LON:MML^J17 | Medusa Mining - One For The ISA!! | P3dr036

28th Apr '09 by p3dr036

57 comments 18260 reads

Came across Medusa Mining at the Master Investor Show last Saturday and was most impressed. I listened to two presentations by the MD Geoffrey Davis and had a long chat with Roy Daniel the F.D.on 25th April. This company is dual listed, on the ASX and on AIM, and its shares can therefore be put into a Shares ISA. The company owns the CO-O mine in East Mindanao, in the Philippines and became profitable this year. It is a low cost gold producer with an average production cost of some $210/oz. It is currently producing gold at an annual rate of 50,000 ozs. But this is already planned to be geared up to 100,000 oz/annum by early in 2010. I bought my first tranche of Medusa shares today plus a lot more for my mythical £1M fund on here - which I'm pleased to say is doing well! The company announced a new high grade vein discovery on 1st December 2008 after which the shares have raced away!! Seehttp://www.medusamining.com.au/newsroom/asx/081201_coo.pdf
The company web site is at http://www.medusamining.com.au
Well worth a look in my opinion!!

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p3dr036

11th Mar '10

I haven't posted for a couple of months but I would like to record my appreciation of the recent progress made by Medusa.
1. They announced record half year figures in February. One of the highlights of which was the fact that their cash level was US$31.5 million MORE than at the same period in 2008! This was after producing nearly 40,000 ozs of gold at a cost of less than US$190/oz!!
2.The latest company presentation issued on 1st March made good reading [see http://www.medusamining.com.au/newsroom/asx/100301_presentation.pdf]. They are forecasting a 100,000 oz annual production rate by the end of this year.
3. Following that, on the 8th March, MML announced a 10% bonus share issue of 1 new free share for every 10 shares held on 19th March 2010. These will be issued to shareholders on 31st March 2010.
This last has led to some negative comment elsewhere. Some people saw the issue of new shares as a dilution to their existing holdings and felt the issue was a backward step.
Others [of which I am one] took a more positive line! While accepting that there would technically be a dilution, the likelihood that the share price would continue to increase as the company progressed, meant that any dilution would be lost in the general increase in the share price.
Indeed I actually bought more shares on the announcement and these and the bonus shares are a long term hold! I expect MML shares to be at around 300p by the end of this year.
Peter

marben100

13th Apr '10

Medusa have posted a 15 minute webcast and presentation PDF from the ASX Small- and Mid-caps conference, held in New York on March 16th. Good viewing & reading it makes too. Quarterly results for the third (March) quarter of MML's FY will be issued before the end of April, so we'll get to see whether production remains on track (or, as in the past, beats forecasts).

Some takeaways from the presentation/webcast, with my notes/calculations in italics:

Lowest cash-cost gold producer on AIM & ASX, targetting cash cost of US$190/oz from Co-O (last quarter beat that @ US$184). This is a key attraction for me (when combined with growing production) as it means that MML remains highly profitable, even if the gold price were to drop sharply (though I am not expecting such an eventuality).
5 years reserves at current production rate. Due to narrow vein nature of mine, expect to maintain this level as development proceeds.
Aiming to become 300-400,000oz producer
39,000oz produced in 1st half of FY, leading to NPAT of US$28m (EPS US$0.168); 50,000oz expected for 2nd half. Using $190/oz cash cost, US$1,100 gold price, & allowing US$2m overhead, that leads to an EBIDTA of US$43.5m for 2H.
Cash in bank US$35.5m, expected to build at more than US$10m per quarter.
Co-O location not in typhoon belt, away from areas of unrest, so no security problems.
Mill being upgraded to 1,000tpd. Commissioning underway. Should make an announcement in a week or two that commissioning has been completed. No announcement yet, so ought to be imminent.
750tpd needed to reach 100,000oz p.a. initial target. [plans to utilise remaining capacity to increase production further]
1,600 staff employed, nearly all Filipinos. Keeps costs low & local community happy.
60-70% of costs are fixed
Expending US$18m p.a. on explo - searching for extensions to deposit, allowing new shafts to be sunk to fill remaining 250tpd mill capacity. Implies this could bring annual production to around 133,000oz. Expects to reach this level late this year or in 1st half of 2011.
Mill is 11km from plant. Aim is to find sufficient additional resource at Co-O to justify building 2nd plant, taking production to over 200,000oz. A further 2Moz needs to be found to justify this expansion. Current resources 1.2Moz. Geoff Davis is a geologist and waxed lyrical about Co-O's licences - as geologists tend to do. ;0) However, Geoff has so far delivered on and exceeded his promises, so there are grounds for optimism.
The realistic conceptual explo target for Co-O is estimated to total between 3-7Moz
In first year of 4 year tax holiday, extendible by three 1 year periods [not stated what conditions for extension are], so highly cash generative.
Several other explo targets & discoveries besides Co-O within Philippines licences. Until shown otherwise, however, Co-O and its scope for growth seems to be the real gem.

