fundamental research corporation feb 24 2011

8/6/2019 Fundamental Research Corporation Feb 24 2011

1/9

Investment Analysis for Intelligent Investors

Siddharth Rajeev, B.Tech, MBA, CFAAnalyst

February 24, 2011

2011 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA, CF

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Monument Mining Ltd. (TSXV: MMY; Frankfurt: D7Q1) Commercial Production Declared;Reported Revenues of $6.61 million in September 2010 - FINAL REPORT

Sector/Industry: Junior Mining/Gold www.monumentmining.com

Market Data (as of February 23, 2011)

Current Price C$0.70

Fair Value C$0.90 ()

Rating* BUY

Risk* 4 (Speculative)

52 Week Range C$0.24 - C$0.74

Shares O/S 172.98 mm

Market Cap C$121.08 mm

Current Yield N/A

P/E (forward) N/A

P/B 1.95

YoY Return 118.8%

YoY TSXV 54.6%*see back of report for rating and risk definitions

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

23-Feb-10 24-Jun-10 23-Oct-10 21-Feb-11

$0.00

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

$0.80

Investment Highlights:

The company announced on September 20, 2010, thecommencement of commercial production at the Selinsing GoldProject in Malaysia. The facility is currently operating at a rateof 30,000 tons per month.

As of September 30, 2010, the project had produced 22,843ounces of gold.

Q1-2011 (quarter ended September 2010) reported revenueswere $6.61 million from gold sales of 5,150 oz. Gross profitsfrom mining operations were $5.52 million (based on a cashcost of $212/oz).

The Carbon in Leach circuit (Phase II of development) has beenup and operating since July of this year.

In August 2010, the company completed a $13 million financingcomprised of $8 million in convertible notes and a $5 millionforward sale of gold.

Subsequent to closing the financing, the company completed anacquisition of an additional 32,000 acres of exploration land inMalaysia along trend and east of the Selinsing Gold Project.

We expect the company to report $42.56 million in revenuesand net income of $25.55 million ($0.13 per share) in FY2011.

We have raised our fair value estimate from $0.50 to $0.90 pershare.

Key Financial Data (FYE - June 30)

(C $) 2010 Q1-2011

Cash & Cash Equivalents 3,709,468 18,376,210

Working Capital 6,707,453 25,690,722

Mineral Assets + PPE 50,109,005 52,678,823

Total Assets 60,665,252 81,159,194

Revenues - 6,611,494Net Income (Loss) (2,936,587) 2,607,888

EPS (0.02) 0.00

Monument Mining is focused on epithermal gold deposits in Malaysia. Commercial production at the Selinsing GoldProject in Pahang State was achieved in September, 2010. The mine is currently operating at a rate of 30,000 tons pemonth and as of September 30, 2010, hasproduced 22,843 ounces of gold.


2/9

Monument Mining Ltd. (TSXV: MMY) Update Page 2



Selinsing Project

Update

Declaration of Commercial Production: On September 20, 2010, the companyannounced the official commencement of commercial production at the Selinsing GoldProject in Pahang State, Malaysia. The newly built gold treatment plant has an operatingcapacity of 400,000 tons per annum and as of September 20, 2010, has been operating at anaverage monthly mill throughput of 30,000 tons for 30 consecutive days. Total gold

recoveries have averaged 90%.

The key project development milestone achieved since our previous update (released Jan 82010) is certainly the commissioning of the Carbon In Leach (CIL) gold recovery circuitThis was Phase II of the development program and was originally to be completed byDecember, 2009. The delay in commissioning of the CIL circuit was due to the companybeing delivered defective agitators (a key component in the CIL circuit). After receipt onew agitators, the company was able to commission the circuit in July of this yearCompletion of Phase II allowed the company to move towards commercial production.

The company recently completed a 22 hole, 4,000 metre drill program on the Selinsing

deposit aimed at upgrading some (or all) of the 0.39 million ounce inferred gold resourceUpdated estimates for the project are anticipated in March, 2011.

Production - Since the commissioning of the gravity circuit in September 2009, thecompany produced and sold 13,793 oz, and generated revenues of $16.32 million and anoperating profit of $13.31 million through June 2010. Subsequently, in Q1-2011 (quarterended September 2010), the company produced 9,050 oz and sold 8,650 oz to generate$10.94 million in revenues. All the revenues prior to commercial production were notreported as revenues in the income statement, but were offset against capital expenditures inthe cash flow statements. Therefore, Q1 statements include only September 2010 revenueswhich is when commercial production was announced. Q1 reported revenues were $6.61million from gold sales of 5,150 oz. Gross profits from mining operations were $5.52million (based on a cash cost of $212/oz - which, we believe, is extremely encouragingconsidering the expected cash cost over the life of the project is US$346/oz).

