A Look At The Fair Value Of Magnum Mining and Exploration Limited (ASX:MGU)

Simply Wall St.

Sep 19, 2025

AdvertisementKey Insights Using the 2 Stage Free Cash Flow to Equity, Magnum Mining and Exploration fair value estimate is AU$0.01 Magnum Mining and Exploration's AU$0.009 share price indicates it ...

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Using the most recent financial data, we'll take a look at whether the stock is fairly priced  by projecting its future cash flows and then discounting them to today's value.  We will use the Discounted Cash Flow (DCF) model on this occasion.  Believe it or not, it's not too difficult to follow, as you'll see from our example!  We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws.  If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. Step By Step Through The Calculation   We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate.  In the first stage we need to estimate the cash flows to the business over the next ten years.   Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.   A DCF is all about the idea that a dollar in the future is less valuable than a dollar today,  and so the sum of these future cash flows is then discounted to today's value:  10-year free cash flow (FCF) estimate  2026202720282029203020312032203320342035 Levered FCF (A$, Millions) AU$451.2kAU$592.5kAU$727.9kAU$851.2kAU$960.0kAU$1.05mAU$1.14mAU$1.21mAU$1.28mAU$1.34mGrowth Rate Estimate SourceEst @ 43.40%Est @ 31.32%Est @ 22.85%Est @ 16.93%Est @ 12.78%Est @ 9.88%Est @ 7.85%Est @ 6.43%Est @ 5.43%Est @ 4.74% Present Value (A$, Millions) Discounted @ 7.0% AU$0.4AU$0.5AU$0.6AU$0.6AU$0.7AU$0.7AU$0.7AU$0.7AU$0.7AU$0.7(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = AU$6.3m The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.1%. We discount the terminal cash flows to today's value at a cost of equity of 7.0%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = AU$1.3m× (1 + 3.1%) ÷ (7.0%– 3.1%) = AU$35mPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$35m÷ ( 1 + 7.0%)10= AU$18m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is AU$24m.  In the final step we divide the equity value by the number of shares outstanding.  Relative to the current share price of AU$0.009, the company appears   about fair value    at a 14% discount to where the stock price trades currently.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. ASX:MGU Discounted Cash Flow September 18th 2025  The Assumptions  We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows.  Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at Magnum Mining and Exploration as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 7.0%, which is based on a levered beta of 0.933. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.   Check out our latest analysis for Magnum Mining and Exploration SWOT Analysis for Magnum Mining and ExplorationStrength Currently debt free. Balance sheet summary for MGU. WeaknessShareholders have been diluted in the past year.Opportunity  Current share price is below our estimate of fair value.  Significant insider buying over the past 3 months.Lack of analyst coverage makes it difficult to determine MGU's earnings prospects.ThreatHas less than 3 years of cash runway based on current free cash flow. Is MGU well equipped to handle threats?  Looking Ahead:  Valuation is only one side of the coin in terms of building your investment thesis, and it  shouldn't be the only metric you look at when researching a company.  DCF models are not the be-all and end-all of investment valuation.  Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\"  If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different.  For Magnum Mining and Exploration, there are three  pertinent  factors  you should further research:   Risks: For example, we've discovered 4 warning signs for Magnum Mining and Exploration (3 shouldn't be ignored!) that you should be aware of before investing here.  Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for MGU's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!   PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the ASX every day. If you want to find the calculation for other stocks just search here.New: Manage All Your Stock Portfolios in One PlaceWe've created the ultimate portfolio companion for stock investors, and it's free.• Connect an unlimited number of Portfolios and see your total in one currency• Be alerted to new Warning Signs or Risks via email or mobile• Track the Fair Value of your stocksTry a Demo Portfolio for FreeHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"}}}