investor is purchasing a commercially active mine that is on pace to produce $0.43/share in free cash flow, future mining prospects at Buffalo Reef and Famehub and the potentially company transforming Mengapur project. Like all good things, Mr. Market keeping Monument’s stock price low cannot go on forever but until that day, investors would be well served to start building a position