Source: Company


3/9




Opening

Ceremony in

Malaysia

New Site Images

As of September 30, 2010 the company had produced a total of 22,843 ounces of gold

from the mine.

The official mine opening ceremony was held in October 2010. About 500 people, includingthe Chief Minister of Pahang State, State Cabinet members, state officials, local community

leaders and shareholders, participated in the opening ceremony. According to the companythe Chief Minister said, "Gold mining gave a larger contribution in the economic spill-overto the local community. We want to assure our investors that the state government wilcontinue to assist in their business ventures - which we believe is encouraging.

The mine site currently has over 135 employees and mine contractors on site. A few imagesof the site follow:


4/9




Buffalo Reef and

Famehub

Source: Company

Now that Phase II construction is complete and commercial production has been achieved atSelinsing, we believe that the focus of the companys upcoming work will be on furtherdeveloping its portfolio of exploration properties also within Pahang State, Malaysia. The


5/9




companys exploration portfolio includes Buffalo Reef and the recently acquired FamehubProperty.

Buffalo ReefThe company is currently undertaking a 33 drill hole exploration program for the Buffalo

Reef project. The program is budgeted at $0.8 million and includes 2,500 metres of RCdrilling and 3,200 metres of diamond drilling. The program is an extension to the 2008 drilprogram and is aimed at converting the historic and JORC Code compliant resources to NI43-101 standards. Historic and JORC Code compliant resources stand at approximately0.19 million ounces.

Figure 1: The Buffalo Reef exploration property in relation to the Selinsing Gold Project.

The Selinsing treatment plant is located at the Proposed New Plant Site. This centrallocation will allow ore from additional surrounding properties to be processed at the

facility. (Source: Company)

Famehub PropertyOn September 14, 2010, the company announced the completed acquisition of 100% of theissued and outstanding shares of Famehub Venture Sdn Bhd (Famehub), a companyincorporated in Malaysia. The acquisition purchase price was $1.5 million in cash and 14million common shares of Monument. Famehub holds rights to approximately 32,000 acre

of prospective exploration land to the north of Buffalo Reef, along trend and east of theSelinsing gold mine (Famehub Property).

Also included in the acquisition was a technical information and exploration databasepackage relating to the Famehub Property. Over AUS$40 million in expenditures has been put into exploring the Famehub Property by previous operators. The companys planneexploration program for the Famehub property will focus on drill targets generated from thisdata. The initial program, budgeted at AUS$1.6 million, is expected to span 12 months and


6/9




Financials

will include 61 drill holes (7,440 metres RC, 1,500 metres diamond drilling).

Figure 2: Claims composing the Famehub Property. Should ore production be achieved aone of these properties, it would likely be transported to the Selinsing treatment plant to the

southwest for processing. (Source: Company)

At the end of Q1-2011 (quarter ended September 30), the company had $18.38 million incash and cash equivalents. Working capital and the current ratio were $25.69 million and10.43x, respectively. As mentioned earlier, Q1 revenues were $6.61 million. The companyreported net profit (excluding unrealized gains of $1.90 million) of $0.71 million (EPS$0.00). Net profit would have been $4.14 million excluding a non-cash loss onderivative liabilities of $3.43 million. The following table shows the companys cash andliquidity position at the end of FY2010.

(C $) 2010 Q1-2011

Cash & Cash Equivalents 3,709,468 18,376,210

Working Capital 6,707,453 25,690,722

Current Ratio 2.85 10.43

LT Debts/ Assets 0% 13%

Cash from financing activities (156,741) 11,257,200

We expect the company to report $42.56 million in revenues and net income of $25.55

million ($0.13 per share) in FY2011.

In August 2010, the company completed a $13 million financing, comprised of $8

million in convertible notes and a $5 million forward sale of gold.


7/9




Valuation

The convertible notes have a term of five years and must be repaid at the end of the term incash at 121.67% of the principal amount, with an early repayment option. Each convertiblenote can be converted into a unit at a price of $0.40 with each unit comprising one commonshare of the company and one common share purchase warrant (exercise price - $0.50 pershare; maturity - five years). The company also granted options to purchase an aggregate of

5,714 ounces of gold at a price of $1,000 per ounce and 2,857 ounces of gold at a price of$1,250 ounces for the convertible note holders at any time during the term of the notescommencing 18 months after closing.

The forward sale will be repaid in gold. The forward sale has a term of five years. Warrantsfor the purchase of 5 million shares with the same terms as described in connection with theconvertible notes above were also issued.

