Medusa Share Discussion Threads

[ned] 11/4/2015 11:56

Good luck in the opening auction arja. I'm off now, maybe things will go better without me watching for a week.

[jimbowen30] 11/4/2015 11:28

Justin/Chip

I think it would be well worth raising the question of paying out a set % of earnings as dividends to management. GD still holds a good number of shares, so would benefit him too. CEY are starting to pay a good dividend now and it is settling them apart in the gold mining sector.

I will try and attend the presentation, but depends on work commitments.

Jim

[arja] 11/4/2015 10:35

I certainly got that wrong and a really nice bounce for gold to 1208 and MML should benefit on monday .

[chipperfrd] 11/4/2015 09:17

Hi Justin,

Yes, I'm coming round to that point of view as well.

Market conditions for gold producers have changed considerably over the last few years and share holders want returns rather than production growth. So the original plan to rebuild cash to c. US$200m for the development of Bananghilig before the resumption of dividends should probably be revised in favour of dividends first and a delayed development of Bananghilig - if the new mining law still allows an attractive IIR of course!

At a constant US$1,200 gold, a 25% slice of FCF could return c. A$ 4c/share for FY15, 6c for FY16 and 10c for FY17, according to my model.

Such a move by management would surely improve the market multiple whereas launching into another 2-3 years of development outlays for Bananghilig would appear totally at odds with current sentiment towards the miners.
Chip

[justinjjbuk] 10/4/2015 21:40

All

I intend to go along to the presentation next week as well.

With a valuation at just 3 times earnings, it appears that the market just doesn't believe that earnings are sustainable. I would have thought that the recent release on the mine geology and service shaft plan would have given the market a bit more comfort over the longevity of the mine, but the market didn't react that way. I think this is an indication of how badly confidence in MML management was damaged under the old team.

I still believe that the key to lifting the share price is the reinstatement of the dividend (not listing on LSE). Dividends are the ultimate demonstration that free cash flow is truly "free". The market currently believes that MML free cash flow is a) not truly free as sustaining costs are low-balled or b) will be squandered in upstream development activity on different sites from Co-O that are high risk.

I think current management has done a pretty good job of demonstrating that "this time is different" and a) and b) aren't a reflection of reality. Yet Mr. Market has been so badly bruised by past guidance from MML that it doesn't appear to care what current management says at this stage - just look at the PER. I think the market is saying loud and clear "show me the money", and dividends are real money that goes into people's pockets while earning aren't.

If I were management and wanted to boost the stock price, I would announce that 25% of after-tax earnings would be returned as dividends. If Chip's numbers are correct, this would still give management plenty of cash for all their documented Capex needs. But far more important is that it would signal to the market that management actually believes in its own numbers.

[swallowsflysouth] 10/4/2015 21:23

Sorry Chip i wasn't very specific, i'm really thinking about all types of energy costs what ever the source. My thinking was somewhat woolly, been driven by oil prices, Phillippine energy issues, the reasoning behind MML building their own power station being another major question mark in my mind, so many possibilities there.

Should be a interesting presentation.

Would be good to meet even if briefly.

sfs

[chipperfrd] 10/4/2015 20:15

SFS,

I certainly see a benefit flowing from the coal-fired power station project - through both independence from the grid and fixed forward costs per MWh. But your original question appeared to be in relation to the drop in oil prices since last summer, so I only addressed that.

I will definitely try and meet up prior to the presentation but cannot be totally sure about my arrival time - but I will look out for you both in the bar.

All the best
Chip

[swallowsflysouth] 10/4/2015 19:13

Thank you Stevea and Chip for your input in helping my understanding but as the Phillippines have serious difficulties with power failures i wasn't sure how often the generator is used and what it costs, but had assumed there reasoning for wanting there own power station which would provide a more dependable source of power would seriously help with costs as well as be another source of income. It could of course simply be that they need that extra power capacity to expand their mining operations.

If you have time it would be good to speak to you Chip prior or after presentation.
I'm fairly easy to recognise as I'm a elderly female with silver/grey hair and a olive skin and there isn't to many females at these events although another female investor and goldminer will be with me!

Stevea would be really good to see you and i do think there is a possibility that MML are thinking of re-listing in London and the more interest shown in them doing so then the more likely there are to do so.



sfs

[chipperfrd] 10/4/2015 14:04

SFS,

Cash operating costs have been reasonably consistent over time (with a few peaks and troughs along the way). So no, I don't think the relatively recent fall in world oil prices have impacted any results so far in a meaningful way. In any case, their main source of energy is from the grid with an oil generator being used as a back-up.