I am very comfortable with my investment here.

Regards,

Mark

Fangorn

Heya Mark,

Am thinking of slipping some into my ISA for '10/'11 but am awaiting a bit of a pullback as I believe markets in general have overrun themselves.

But definitely an interesting gold producer that's for sure.

14th Apr '10

...and, on cue, forecast-beating results for the March quarter are released today. Some highlights:

25,505oz produced
Head grade 20.6g/t
Cash cost US$180/oz
Commissioning of mill expansion to 1,000tpd completed
Production forecast for FY09/10 raised to 90,000oz (from 89,000oz at the end of the previous quarter and 82,000oz at the start of FY09/10) at an average cash cost of $190/oz (vs $200 forecast). Now producing at an annualised rate in excess of 100,000oz
Cash and cash equivalents rose to US$48.1m, up from US$35.5m at the end of the previous quarter

However, despite these superb results, I noticed a couple of anomalies that I have queried with the company:

Medusa an unhedged gold producer, did not sell any gold during the quarter and retained its entire gold production for the quarter as bullion or on metal account.

Maybe the company decided it was so cash-rich, that it preferred to hold some of its treasury as gold bullion, as an inflation hedge?

Secondly, it appears that the mill utilisation is way below capacity (even before expansion), though the company has substantial ore stockpiles.

15th Apr '10

Medusa has announced this morning that it is planning to move from AIM to the LSE main market on or about 17th May this year. According to Medusa's MD, Geoff Davis:

It is envisaged that this move will give the Company access to a wider group of investors who recognise the growth potential of the Company in an area that we are confident will develop and be recognised as an important mineral province in the years ahead

With a market cap of close to £500m, Medusa should move straight into the FTSE250 index.

Good oh!

20th Apr '10

There have been pullbacks which are to be expected on profit taking. But with the Co-O mine now runniing at an annual output rate of over 100K ozs per annum, with one of the lowest [if not the lowest] mining cost of sub US$190/oz around, Medusa just goes from strength to strength!

Geoff Davis told investors at last year's Master Investor Show that the company was thinking of paying a maiden dividend in 2010/2011. With the move to the main LSE market next month, I reckon that a maiden dividend is quite likely to happen, perhaps at the time of the annual results which are due in the Autumn.

I found it interesting that MML held onto their last quarter's gold output, preferring not to sell it into the market at this time. I wonder if this was in any way in the light of Andrew Macguire's "whistleblowing" at the recent CFTC meeting??? I assume that most investors will have listened to the interview on King Wold News.

Normally MML sell their gold regularly into the Hong Kong bullion market on a monthly basis. They have chosen not to do this now, preferring to hold the gold themselves. Perhaps Geoff Davis feels that the gold price still has a way to go!

MML have just issued a statement about the commenceent of drilling at their Saugon First Hit Vein Project, with some "tasty" drill results. With that, and the other prospects the company has at the Bananghilig Deposit; Lingig, etc., MML has to be a great investment.

Peter

30th Apr '10

Due to a glitch, my queries were slow to reach Medusa, but I had a response a few days ago. Concerning lack of gold sales:

The Company had sufficient funds to meet its commitments. In addition interest rates on offer for US$ are negligible.

OK, seems like a reasonable diversification of treasury assets, surplus to short term requirements. Concerning mill utilisation:

as disclosed in the announcement of 25th March, mill commissioning was proceeding well at that date. The mill did not start the 90 day period with the capacity of 750tpd.

So, capacity available was less than I had thought. That could mean that we get a jump in production now that 1,000tpd has been commissioned - providing that the amount of black leader material producing the current exceptional head-grades holds up.

17th Jun '10

Since the last posts, Medusa's planned move to the LSE main market has been delayed but is still expected to proceed. Geoff Davis has posted an audio interview on 16th June here: http://www.proactiveinvestors.co.uk/companies/sponsors_landing/1022/medusa-mining-1022.html?interview=youtube_435#youtube_435

Confirms application for admission to LSE still pending
Update to Co-O reserve/resource estimate expected in 2nd half of July (Q4 operating results to June also to be published before end July)
Expects production rate of 100-130koz p.a. from Co-O can be maintained for foreseeable future. Hopes to expand to 200koz p.a. [this will depend on results of explo/resource upgrade]
Hopes to add a further 200koz p.a. from Bananghilig open pit operation. DFS scheduled for completion end 2011, construction to begin 2012, subject to explo results and DFS.
Expects US$60m cash & cash equivalent in treasury by end June. Growing at US$12m per quarter at current gold prices [putting Medusa on a FCF multiple of no more than 15 - not bad for a growing business!]

