GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Monument Mining: A One Foot Hurdle

April 05, 2012
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

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


Rating: 3.5/5 (8 votes)

Comments

Cornelius Chan
Cornelius Chan - 2 years ago
Hey Mariusz! What is the stock ticker and traded on what exchange?
Cornelius Chan
Cornelius Chan - 2 years ago
Never mind... ticker is MMY traded on the venture exchange.
Cornelius Chan
Cornelius Chan - 2 years ago
You know something Mariusz? Some more information on the company would be nice. You basically wrote a vague opening comment followed by information I can easily find on the google.finance description of the company and ended off with a speculation about one of the mines.

Could you please give more and better information next time you post an article? As a Canadian I also expect more considering it is a Canadian stock. Thanks.
Mariusz Skonieczny
Mariusz Skonieczny - 2 years ago
You complain to me about the article, yet I question whether you even read it. It states clearly the following:

"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."

If you want to read my analysis on this company click the following links:

http://classicvalueinvestors.com/i/2011/05/monument-mining-limited-insanely-cheap/

http://classicvalueinvestors.com/i/2011/09/monument-mining-growing-at-100-yet-trading-at-a-pe-ratio-of-3/

stevereiman
Stevereiman - 2 years ago
C.W.R,

I wrote the article, not Mariusz. The article was originally intended to be submitted to seekingalpha which imposes a 1000 word limit which this was already over. That basically leaves enough room for a brief overview of the company and detail on one or two catalysts (Selinsing plant expansion, Mengapur acquisition).

Do you have any specific questions that you want answered? Vague insults don't help anybody and bring down the quality of sites like this.

Steve
augustabound
Augustabound - 2 years ago


C.W.R,

I wrote the article, not Mariusz. The article was originally intended to be submitted to seekingalpha which imposes a 1000 word limit which this was already over. That basically leaves enough room for a brief overview of the company and detail on one or two catalysts (Selinsing plant expansion, Mengapur acquisition).

Do you have any specific questions that you want answered? Vague insults don't help anybody and bring down the quality of sites like this.

Steve


Then your analysis should have been expanded upon for a site like this. SeekingAlpha is hardly looking for quality analysis with a word limit, it is seeking nothing more than traffic. Gurufocus is seeking quality along with traffic.

Simply cutting and pasting an article that was destined for another site is weak for a quality site like gurufocus.

And FWIW, I saw no insults in CWR's posts.
stevereiman
Stevereiman - 2 years ago
Augustabound,

I'm not a fan of the word limit either but I understand their point of view. The point of the articles is to give people ideas at which point they should be doing their own due diligence. I am not too familiar with Gurufocus-I did not submit this article to their site it was picked up indirectly.

With that being said, in my opinion the greatest strength of sites like these is the collective knowledge sharing of the users. When the comments section is used to debate the merits of the company in focus or ask specific questions then it becomes a powerful tool for investors.

I am not saying that C.W.R does not have the right to question the quality of the analysis but without asking any specific questions it does not add anything to the discussion. I would be happy to delve into specific aspects of the company but I can't do that without a starting point.

The below is another article I wrote that illustrates this point. The article itself is the same length as the one above but the real value is derived from the debate and questions in the comment section:

http://seekingalpha.com/article/400391-stealthgas-company-hits-a-crossroads

Again, this is just my opinion.

augustabound
Augustabound - 2 years ago


Augustabound,

I'm not a fan of the word limit either but I understand their point of view. The point of the articles is to give people ideas at which point they should be doing their own due diligence. I am not too familiar with Gurufocus-I did not submit this article to their site it was picked up indirectly.

With that being said, in my opinion the greatest strength of sites like these is the collective knowledge sharing of the users. When the comments section is used to debate the merits of the company in focus or ask specific questions then it becomes a powerful tool for investors.

I am not saying that C.W.R does not have the right to question the quality of the analysis but without asking any specific questions it does not add anything to the discussion. I would be happy to delve into specific aspects of the company but I can't do that without a starting point.

