Medusa Mining - Delivering the goods

Medusa Mining (LON:MML) recently released its Activities Report for the final quarter of 2010 and its key operation the Co-O Mine in the Philippines once again delivered the goods. The mine produced a quarterly record in gold production and continues, on the exploration front, too deliver outstanding results.

It is no surprise that Medusa’s confidence in the Co-O continues to grow. Plans to expand the mines capacity have been put into place and cash flowing from the Co-O mine has allowed an increase in activity at its other project sites. Importantly, the company has not forgotten its shareholders by declaring a maiden dividend in the quarter.

During last year’s final quarter, the company produced a quarterly record with the production of 26,123 ounces of gold, which the company indicated was slightly above their budgeted figure for the quarter. Cash costs were US$185 per ounce which was an improvement on the preceding quarter of US$187.

The company sold 23,224 ounces of gold during the fourth quarter at an average price of US$1,384 per ounce. This price was considerably higher than the US$1,208 per ounce average received over the third quarter of 2010. Medusa is unhedged.

Medusa continues to develop its Co-O mine to ensure mining the ore body is maximised. A number of shaft developments and portals are currently underway to allow access to the vein zones. In addition further resource drilling was undertaken during the period, both surface and underground which has enabled the company to improve its current resource for the Co-O mine. Beyond Co-O, the Bananghilig prospect now has a resource classification with an inferred of 650,000 ounces of gold and other prospects including Anoling, Trento and Suagon are now on the company’s radar.

One particular highlight was the completion of a programme of drilling at Saugon, with 34 holes drilled for a total of 7,493 metres. The Saugon mineral system like that at Co-O is a rich vein system. Assay results from the programme are expected shortly.

The company declared a maiden dividend of US 5 cents per share for the period to 31 December 2010. We expect the company will maintain a progressive dividend policy going forward with dividends rising as the company’s operations can sustain the increase.

For 2011 full year the company has forecast gold production of 100,000 ounces of gold at a cash cost of US$190 per ounce and for 2012 a target in the range 120,000 to 130,000 ounces of gold at a cash cost of US$190 per ounce. In our opinion the company should readily achieve these forecast barring an unforeseen events and in doing so will generate significant cash flow from high operating margins.

This report was produced by Senior Research Analyst, David Lennox.