Cash costs per quarter ($/oz):
Dec12 = 279
Mar13 = 296
Jun13 = 355
Sep13 = 339
Dec13 = 526
Mar14 = 398
Jun14 = 431
Sep14 = 382
Dec14 = 380

Average = 376 for the above period.

If, however, you are referring to AISC (all-in sustaining costs) then it has all to do with investment outflows as AISC is a function of:- 'cash operating costs + sustaining costs + G&A' relative to oz sold.

Up until Jun14 they were still expending a fair chunk of investment outflows on Capital works due to the expansion programme. Since then capital works outlays have dropped and therefore the AISC has improved quarter on quarter.

eg. total investment outflows + G&A by recent quarter ($m):

Jun13 = 25.4
Sep13 = 24.6
Dec13 = 17.4
Mar14 = 16.6
Jun14 = 25.7
Sep14 = 18.0
Dec14 = 16.3

Showing a declining trend for this FY whilst OPCF (operational cash flow) has been moving up.

eg OPCF by recent quarter ($m):

Dec13 = 8.5
Mar14 = 14.6
Jun14 = 15.2
Sep14 = 18.7
Dec14 = 22.1

and as OPCF has risen above investment outflows the company has generated free cash flow (FCF) which is adding to cash resources.

But in terms of your question, the investment outflows are now just reflecting sustaining costs rather than sustaining plus development capital costs and are currently reducing quarter-on-quarter irrespective of any marginal savings on back-up oil outlays. And also, unit costs improve as production levels rise (ie there are more sold oz per all-in costs).
Chip

[stevea171] 10/4/2015 13:39

SFS. Probably not too much! The big savings would be made by the open pit gold miners on their excavators and haul trucks use of diesel. Here mainly on the haul trucks from the mine to the mill.

I don't think mains electricity charges will have declined much or at all as this is mainly hydro generated in Medusa's area.

[swallowsflysouth] 10/4/2015 13:10

There is something bothering me that i have not found the answer to - where MML have been reducing costs does anyone know how much of this can be attributed to falling energy costs ?

sfs

[nielsc] 10/4/2015 12:55

chipperfrd,

It was worth waiting for your post though ;-)

As you said, what MML is currently achieving merits a much higher share price. Hopefully the full year report along with a gradually increasing gold price should see sentiment towards MML change for the better.

Cheers,
Niels

[chipperfrd] 10/4/2015 12:22

Steve & Niels,

We appear to be on the same page! I took so long to write that post that I did not see yours until I had finished.
Chip

[chipperfrd] 10/4/2015 12:12

Hi Goldminer70,

Irrespective of earlier forecasts I am simply working on the current data as supplied by MML.

I think it is clear that the L8 shaft has not performed as originally expected - hence the recent upgrade and the addition of the new service shaft. The reasons for this under-performance are now history and it is better to focus on what will now be achieved under this new management as they strive to enable the mine to match the capacity of the enlarged mill.

The recent presentation has added further detail that helps to explain the difficulties encountered over FY14 along Level 8, namely the 'shatter zone' which is peripheral to the diatreme and which has hindered development on Level 8 (and obviously on all other levels & veins). But now that they have confirmed that this is a consistent issue they are able to model the mine plan around it and consequently save on resources that would have been otherwise wasted in this specific area of each vein.

With regard to my own estimates going forward, I am using their guidance for available hoisting capacity to inform my calculations of ore available per quarter for milling.

Throughput is a function of tonnage milled x grade x recovery. Tonnage is limited to 180kt/qtr until the service shaft is completed around September 2016. Recovery appears stable at 93%. So that just leaves grade as the singular variable which will determine production.

The grade is a blend of development ore and stope ore at a ratio of approximately 30:70 and the development ore is approximately 50% diluted by unavoidable waste. But our best guide as to head grade going forward are the grades being achieved over recent quarters, ie June (4.99), Sep (5.02), Dec (5.56). Based on that I am estimating a gradual increase to c. 6g/t by Dec15 - but clearly this could well be an under or over estimate!

This is how I have come to my own estimates for production. However, irrespective of our own forward estimates, the situation looks far better than it did a year ago. They have already exceeded their previous quarterly record for gold production and look set to further improve their level of production now that the hoisting capacity limit is raised to 180kt/qtr - so increased revenue (depending on average PoG of course!) and declining unit cash costs as mill capacity becomes more fully utilised.

There is also the current large disparity on the ASX based on their earnings and current share price. This implies a P/E market multiple of just 3x which for a producer that is clearly growing production is a severe under-valuation (IMO). Rationally, this should be rectified in time as more data is reported and actual full-year earnings and AISC are made clear.

I do appreciate your comments regarding their original planned production target of 200koz pa for the expansion, but I have revised down my own expectation of what can be realistically achieved. As mentioned above, it will come down to grade!