My comments in [ ]

I topsliced a few, for risk management reasons, when the SP approached 300p in mid-May. Since then I've added that top-slice back plus some extra, making me rather overweight this stock.

On a current P/E multiple of 6.7, reducing to 5 next year, the current price seems like a very good one. Moreover, I feel that based on both past performance exceeding targets and a continuing strong gold price, there is every chance of those multiples going lower on results, with EPS forecasts being exceeded. A move to the LSE should also help, when the low P/E, and exceptionally low operating costs meaning relatively low risk, should stand out, relative to other gold miners.

29th Jun '10

Mark,

Since your last post on 17th June the MML share price has fallen away and is currently runnig at 238p mid price!!
I've been trying to get my head round the reason[s] that may be behind this, what I can only consider to be, an over-reaction by the market.

Possible reasons [with my comments in italics] are:
1. General fall off in the markets overall - probably
2. Fear of the negative effect on mining companies of the Australian super tax proposals- possible, it should not have any effect on MML! But some private investors may not realise that MML are NOT affected by this proposed tax. MML even put out an RNS confirming that!!

3. Concerns by private investors about what they see is delay in getting the move from AIM to the main market underway and presumably may have started worrying that there may be a problem - this is quite a likely factor in my opinion. But I regard it as an over-reaction as the AIM to LSE main market process is lengthy anyway and, I understand, can take around 3 to 6 months and we are still well within that period.

Frankly 237p looks a bargain price to me. [It went down 1p as I wrote this!!]. After all the price was 300p a few weeks back and I can't see that anything about MML has changed since then. But there seems to be sufficient doom & gloom around to drive the price down & down. In the meantime MML keep producing gold at their historical low price of sub-$190/oz!!

Crazy world???

Hi Peter,

I agree. There's a lot of risk-aversion and nervousness out there. Unless Medusa have been having unexpected problems, the June quarter ops report to be issued mid/late July should calm things.

We also have a resource/reserve upgrade for Co-O due late July and then have the final results, likely early September, with the possibility of a dividend being paid. Considering all of that, I can't resist a little top-up this morning. ;0)

Cheers,

Mark

sparky147

1st Jul '10

218p a few minutes ago and I am begining to get the feeling that others know something I dont. I hold a fair few resources and mml has been dropping at about three times the average for the past few weeks. I thought gold gained during times of uncertainty.

I have to say I've been looking at topping up, but the speed of the fall has me uneasy. Share similar concerns as yourself Sparky.

Anyone heard any whispers?

AbAngus

There must be quite a few people who have good made money on MMLs rise over the past year (not me, unfortunately). So maybe some are selling to lock in profits rather than see further decay.... Of course, there could be something wrong with the company but I hope not because I have bought in recently. Perhaps the lack of earnings due to the decision to hold onto last quarter's production rather than sell it has spooked people (see Marben's post #24 above).

Edit: Sorry, Marben's relevant post was number 24 (not 28)!

Soundbuy

Fairfax
Thursday, July 01, 2010
Fairfax Morning View including Shanta Gold, Bellzone, Ampella, Medusa Mining and others

Medusa Mining* (LON:MML) – Market weakness presents opportunity
• We note that Medusa’s share price continues to be eroded, with the Australian market leading down the share price. A number of Australian listed companies are suffering similarly partly as a consequence of the end of the tax year causing investors to sell holdings and book profits.
• Medusa put out good news yesterday with a drilling report identifying possible new veins as well as ongoing mineralisation that form part of a resource/reserve drilling programme. We anticipate a resource and reserve increase in the next month or two that should add value.
• In addition, we expect quarterly and year end results that should demonstrate strong cashflow generation and growing cash reserves.
• This should all provide a stream of positive news flow to lead valuations higher. Our target price of 314p/share could see upgrades from the developments mentioned above, higher gold prices, and exploration results from Bananghilig in the months ahead.
• Valuation: We value Medusa at 314p/share based off an NPV (8% discount rate) of the free cash flows derived from the Co-O mine producing 90,000oz this year ramping up towards 130,000oz by 2012 for a cash cost of US$200/oz and a gold price starting at US$1,100/oz this year falling to US$900/oz long term by 2013. This leads to a figure of US$516m assuming a mine life to 2019 when the resource will be mined out, although ongoing drilling could delineate considerably more resources and convert more to reserves. To this NPV we have applied a 50% premium as the company is an established gold producer. We also value the company’s exploration portfolio at US$52m which comprises of US$32m for the 650,000oz resource at Bananghilig (US$/50/oz in the ground) and US$20m for the remainder of the portfolio. Cash at the end of March stood at US$48m. These elements total US$874m valuation and at an exchange rate of US$1.5/GBP leads to 314p/share fully diluted.
Conclusion: We feel that the opportunity to build a position looks increasingly attractive following recent share price weakness, particularly with a good stream of newsflow expected, strong fundamentals for gold prices, and the low risk from an operating perspective that Medusa presents for investors seeking gold exposure.