Stock Options and Warrants: We estimate the company currently has 28.40 million stockoptions (weighted average exercise price of $0.38) and 81.18 million warrants (weightedaverage exercise price of $0.49) outstanding. All the options and warrants are currently

in the money. The company can raise up to $51 million if all these options andwarrants are exercised.

The company recently made an application to the TSX Venture Exchange to extend thematurity date of the outstanding warrants from July 2011 to July 2012.

Our revised DCF valuation is $0.87 per share, up from our previous estimate of $0.48 pershare. A summary of our valuation model is shown below.

Resource (in tonnes) 16,177,480

Contained Metal (in troy oz) 695,953

Recovery 90.0%

Mine Life (in years) 13

LT Gold Price (in US$/oz)2011 - $1,350/oz, 2012 - US$1,300/oz, 2013 -

US$1,150/oz, 2014 - US$1,1000/oz

Average Operating Costs (US$/oz) US$346/oz

Discount Rate 10.0%

LT - C$/US$ 1.10

Net Present Value $185,211,990

Working Capital - LT Debt $19,688,939

Net Value $204,900,929

No. of shares (diluted) 236,000,524

Value per share $0.87

DCF Valuation Summary

*The number of diluted shares were estimated based on the treasury stock method.


8/9




Rating

Risks

We made the following significant changes to our model:

Lowered discount rate from 12.5% to 10.0% to account for lower risks (due to theachievement of commercial production).

We now use 100% of Selinsing's indicated and inferred resource estimate

previously, we used to discount inferred resources by 50% for conservatism Raised our long-term (2014+) gold price forecast from US$750 to US$1,000/oz

since our previous report on MMY in January 2010 (our near-term forecasts areprovided in the above table).

The sensitivity of our valuation to changes in our long-term gold price forecast is shownbelow.

Sensitivity Analysis

Gold (US$/oz) Fair Value ($/share)

$0.87

$700 $0.63

$800 $0.71

$900 $0.79

$1,000 $0.87

$1,100 $0.95

$1,200 $1.03

$1,300 $1.10

We reiterate our BUY rating and raise our fair value estimate from $0.50 to $0.90 per

share. We have also lowered our risk rating from 5 (Highly Speculative) to 4

(Speculative).

The following risks, though not exhaustive, may cause our estimates to differ from actuaresults:

The value of the company is dependent on commodity prices.

The success of drilling, project development and resource expansion are importanlong-term success factors for these projects.

The company is in early stages of production.

Our fair value estimate will be negatively impacted if any of the inputs used in ourmodels moves unfavorably.


9/9




Fundamental Research Corp. Equity Rating Scale:Buy Annual expected rate of return exceeds 12% or the expected return is commensurate with riskHold Annual expected rate of return is between 5% and 12%Sell Annual expected rate of return is below 5% or the expected return is not commensurate with riskSuspended or Rating N/ACoverage and ratings suspended until more information can be obtained from the company regarding recent events.

Fundamental Research Corp. Risk Rating Scale:1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industrThe future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure conservative with little or no debt.

2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitivto systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flow(though current free cash flow may be negative due to capital investment). The companys capital structure is conservative with little to modest use of debt.

3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitivto economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, ancoverage ratios are sufficient.

4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or inturnaround situation. These companies should be considered speculative.

5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven product

Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external fundinThese stocks are considered highly speculative.

Disclaimers and DisclosureThe opinions expressed in this report are the true opinions of the analyst about this company and industry. Any forward looking statements are our best estimates anopinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctnesThere is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. FRC does not own any sharof the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subjecompany. Fees were paid by MMY to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independenincluding setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysmay not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports a

protected contractually. To further ensure independence, MMY has agreed to a minimum coverage term including an initial report and three updates. Coverage can nbe unilaterally terminated. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available delayed access users through various other channels for a limited time. The performance of FRCs research is ranked by Investars. Full rankings and are available www.investars.com.

The distribution of FRCs ratings are as follows: BUY (73%), HOLD (7%), SELL (4%), SUSPEND (16%).

To subscribe for real-time access to research, visit http://www.researchfrc.com/subscribe.php for subscription options.

This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stocks performance inherently involve risks anuncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but anot limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/servicescompetitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By makinthese forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequeupdates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter.Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIINFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYTALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONERISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUUNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION I

YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as beingcomplete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently prepareunless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is availabupon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credincluding citing Fundamental Research Corp and/or the analyst, when quoting information from this report.

The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entityin any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.

fundamental research corporation feb 24 2011

Documents