For FY17 (once the service shaft is fully operational and they are milling c. 204kt/qtr) I get the following production levels at differing grades:

5.50g/t = 134koz
5.75g/t = 140koz
6.00g/t = 146koz
6.25g/t = 152koz
6.50g/t = 158koz
6.75g/t = 164koz
7.00g/t = 170koz

I don't believe that the original 200koz target is achievable unless there are significant improvements in grade. I think 150koz pa is a more realistic long term expectation but that would in itself provide justification for a MUCH higher share price.

I will certainly ask GD & RG for their own guidance on average head grade, but I won't be disappointed if they are in the 6-7g/t range.
Chip

[nielsc] 10/4/2015 12:05

goldminer,

Welcome to the MML bb.

I think 50koz per quarter will be some way off unless of course the grade of ore improves. I think the best we can hope for in the near term is something between 30-40koz a quarter.


Say they do get haulage rate up to fill the mill at 2500tpd then at 6g per ton and a 93% recovery rate they will produce around 40k oz per quarter.

Still at 35k oz a quarter that makes for a very profitable mine even at current gold prices.

Cheers,
Niels

[stevea171] 10/4/2015 11:42

Goldminer. It seems that even with the L8 shaft upgrade there is not lifting capacity to achieve 200k oz/year production now, in 18 months, or ever!

Hence the need for further haul capacity in a new shaft ie the new service shaft or truck in 40k oz/year from Bananghilig.

This 200k oz from Co-O and 200k oz/year from Bananghilig was based on the econonomic landscape of a few years ago - ie a rising gold price from $1500 to $1900 and legislative/tax arrangements before the plans for the Philippines government to follow the worldwide trend of increasing tax on the golden goose ie miners to pay for needed development of the country.

SFS. Thanks for your offer. Have not made firm plans to go yet .....

[goldminer70] 10/4/2015 11:00

Chip
Thank you for your post.
In my crude analysis I am using a much more broad brush approach or an overview rather than looking at individual items of kit.

As I understand it the major expansion over the last 3 years was to take the production capacity up from 25,000 to 50,000 ounces per quarter. Also that this expansion was completed in 2014. This is one of the things I want Geoff Davis to confirm or deny next week.
I am unsure if the expansion announced this week was part of the plan to take it up to 50,000 or over and above that level.

I appreciate that even with the kit in place the expansion cannot take place instantaneously, like switching on a tap. So I have said it will take 18 months or 5,000 ounces a month to reach 50,000 a quarter. This will take it up to this time of year in 2016.
You are saying it will increase 2,300 a quarter which will take three and half years.

I have more faith in Geoff Davis and his crew, but we will see ~ hopefully next week.

[arja] 10/4/2015 08:56

might be a godsend Ned as gold price not looking like a recovery today and MMl could dip more on profit taking. ITV is the one to hold or trade at present and a great looking chart as for many UK stocks . enjoy your cruise sport !

[deka1] 10/4/2015 08:42

The low vol trading goes on and small falls with it,we need a good qtr 3 report

[ned] 10/4/2015 08:20

arja
Didn't get my limit order for 91, a bit more of a dip in gold during Sydney market time would have delivered that, maybe. Sailing around the Amalfi coast next week so I'll wish you a pleasant weekend and maybe a "heap" or two next week.

[chipperfrd] 10/4/2015 00:32

Goldminer70,

I am using the hoisting capacity numbers provided by MML in the March presentation. ie.

Pre-L8 upgrade: 135kt/qtr, 1,700tpd.

Post L8 upgrade: 180kt/qtr, 2,400tpd. But given the Xmas break and work on the L8 shaft extending two weeks into January, I thought it unlikely they would hit maximum hoisting capacity over the March quarter - hence my guess of c. 170,000t.

Then c. 180kt/qtr until September 2016 whilst the service shaft is being sunk.

Post completion of Service shaft: 204kt/qtr, 2,700tpd.

They state that this will be the maximum mine hoisting capacity thereafter, including when the L16 shaft is completed, but it will provide c. 200tpd over and above the milling capacity now available.
Chip

[swallowsflysouth] 09/4/2015 23:52

Steve171,
goldminer is coming down from Cheshire to the presentation, he has to catch a train back after meeting hence we are meeting at 4pm in terrace bar, i met him a few years ago at another MML presentation why don't you and anyone else who is able to go meet up in bar come to. A group may be more cohesive in getting Geoff's attention
sfs

[ned] 09/4/2015 19:22

Cheers deka1

arja
Looks like the report is as expected then. Maybe a long mine life needs more proof of costs to get enthusiastic about. Gold price still not helping. Yes I'd settle for "heaps" over slow and steady if I was honest. lol