5th Jul '10

I still don't see any clear reason why the MML share price is down where it is. It got to 216p a few days ago but has risen a little to 223p.

We are due another quarterly update around the middle of this month. I can't see that the update is going to be anything but positive with more good news. So I expect to see the share price retrace back towards 300p again soon. We are due also news about the move to the main LSE market which we should hear more about in the coming weeks.

And finally, we may get news, possibly when the Annual Report comes out soon, about MML's plans to pay a maiden dividend which Geoff Davis originally mentioned in his presentation at the Master Investor Show in 2009.

All these would provide a big boost to MML and I remain confident.

22nd Jul '10

A couple of weeks later........! And there's still not a lot of movement in the share price! But it is 233-237p as I write this. So it is up around 5% since then. But there's more to come.........

1.We await news of the move to the main LSE Market - more "i" dotting and "t" crossing under way no doubt. When that arrives Medusa should be on the radar of thse institutuions whose mandate does not allow investment in AIM shares.

2. We should be receiving the quarterly report in the very near future. This should show progress towards meeting the target output rate of 100,000 ozs of gold per annum which the company forecast earlier. A quarterly gold oputput of 25-27K ozs is hoped for. So the promised 100K/annum target should be reached

3. The company has just announced a resource upgrade. The announcement said that their y had "increased the Indicated Resource by 4% to 603,000 ounces and increased the Inferred Resource by 36% to 898,000 ounces (excluding production since 9 December 2009). The grade of both categories has also increased" - see http://www.asx.com.au/asxpdf/20100722/pdf/31rg0h2nhyrxn3.pdf

So I remain confident that Geoff Davis and his team will produce the goods and we will see the share price back to +300p in the not too distant future.

6th Aug '10

Mineral Reserve Estimate update....

http://www.investegate.co.uk/article.aspx?id=20100806070100H6215&fe=1

StrollingMolby

30th Aug '10

Annual results issued down under:

http://www.asx.com.au/asxpdf/20100830/pdf/31s6dvnmqrx890.pdf

	June 2010 (US$)	June 2009 (US$)	Variance
Revenue	94.6m	42.8m	121%
EBITDA	73.7m	30.4m	142%
Adj. underlying EBITDA*	79.6m	30.4m	162%
NPAT	65.8m	28.5m	131%
Adj. underlying NPAT*	71.7m	28.5m	152%
EPS	0.378	0.187	102%
Adj. underlying EPS*	0.412	0.187	120%

* MML has bullion awaiting sale at y/e with a value of $5.9m that is classified as inventory rather than revenue in accordance with Australian Accounting Standards.

Cash & bullion at y/e of $55.8m
89,679oz of gold produced in year (+87%)
UKLA approval awaited for main market listing
No dividend

coldsnap

1st Sep '10

Good to see that the company is planning to start paying dividends.
http://www.investegate.co.uk/Article.aspx?id=20100901070400H1756

Miners like Medusa that have high grade narrow vein types of mineralization don't always get the rating they deserve. It's very profitable to mine, but extremely unprofitable to spend a lot of money proving a lage resource. Providing they can find new veins the Co-O mine could go on for years. It may mean, however, that they will never be able to ramp up production sufficiently to attract the attentions of a gold major. So why not give some money back to the shareholders?

CS

3rd Sep '10

Medusa Mining (LON:MML) - Geoff Davis proves up on the promises made in 2009. At the 2009 Master Investor Show he forecast that Medusa Mining would seek to pay a maiden dividend in 2010. And the company has just announced that a dividend of A$0.05 cents will be paid to shareholders on 18th November - subject to a General Meeting to be held on 6th October.

Also in 2009 at the same show, Geoff Davis forecast that MML would be producing gold at an annual rate of 100K ozs [25K oz/qtr] during 2010. Whilst this second promise has taken a little longer than the company anticipated, the recent update showed that they are running at a quarterly rate of 25K ozs output and I expect the rate to improve in the coming months.

As they say "It does what it says on the tin!". Medusa are rapidly gaining a reputation for meeting its targets!

Peter

Medusa Mining - one for the ISA!!

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