After nine years in a bear market, Monument (MMY on TSXV) looks interesting. Yes, it has been nine years of constant pain for the gold miners. Now, Coronavirus is changing everything.
I have heard all kind of opinions about Coronavirus. Some people are taking it lightly. Others are seriously worried. I am not too worried (maybe I should) about the virus itself but about what it can cause to the economy. It is definitely impacting the economy negatively and it will continue to do so until it is gone or contained. People are cancelling their vacations, avoiding cruises and restaurants, etc. Those businesses, especially if they have debt, will be in tough shape firing employees left and right to survive.
In other words, we are going into an economic slowdown. We don’t know if the slowdown is going to be deep or shallow. Either way, the Fed is going to fight it with rate cuts and easy money. Gold is understanding this and that’s why it is soaring.
This is a big change. Before Coronavirus, no one really cared about gold. The Fed was on the way to normalize interest rates and boom the Fed has to reverse its course. This is all during the time that the gold miners have been beaten to death. No one is paying attention. This brings me to Monument Mining.
The company is producing, has no debt, owns three assets ($250 million on the balance sheet) and the stock is trading for $15 million which is pretty much cash in the bank.
The three assets are Selinsing, Murchinson, and Mengapur. Murchison was purchased years ago for about $15 million. Now, it is worth probably $30 million. Mangapur was purchased for $90 million. I have no idea what it could be worth but more than zero.
What interests me the most is the Selinsing Gold Mine which is a producer. It is a gold producer from oxide ore. The company has been saying for years that it will eventually run out of oxide ore and will need to covert the plant to process sulphide ore. The cost of conversion will be $54 million. However, the company continues to find more and more oxide ore and there is still a sizeable exploration potential. But for now, let’s ignore all this. Let’s just say that the oxide ore is gone and there is no exploration potential.
In January 2019, the company published a feasibility study showing the economics of the sulphide ore. It showed a mine life of 6 years and production of 223,000 ounces of gold. The cash flow after taxes over the six years is $99 million. So the idea is that the company invests $54 million for the plant conversion to get $99 million back in six years. Not bad, but it not something that makes a lot of people interested or excited.
Now fast forward to today. Coronavirus is a game changer. Gold is not at $1,300. It is at $1,650. Now the cash flow over six years is going to be $180 million. That’s a lot of value for a market cap of US $15 million. This is more than 10 times the current market cap. No one is paying attention.
With that being said, I don’t think gold is done going up. We didn’t even see the slowdown show up in GDP numbers or quarterly reports from corporations. The Fed just had an emergency rate cut. I think we are looking for the next two years with the Fed fighting the slowdown, recession, or whatever you want to call it. People are still in denial. The market barely went down. Gold barely went up.
Anyway, I could totally see gold going to $2,000 just based on the investment community realizing they need to own gold and the Fed just starting to fight the slowdown. Under $2,000 gold scenario, Monument would be bringing in $250 million of cash flow from the 6 years of Sulphide production. Compare this to $15 million market cap, this is 17 times. I think this is interesting.
And I am not even talking about the other two assets. Also I am ignoring oxide exploration potential. Just sulshide at Selinsing. I don’t think Monument should be trading at cash under such circumstances.
Disclosure: Long MMY for way too many years