The below is another article I wrote that illustrates this point. The article itself is the same length as the one above but the real value is derived from the debate and questions in the comment section:

http://seekingalpha.com/article/400391-stealthgas-company-hits-a-crossroads

Again, this is just my opinion.

That's fair enough.

I just liken SA to the CNBC of the web, so the way you wrote about the articles intent for SA threw me a bit. It sounded more like it was posted here as an after thought. (But I see as you mentioned above, it was not posted by you).

Detailed analysis is usually appreciated here and most posters are fair in their critques. (Most :) )

BTW SA's word limit is more about the attention span of their readers. ;)

Check out Geoff Gannon's articles, they're always pretty lengthy, but are among the most read articles here.
Cornelius Chan
Cornelius Chan - 2 years ago
@stevereiman: my comment on the above article posted by your friend was a collegial prodding, nothing more. We are all passionate about our value investing writeups here - the reason this is the best value investing site on the Net. In my original comment can be found the reasons for my dissatisfaction; I won't repeat them again.

Now, if your friend had posted what I later read on your website classicvalueinvestors.com about Monument Mining, well, there would be no problem. The articles entitled Monument Mining - Insanely Cheap and Monument Mining – Growing at 100%, Yet Trading at a P/E Ratio of 3 are well researched, well written articles with lots of numbers, facts & figures, charts and even some video!

If your friend had posted that content here, or provided links in his original article indicating to readers more information to be found at said website, there would be no problem. I really enjoyed the writeups on classvalueinvestors.com and look forward to reading more articles either here or on your site.

For the record, my position on criticism is that it must always be constructive. As learners of the high art of value investing, we must both seek and give constructive criticism. Do you agree? [u][/u]
SapientInvestor
SapientInvestor - 2 years ago
An interesting Idea. I will look into it further. Thanks for sharing.
stevereiman
Stevereiman - 2 years ago
C.W.R,

I am assuming you are referring to me in your entire post. In that case, I just want to clear up that I do not run classicvalueinvestors, Mariusz does. I found Monument Mining through his website and had intended to post my resulting writeup at seekingalpha as they had no information on the company and I was trying to spread the word and possibly get a debate going about the company. I found out that they do not allow postings on companies that are under $100M so Mariusz offered to put my writeup on his blog until it passed that mark, an offer I accepted. That is how the writeup ended up on gurufocus.com

I understand your point regarding needing more detailed analysis but I don't necessarily agree with it. In my opinion bigger is not always better. I could have made this article 4X as long, filled it with charts, videos, dozens of ratios etc. but at the end of the day, my thesis is going to be the same:I believe the company valuation is going to substantially appreciate based on their plant expansion at Selinsing, which will drastically increase their cash flow, as well as the development of the newly acquired Mengapur project. That thesis would get lost if this article was 3,000 words.

If someone wanted to challenge the 100K oz a year production rate, want more detail on the plant expansion or more exact production plans for Mengapur I would be happy to have that discussion. Some of these questions I would be able to answer, some I would not but the questions and debate would lead to a much deeper understanding of the company.

Based on your initial comments, it seemed like this article made you look at the company which is a welcome outcome. You then came back and wanted more information. However, instead of asking specific questions that would get a discussion going you dismissed the article entirely. So now we are we not only deprived of a possibly productive discussion regarding the company but you could also be possibly passing up on a potentially lucrative investment opportunity.

Steve
batbeer2
Batbeer2 premium member - 2 years ago
As learners of the high art of value investing, we must both seek and give constructive criticism.

And all this time I thought this was about sharing your thoughts on an open forum.

I now understand contributors are expected to write well researched, well written articles with lots of numbers, facts & figures, charts and even some video!

Else, there could be reasons for my dissatisfaction

But there's hope: if your friend had posted what I later read on your website classicvalueinvestors.com about Monument Mining, well, there would be no problem

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide